TiVo 2003 Annual Report Download - page 33

Table of Contents
Licensing Fees. Our licensing revenues depend both upon our ability to successfully negotiate licensing agreements with our consumer electronics and
service provider customers and, in turn, upon our customers' successful commercialization of their underlying products. In addition, we face competition from
companies such as Microsoft, OpenTV, NDS, D&M Holdings, Digeo, Ucentric, and Gotuit who have created competing digital video recording technologies.
Such companies may offer more economically attractive licensing agreements to service providers and manufacturers of DVRs.
Established competition for advertising budgets. Digital video recorder services, in general, and TiVo, specifically, also compete with traditional
advertising media such as print, radio, and television for a share of advertisers' total advertising budgets. If advertisers do not perceive digital video recording
services, in general, and TiVo specifically, as an effective advertising medium, they may be reluctant to devote a significant portion of their advertising
budget to promotions on the TiVo service. In addition, advertisers may not support or embrace the TiVo technology due to a belief that our technology's
ability to fast-forward through commercials will reduce the effectiveness of general television advertising.
We depend on a limited number of third parties to manufacture, distribute, and supply critical components and services for the DVRs that
enable the TiVo service. We may be unable to operate our business if these parties do not perform their obligations.
The TiVo service is enabled through the use of a DVR made available by us through a third-party contract manufacturer and a limited number of other
third parties. In addition, we rely on sole suppliers for a number of key components for the DVRs. We do not control the time and resources that these third
parties devote to our business. We cannot be sure that these parties will perform their obligations as expected or that any revenue, cost savings, or other
benefits will be derived from the efforts of these parties. If any of these parties breaches or terminates its agreement with us or otherwise fails to perform their
obligations in a timely manner, we may be delayed or prevented from commercializing our products and services. Because our relationships with these parties
are non-exclusive, they may also support products and services that compete directly with us, or offer similar or greater support to our competitors. Any of
these events could require us to undertake unforeseen additional responsibilities or devote additional resources to commercialize our products and services.
This outcome would harm our ability to compete effectively and achieve increased market acceptance and brand recognition.
In addition, we face the following risks in relying on these third parties:
If our manufacturing relationships are not successful, we may be unable to satisfy demand for our products and services. We manufacture DVRs that
enable the TiVo service through a third-party contract manufacturer. We also have entered and anticipate entering into agreements with consumer electronics
manufacturers to manufacture and distribute DVRs that enable the TiVo service. However, we have no minimum volume commitments from any
manufacturer. The ability of our consumer electronics manufacturers to reach sufficient production volume of DVRs to satisfy anticipated demand is subject
to delays and unforeseen problems such as defects, shortages of critical components and cost overruns. Moreover, they will require substantial lead times to
manufacture anticipated quantities of the DVRs that enable the TiVo service. Delays, product shortages, and other problems could impair the retail
distribution and brand image and make it difficult for us to attract subscriptions. In addition, the loss of a manufacturer would require us to identify and
contract with alternative sources of manufacturing, which we may be unable to do and which could prove time-consuming and expensive. Although we expect
to continue to contract with additional consumer electronics companies for the manufacture of DVRs in the future, we may be unable to establish additional
relationships on acceptable terms.
We are dependent on single suppliers for several key components and services. If these suppliers fail to perform their obligations, we may be unable to
find alternative suppliers or deliver our products and services to our customers on time. We currently rely on sole suppliers for a number of the key
components used in the TiVo-enabled DVRs and the TiVo service. For example:
• NEC is the sole supplier of the CPU and application specific integrated circuit semiconductor devices;
• Broadcom is the sole supplier of the MPEG2 encoder and decoder semiconductor devices;
• Amtek is the sole supplier of the chassis; and
• ATMEL is the sole supplier of the secure microcontroller semiconductor device.
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