TiVo 2003 Annual Report Download - page 36

Table of Contents
revenues, expenses, or results of operations. In addition, any evaluation of our business must be made in light of the risks and difficulties encountered by
companies offering products or services in new and rapidly evolving markets. DVR services are a relatively new product category for consumers and it may
be difficult to predict the future growth rate, if any, or size of the market for our products and services. We may be unable to accurately forecast customer
behavior and recognize or respond to emerging trends, changing preferences or competitive factors facing us. As a result, we may be unable to make accurate
financial forecasts and adjust our spending in a timely manner to compensate for any unexpected revenue shortfall. Such inability could cause our net losses in
a given quarter to be greater than expected, which could cause the price of our stock to decline.
We face a number of challenges in the sale and marketing of the TiVo service and products that enable the TiVo service.
Our success depends upon the successful retail marketing of the TiVo service and related DVRs, which began in the third quarter of calendar year 1999.
Many consumers are not aware of the benefits of our products. DVR products and services represent a relatively new consumer electronics category.
Retailers, consumers, and potential partners may perceive little or no benefit from digital video recorder products and services. We have only been providing
the TiVo service since 1999 and many consumers are not aware of its benefits and therefore, may not value the TiVo service and products that enable the
TiVo service. We will need to devote a substantial amount of time and resources to educate consumers and promote our products in order to increase our
subscriptions. We cannot be sure that a broad base of consumers will ultimately subscribe to the TiVo service or purchase the products that enable the TiVo
service.
Consumers may not be willing to pay for our products and services. Many of our customers already pay monthly fees for cable or satellite television.
We must convince these consumers to pay an additional subscription fee to receive the TiVo service. Consumers may perceive the TiVo service and related
DVR as too expensive. In order to continue to grow our subscription base, we will need to continue to reduce our costs and lower the price of our DVR. The
availability of competing services that do not require subscription fees will harm our ability to effectively attract and retain subscriptions. In addition, DVRs
that enable the TiVo service can be used to pause, rewind, and fast-forward through live shows without an active subscription to the TiVo service. If a
significant number of purchasers of the TiVo-enabled DVRs use these devices without subscribing to the TiVo service or cancel their existing subscriptions,
our revenue growth will decline and we may not achieve profitability.
We compete with other consumer electronics products and home entertainment services for consumer spending. DVRs and the TiVo service compete in
markets that are crowded with other consumer electronics products and home entertainment services. The competition for consumer spending is intense and
many consumers on limited budgets may choose other products and services over ours. DVRs compete for consumer spending with products such as DVD
players, satellite television systems, personal computers, and video game consoles. The TiVo service competes with home entertainment services such as
cable and satellite television, movie rentals, pay-per-view, and video on demand. See "We face intense competition from a number of sources, which may
impair our revenues and ability to generate subscriptions."
Many of these products or services have established markets, broad user bases, and proven consumer acceptance. In addition, many of the
manufacturers and distributors of these competing devices and services have substantially greater brand recognition, market presence, distribution channels,
advertising and marketing budgets and promotional, and other strategic partners. Faced with this competition, we may be unable to effectively differentiate
the DVR or the TiVo service from other consumer electronics devices or entertainment services.
We compete with digital cable and satellite DVRs. Cable and satellite service providers are accelerating deployment of integrated cable and satellite
receivers with DVRs that bundle basic DVR services with other digital services and do not require their customer to purchase hardware. If we are not able to
enter into agreements with these service providers to embed the TiVo service into their offerings, our ability to attract their subscribers to the TiVo service
would be limited and our business, financial condition and results of operations would be harmed.
It is expensive to establish a strong brand. We believe that establishing and strengthening the TiVo brand is critical to achieving widespread acceptance
of our products and services and to establishing key strategic relationships. The importance of brand recognition will increase as current and potential
competitors enter the digital video recorder market with competing products and services. Our ability to promote and position our brand depends largely on
the success of our marketing efforts and our ability to provide high quality services and customer support. These activities are expensive and we may not
generate a corresponding increase in subscriptions or revenues to justify these costs. If we fail to establish and maintain our brand, or if our brand value is
damaged or diluted, we may be unable to attract subscriptions and effectively compete in the digital video recorder market.
35