TiVo 2003 Annual Report Download - page 21

Table of Contents
Cost of Revenues. The costs of our revenues increased by approximately 52% during the fiscal year 2004 primarily because of increased cost of
hardware revenues. This cost increased over $30.2 million, or approximately 68%, compared to the prior fiscal year due to continued increases in our TiVo-
enabled DVR manufacturing volume. Cost of service revenues for the fiscal year ended January 31, 2004 increased modestly compared to the prior fiscal
year.
Operating Expenses. Over the last three years, our operating expenses have decreased primarily due to reductions in sales and marketing expenses. We
expect operating expenses to increase due to the planned increased spending on subscriber acquisition activities.
Cash Flows from Operations. We expect cash flows from operations in the fiscal year 2005 to decline due to higher operating expenses attributable to
our planned increased subscription acquisition activities.
Key Business Metrics
Management periodically reviews certain key business metrics in order to evaluate the effectiveness of our operational strategies, allocate resources,
and maximize the financial performance of our business. These key business metrics include subscription growth and cash flows used in operations.
Subscription Growth
Management believes this metric provides an important leading indicator of revenue generation in future years. Management uses it to help evaluate the
execution and performance of TiVo's and DIRECTV's marketing programs in acquiring new subscriptions and retaining existing subscriptions. We define a
"Subscription" as a TiVo-enabled DVR for which (i) a customer has paid for the TiVo service and (ii) service is not canceled. DVRs with the TiVo Basic
service that do not upgrade to the TiVo service are not included in our subscription totals. As of January 31, 2004, our total installed Subscription base was
approximately 1,332,000, over twice the installed base as of January 31, 2003. Included in the 1,332,000 subscriptions are approximately 14,000 product
lifetime subscriptions that had reached the end of the four-year period we use to recognize lifetime subscription revenues.
Below is a table that details the growth in our Subscription base during the past eight quarters. The TiVo Service line items refer to subscriptions sold to
customers who have TiVo-enabled DVRs and products, including those manufactured by TiVo, Sony, Pioneer, Toshiba, Philips, and others. The DIRECTV
line items refer to subscriptions sold to customers who have integrated DIRECTV satellite receivers with TiVo. Additionally, we provide a breakdown of the
percent of TiVo Service Subscriptions for which consumers pay a recurring fee.
DIRECTV reports and pays us monthly subscription fees on a per-household basis. For households with multiple DVRs, we count each DVR as a
Subscription. For the month of January 2004, DIRECTV paid us for approximately 576,000 households, which represented approximately 676,000
subscriptions. As a result, there were approximately 100,000 DIRECTV satellite receivers with TiVo for which we receive no additional payment from
DIRECTV.
In January 2004, we recognized approximately $1.62 in average subscription revenue per DIRECTV subscription, excluding advertising and audience
research revenues, compared to approximately $4.27 in January 2003. We expect the average monthly subscription revenue per DIRECTV subscription to
decline in the future as the mix of DIRECTV subscriptions shifts to the rapidly growing number of additions of new DIRECTV subscriptions, which involve
no acquisition costs, lower recurring expenses, and lower subscription fees.
Three Months Ended
(Subscriptions in thousands)
Jan 31,
2004
Oct 31,
2003
Jul 31,
2003
Apr 30,
2003
Jan 31,
2003
Oct 31,
2002
Jul 31,
2002
Apr 30,
2002
TiVo Service 130 59 34 37 75 30 21 24
DIRECTV 200 150 56 42 39 16 21 18
Total Subscriptions Net Additions 330 209 90 79 114 46 42 42
TiVo Service 656 526 467 433 396 321 291 270
DIRECTV 676 476 326 270 228 189 173 152
Total Cumulative Subscriptions 1,332 1,002 793 703 624 510 464 422
% of TiVo Service Cumulative Subscriptions paying recurring fees 40% 36% 34% 34% 34% 34% 33% 34%
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