TiVo 2013 Annual Report Download - page 49

Table of Contents
continually during the term of the contract, and revisions are reflected when the changed conditions become known.
In some cases, it may not be possible to separate the various elements within the arrangement due to a lack of VSOE of selling prices
for undelivered elements in the contract or because of the lack of reasonably dependable estimates of total costs. In these situations, provided
that we are reasonably assured that no loss will be incurred under the arrangement, we recognize revenues and costs based on a zero profit
model, which results in the recognition of equal amounts of revenues and costs, until the engineering professional services are complete.
Costs incurred in excess of revenues are deferred up to the amount deemed recoverable. Thereafter, any profit from the engineering
professional services is recognized over the period of the maintenance and support or other services that are provided, whichever is longer. If
we cannot be reasonably assured that no loss will be incurred under the arrangement, we will account for the arrangement under the
completed contract method, which results in a full deferral of the revenue and costs until the project is complete. Provisions for losses are
recorded when estimates indicate that a loss will be incurred on the contract.
Advertising and Audience Research Measurement Services
Advertising and audience research measurement service revenue is recognized as the service is provided. Advertising services are
usually sold in packages customized for each campaign which generally lasts for up to three months. Because of the significant
customization of offerings, we have historically not been able to obtain VSOE of selling prices for each element in the package. Accordingly,
we would combine all elements in the package as a single unit and recognize revenue ratably over the campaign period. As a result of the
updated guidance on multiple element revenue arrangements, we can now estimate BESP for each element in the package and separate
them into individual units of accounting. Nonetheless, the new units of accounting have very similar revenue earning patterns and timing
and the amounts of revenue recorded in each period are not significantly impacted by the new guidance.
Hardware Revenues
Hardware revenues represent revenues from standalone hardware sales and amounts allocated to hardware elements in multiple
element arrangements. Revenues are recognized upon product shipment to the customers or receipt of the products by the customer,
depending on the shipping terms, provided that all fees are fixed or determinable, evidence of an arrangement exists, and collectability is
reasonably assured. End users have the right to return their product within 30 days of the purchase. We established allowances for expected
product and service returns and these allowances are recorded as a direct reduction of revenues and accounts receivable.
Certain payments to retailers and distributors such as market development funds and revenue share are recorded as a reduction of
hardware revenues rather than as a sales and marketing expense. Our policy for revenue share payments is to reduce revenue when these
payments are incurred and fixed or determinable. Our policy for market development funds is to reduce revenue at the later of the date at
which the related hardware revenue is recognized or the date at which the market development program is offered.
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We perform a quarterly quantitative and qualitative analysis of the expected life of a product lifetime subscription which incorporates
historical and future churn rates. Effective November 1, 2011, we extended the period we use to recognize product lifetime subscription
revenues from 60 months to 66 months for product lifetime subscriptions acquired on or before October 31, 2006 and such change is being
recognized on a prospective basis. The new estimates of expected lives are dependent on assumptions with regard to future churn of the
product lifetime subscriptions. As of January 31, 2014, 171,000 product lifetime subscriptions have exceeded the period we use to recognize
product lifetime subscription revenues and had made contact with the TiVo service within the prior six month period. This represents
approximately 36% of our active lifetime subscriptions. We will continue to monitor the useful life of a TiVo-enabled DVR and the impact of
the differences between actual churn and forecasted churn rates. If subsequent actual experience is not in line with our current assumptions,
including higher churn of product lifetime subscriptions due to the incompatibility of our standard definition TiVo units with high definition
programming and increased competition, we may revise the estimated life which could result in the recognition of revenues from this source
over a longer or shorter period.
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We enter into deployment agreements with MSOs, which typically include software customization and set up services, limited training,
PCS, TiVo-enabled DVRs, non-DVR STBs, and TiVo service. We usually incur development cost for which we are in total or in part
compensated through service fees received after a solution
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