TiVo 2013 Annual Report Download - page 11

devices. We provide this design to our contract manufacturer that produces TiVo-branded hardware. The TiVo-enabled hardware design
includes a modular front-end that allows the basic platform to be used for digital and analog broadcast, digital and analog cable, broadband
and in some cases VOD. In addition, the TiVo-enabled hardware design allows for connection to broadband networks and external devices to
enable existing and future services. We believe that the TiVo-enabled hardware design and our lack of dependence on third-party hardware
design, which can delay time to market, allows us to innovate our client software at a faster pace.
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DIRECTV. DIRECTV is the largest provider of satellite television in the U.S. We have had a longstanding relationship with DIRECTV
from 1999 to the present to provide the TiVo service to DIRECTV's customer base. As of January 31, 2014, DIRECTV was our largest MSO
customer by revenue, but no longer represents a meaningful portion of our 3.2 million MSO subscription base. Historically, DIRECTV has
paid us a recurring monthly per-household fee for access to the technology needed to provide its customers the TiVo service subject to an
aggregate minimum monthly amount. However, due to the decline in the number of DIRECTV MSO subscriptions in recent years, in fiscal
year 2014, we recognized the monthly minimum amount each month during the entire year. We incur limited recurring expenses related to
the DIRECTV relationship.
On September 3, 2008, we extended our agreement with DIRECTV. The fees paid by DIRECTV are subject to monthly minimum
payments that escalate during the term of the agreement (which expires on February 15, 2015, unless extended until February 15, 2018 by
DIRECTV) and the revenues from DIRECTV are material to TiVo's net income.
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For our TiVo-Owned service, we provide customer support through outsourced service providers as well as our internal customer service
personnel. In most cases, when our product is distributed through a television service provider (such as DIRECTV, Grande, ONO, RCN,
Suddenlink, GCI, and Virgin) the service provider is primarily responsible for customer support. We may provide training and other
assistance to these service providers.
Individual customers have access to an Internet-based repository for technical information and troubleshooting techniques. They also can
obtain support through other means such as the TiVo website, web forums, email, and telephone support.
We offer a manufacturer’s warranty of 90 days for labor and one year for parts on the DVRs TiVo manufacturers which enable our TiVo-
Owned subscriptions. We contract with third-parties to handle warranty repair. Warranties provided to service providers who distribute TiVo
hardware vary in length depending on the pricing paid by the buyer.
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Our research and development efforts are focused on designing and developing the elements necessary to enable the TiVo service.
These activities include hardware and software development.
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Research and Development Expenses $106.9 $115.1 $110.4
We decreased the number of our regular, temporary, and part-time employees engaged in research and development between
January 31, 2013 and January 31, 2014 as we were able to release a number of products last fiscal year and continued to focus on efficiency
in our research and development expenditures. In the fiscal year ending January 31, 2015, we currently expect our research and
development expense to decrease from fiscal year 2014 levels as we benefit from a full year of efficiencies gained in the fiscal year ended
January 31, 2014 and continue to focus on incremental research and development spend efficiencies.
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We outsource the manufacturing of our products to third-party manufacturers. This outsourcing extends from prototyping to volume
manufacturing and includes activities such as material procurement, final assembly, test, quality control, and shipment to distribution
centers. Today the majority of our products are assembled in Mexico, with the majority of our components delivered from manufacturers
overseas. Our primary distribution center is operated on an outsourced basis in Texas.
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