TiVo 2013 Annual Report Download - page 42

Table of Contents
In the fiscal year ending January 31, 2015, we plan to continue to be focused on our efforts to build leading advanced television products,
enter into new distribution agreements, engage in development work for existing distribution customers, and continue deployment activities
for our existing distribution customers. Additionally, we have been and plan to continue to actively protect our intellectual property. We will
continue to focus on the following priorities:
•We expect to continue our efforts to increase our subscription base by adding new subscriptions through our TiVo-Owned
direct and retail sales with the roll out of new products, such as our recently launched TiVo RoamioTM product line (all-in-one
approach to live, recorded, on demand, and over-the-top television), as well as our mass distribution partnerships both in the U.S.
and internationally. We expect to further grow our MSO subscription base during the fiscal year ending January 31, 2015. However,
we expect that net subscription growth in our installed base of MSO subscriptions may be slightly offset by further declines in our net
TiVo-Owned subscriptions.
•We expect MSO hardware revenues and margins to likely decline in future quarters as MSO partners start to transition to
third-party hardware such as Pace and other products which can support our TiVo service. We believe giving operators a choice of
hardware platforms is critical to attracting new MSO customers, and driving increased penetration in current MSO customers.
Although we lose hardware margin in the short term from decreased hardware sales, we believe we gain additional subscribers
through MSOs that would not otherwise be willing to sell the TiVo service.
•We believe that our investment in research and development is critical to remaining competitive and being a leader in
advanced television solutions. Therefore, we expect our annual research and development spending in fiscal year 2015 to continue
to be significant but to be at lower levels than the fiscal year ended January 31, 2014 as we continue to launch and pursue new
product developments including enhanced cloud-based services such as network DVR, a more personalized user experience,
expanded mobile applications, out-of-home streaming capabilities, and a variety of back-office enhancements which increase our
operational capacity to handle more operator deployments.
•We will continue our efforts to protect our technological innovations and intellectual property. However, we expect our
litigation expenses to be significantly lower during the fiscal year ending January 31, 2015.
•We expect to continue our development efforts under our existing MSO deployment arrangements. As part of these
arrangements, we typically receive some payments upfront and a portion over time that is a recoupment of costs to develop. As
such, to the extent that our development costs exceed upfront development fees from such arrangements, but the recovery of such
development costs through future service fees from these MSOs is reasonably assured, we will defer such development costs and
start expensing them in our Statement of Income later upon deployment with the MSO. As of January 31, 2014 we had deferred
costs of approximately $27.2 million related to development work, largely related to Com Hem, ONO, and Charter
Communications Operating, LLC (Charter). However, despite the deferral of these development costs, we do incur cash outflows
associated with these development efforts resulting in potentially higher cash usage in the near term. Also for international MSOs,
when related revenues from service fees are received, they are first recognized as technology revenues until the previously deferred
costs of development of such arrangements are expensed. This recognition of such associated service fees as technology revenues
also negatively impacts the average revenue per subscription (ARPU) for MSOs until such service fees are later recognized as
service revenues, as further discussed below under Key Business Metrics. Based on the contractual commitments or recent MSO
activities, full recovery of the deferred costs is reasonably assured. However, we face the risk of unexpected losses if we are forced to
recognize these deferred costs early if we don't successfully complete the developments and deployments with the MSO partners or
these partners default on future guaranteed service fees or are otherwise able to terminate their contracts with us.
Key Business Metrics
Management periodically reviews certain key business metrics in order to evaluate our operations, allocate resources, and drive financial
performance in our business. Management monitors these metrics together and not individually as it does not make business decisions
based upon any single metric.
Subscriptions. Management reviews this metric, and believes it may be useful to investors, in order to evaluate our relative position in
the marketplace and to forecast future potential service revenues. Below is a table that details the change in our subscription base during the
twelve months ended January 31, 2014, 2013, and 2012, respectively. The TiVo-Owned lines refer to subscriptions sold directly or indirectly
by TiVo to consumers
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