TiVo 2013 Annual Report Download - page 8

We conduct our operations through one reportable segment. See Part II, Item 6, Selected Financial Data for our historical financial
results. In our fiscal year ended January 31, 2014, we had net income of $271.8 million and cash provided by operating activities was
$495.0 million, which was primarily driven by the Motorola/Cisco litigation settlement and licensing agreement. As of January 31, 2014, we
had an accumulated deficit of $(410.5) million. We anticipate that our TiVo-Owned business will continue to be seasonal and expect to
generate a significant number of our new TiVo-Owned subscriptions during and immediately after the holiday shopping season. We remain
cautious about our ability to maintain our current number of TiVo-Owned subscriptions in our fiscal year ending January 31, 2015, despite
improving trends in TiVo-Owned subscription gross additions driven by the launch of TiVo Roamio. While we anticipate growth in our MSO
subscription base from our deployments with television service providers, we may not immediately achieve a corresponding increase in
service revenues and margin expansion from the fees these subscriptions generate because these fees will be first classified as technology
revenues until we recoup our initial development expenditures under our current zero margin arrangements, including with Com Hem AB
(Com Hem), and Cableuropa S.A.U. (ONO). See the discussion in Part l, Item 1A. Risk Factors, relating to risks related to our business,
including risks specific to our deployments with our television service provider customers.
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Evolution of Advanced Television Services. TiVo revolutionized television viewing when it introduced the DVR, allowing
consumers to enjoy an on-demand experience. Since then, DVR adoption has grown rapidly and consumers have come to expect a great
deal of flexibility and convenience in their consumption of entertainment. Our DVR products proved that the television entertainment
experience could be significantly improved by removing the limitations of linear, appointment based viewing.
The emergence of VOD and content options delivered through cable and broadband connections (or so called over-the-top content (OTT))
is once again revolutionizing the way people consume video entertainment. The rapid growth of broadband video means a virtually infinite
world of content choices now exists along with much greater convenience in how and when that content is viewed. The rapid proliferation of
content requires a solution to effectively suggest, search, navigate, and access the growing volume of broadcast, cable, and VOD from the
Internet and cable providers including television shows, movies, user generated videos, music, and other personal content including photos
and home videos. In addition, proliferation of new consumption devices like tablets and entertainment-oriented smartphones creates
additional demand for solutions that enable viewing when and where convenient for the user across multiple screens.
Advanced Television Technology as a Competitive Asset. Virtually all of the major television service providers in the United States
are offering DVR technology to their customers. In addition, some are developing strategies to address (albeit in very diverse ways) the
proliferation of broadband video and alternate devices such as tablet devices and TV Everywhere. Some of these companies have indicated
they consider such services a competitive tool to help differentiate their pay television services by offering their customers more programming
features. We believe that the combination of our award winning, easy-to-use interface and famous brand, hosted services, and customized
advanced television solutions can make the advantages of this advanced TV technology available to the large number of operators who
cannot afford to develop these technologies in house.
The Changing Television Advertising & Audience Measurement Industry. The decline of live linear television viewing, which is
now only approximately 40% of viewing on the TiVo platform, along with the proliferation of additional content choices is requiring television
advertisers to evaluate new and different ways to reach consumers and measure their interactions with content and advertising. The
DVR and other new consumer electronic devices which access broadband video have given viewers the freedom to view content when they
want; and this time shifting has made it more difficult for advertisers to be assured that their commercials will be viewed by audiences at the
regularly scheduled time the program is aired by network or local television stations. DVRs, in particular, allow viewers the freedom to fast-
forward through all or a portion of commercial advertising incorporated into television and other programs, which means that advertisers are
not assured that their commercials will be viewed at all. TiVo offers other programming options, such as video delivered by broadband to the
television, which may result in further audience fragmentation.
In addition, subject to its privacy policy and applicable laws, TiVo collects data from its own and third-party set-top boxes that allows it to
measure the viewing of television programs and commercials in a manner that we believe is significantly more accurate and insightful than
the traditional approach to television measurement practiced by companies like Nielsen Media. This traditional approach is gradually being
supplemented by additional alternate forms of measurement which we are uniquely positioned to provide. TiVo uses second-by-second
viewing data from a large national sample of our set-top boxes to create highly detailed statistics which are not subject to the limitations of
Nielsen's minute by minute approach and program-based ratings.
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