TiVo 2013 Annual Report Download - page 19

Table of Contents
Furthermore, some of our partners have the right to receive certain most favored terms from us such that if we were to license similar
products and services to other parties at more attractive terms than what such partners receive under their agreements with us, then such
partners may be entitled to receive the new more favorable terms. Additionally, such partners may have the right to terminate their
agreements with us in the event we are subject to certain specified change of control transactions involving companies specified in their
agreements. Further, if any of our partners are subject to a change of control transaction, our business could be harmed if such acquiring
company chose to favor a technology provider other than us, despite the fact that many of our agreements with our partners include
exclusivity provisions, minimum deployment commitments, or minimum financial commitments. If any of these events occur, including
our inability to develop, license, and deploy in a timely, efficient, and on a full-scale basis, we will have difficulty generating revenues and
new subscriptions under these agreements and our business would be harmed.
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
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
In connection with our deployment arrangements, we engage in complex licensing, development, and engineering services arrangements
with our marketing partners and distributors. These deployment agreements with television service providers usually provide for some or all
of the following deliverables: software engineering services, solution integration services, hosting of the TiVo service, maintenance, and
support. In general, these contracts are long-term and complex and often rely on the timely performance of such television service provider's
third-party vendors that are outside TiVo's control. The engineering services and technology we agree to provide and/or develop may be
essential to the functionality of the licensed software and delivered product or such software may involve significant customization and
modification for each customer. We have experienced or may experience delays in delivery with television service providers including, for
example, DIRECTV, Virgin, Suddenlink, Com Hem, and ONO, as well as significant increases in expected costs of development and
performance in certain instances in the past. Additional delays could lead to additional costs and adverse accounting treatments forcing us to
recognize costs earlier than expected. If we are unable to deliver the contracted for technology, including specified customizations and
modifications, and services in a timely manner or at all, then we could face penalties in the form of unreimbursed engineering development
work, loss of subscriber or minimum financial commitments on the part of our partners or in extreme cases the early termination of such
distribution agreements. In any such case our business would be harmed.

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When we enter into deployment agreements with television service providers, we are typically required to make cost estimates based on
historical experience and various other assumptions. These estimates are assessed continually during the term of the contract and revisions
are reflected when the conditions become known. Using different cost estimates related to engineering services may produce materially
different operating results, in addition to differences in timing and income statement classification of related expenses and revenues. An
unfavorable change in estimates could result in a reduction of profit due to higher cost or the recording of a loss once such a loss becomes
known to us that would be borne solely by us. We also recognize revenues for software engineering services that are essential to the
functionality of the software or involve significant customization or modification using the percentage-of-completion method. We recognize
revenue by measuring progress toward completion based on the ratio of costs incurred, principally labor, to total estimated costs of the project,
an input method. If we are unable to properly measure and estimate our progress toward completion in such circumstances, we could incur
unexpected additional costs, be required to recognize certain costs earlier than expected, or otherwise be required to delay recognition of
revenues unexpectedly. A material inability to properly manage, estimate, and perform these development and engineering services for our
television service provider customers could cause us to incur unexpected losses and reduce or even eliminate any profit from these
arrangements, and in such a case our business would be harmed.

DIRECTV is our largest MSO subscription customer by revenue, but no longer represents a meaningful portion of our 3.2 million MSO
subscription base. 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
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