TiVo 2013 Annual Report Download - page 45

Table of Contents
or SAC and caution that our presentation may not be consistent with that of other companies.

   

Sales and marketing, subscription acquisition costs $12,521 $ 8,660 $ 7,392
Hardware revenues (101,788)(68,591)(47,893)
Less: MSOs related hardware revenues 74,498 45,849 31,483
Cost of hardware revenues 96,633 78,183 59,439
Less:MSOs related cost of hardware revenues (56,643)(38,435)(23,577)
 25,221 25,666 26,844
 126 117 114
 $ 200 $ 219 $ 235
As a result of the seasonal nature of our subscription growth, total acquisition costs vary significantly during the year. Management
primarily reviews the SAC metric on an annual basis due to the timing difference between our recognition of promotional program expense
and the subsequent addition of the related subscriptions. For example, we have historically experienced increased TiVo-Owned subscription
gross additions during the fourth quarter; however, sales and marketing, subscription acquisition activities occur throughout the year.
During the twelve months ended January 31, 2014 our total acquisition costs were $25.2 million, which was relatively flat as compare to
the same prior year period Our sales and marketing, subscription acquisition costs increased by $3.9 million, as compared to the same prior
year period due to increased marketing efforts associated with the release and holiday sales of our new Roamio DVRs. This increase in sales
and marketing subscription acquisition costs was offset by a decrease in our hardware gross margin loss of $4.3 million as compared to the
prior year. This decrease in hardware gross margin loss was largely driven by improved economic margins on the Roamio DVRs. SAC
decreased by $19 for the twelve months ended January 31, 2014 as compared to the same prior year period largely as a result of the increase
in subscription gross additions as compared to the same prior year period.
During the twelve months ended January 31, 2013 our total acquisition costs were $25.7 million, a decrease of $1.2 million compared to
$26.8 million during the same prior year period. Our sales and marketing, subscription acquisition costs increased by $1.3 million, as
compared to the same prior year period combined with a decrease in our hardware gross margin loss of $2.4 million as compared to the
same prior year period. This decrease in hardware gross margin loss is largely related to a mix shift towards hardware units sold at a higher
average selling price during the last half of the year ending January 31, 2013, as compared to the same prior year period. The decrease in
SAC of $16 for the twelve months ended January 31, 2013 as compared to the same prior year period was largely a result of the increase in
subscription gross additions as compared to the same prior year period combined with the improvements in the hardware gross margin loss.
Average Revenue Per Subscription or ARPU Management reviews this metric, and believes it may be useful to investors, in order
to evaluate the potential of our subscription base to generate revenues from a variety of sources, including service fees, advertising, and
audience research measurement. Investors should not use ARPU as a substitute for measures of financial performance calculated in
accordance with GAAP. Management believes it is useful to consider this metric excluding the costs associated with rebates, revenue share,
and other payments to channel because of the discretionary and varying nature of these expenses and because management believes these
expenses, which are included in hardware revenues, net, are more appropriately monitored as part of SAC. We are not aware of any uniform
standards for calculating ARPU and caution that our presentation may not be consistent with that of other companies. Furthermore, ARPU
for our MSOs may not be directly comparable to the service fees we may receive from these partners on a per subscription basis as the fees
that our MSOs pay us may be based upon a specific contractual definition of a subscriber, subscription, or a TiVo-enabled device which may
not be consistent with how we define a subscription for our reporting purposes or be representative of how such subscription fees are
calculated and paid to us by our MSOs. For example, an agreement that includes contractual minimums such as our agreement with
DIRECTV may result in a higher than average MSO ARPU if such fixed minimum fee is spread over a small and declining number of
subscriptions as is the case with our DIRECTV relationship. For example, an agreement that includes contractual minimums may result in
a higher than expected MSO ARPU if such fixed minimum fee is spread over a small number of subscriptions. Additionally, ARPU for our
MSO subscriptions may not be reflective of revenues received by TiVo as in certain cases the cost of development for such MSO customer
may be deferred on our condensed consolidated
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