TiVo 2003 Annual Report Download - page 38

Table of Contents
standards. This challenge will require hardware and software improvements, as well as new collaborations with programmers, advertisers, network operators,
hardware manufacturers, and other strategic partners. These activities require significant time and resources and may require us to develop and promote new
ways of generating revenue with established companies in the television industry. These companies include television advertisers, cable and satellite network
operators, electronic commerce companies, and consumer electronics manufacturers. In each of these examples, a small number of large companies dominate
a major portion of the market and may be reluctant to work with us to develop new products and services for digital video recorders. If we are unable to
further develop and improve the TiVo service or expand our operations in a cost-effective or timely manner, our ability to attract and retain customers and
generate revenue will suffer.
If we fail to manage our growth, it could disrupt our business and impair our ability to generate revenues.
The growth in our subscription base has placed, and will continue to place, a significant strain on our management, operational and financial resources
and systems. Specific risks we face as our business expands include:
Any inability of our systems to accommodate our expected subscription growth may cause service interruptions or delay our introduction of new
services. We internally developed many of the systems we use to provide the TiVo service and perform other processing functions. The ability of these
systems to scale as we rapidly add new subscriptions is unproven. We must continually improve these systems to accommodate subscription growth and add
features and functionality to the TiVo service. Our inability to add software and hardware or to upgrade our technology, systems or network infrastructure
could adversely affect our business, cause service interruptions or delay the introduction of new services.
We will need to provide acceptable customer support, and any inability to do so would harm our brand and ability to generate and retain new
subscriptions. Our ability to increase sales, retain current and future subscriptions and strengthen our brand will depend in part upon the quality of our
customer support operations. Some customers require significant support when installing the DVR and becoming acquainted with the features and
functionality of the TiVo service. We have limited experience with widespread deployment of our products and services to a diverse customer base, and we
may not have adequate personnel to provide the levels of support that our customers require. In addition, we have entered into agreements with third parties to
provide this support and will rely on them for a substantial portion of our customer support functions. Our failure to provide adequate customer support for the
TiVo service and DVR will damage our reputation in the digital video recorder and consumer electronics marketplace and strain our relationships with
customers and consumer electronics manufacturers. This could prevent us from gaining new or retaining existing subscriptions and could cause harm to our
reputation and brand.
We will need to improve our operational and financial systems to support our expected growth, and any inability to do so will adversely affect our
billing and reporting. To manage the expected growth of our operations, we will need to improve our operational and financial systems, procedures and
controls. Our current and planned systems, procedures and controls may not be adequate to support our future operations and expected growth. For example,
we replaced our accounting and billing system at the beginning of August 2000. Delays or problems associated with any improvement or expansion of our
operational and financial systems and controls could adversely affect our relationships with our customers and cause harm to our reputation and brand. Delays
or problems associated with any improvement or expansion of our operational and financial systems and controls could also result in errors in our financial
and other reporting.
We must manage product transitions successfully in order to remain competitive.
The introduction of a new product or product line is a complex task, involving significant expenditures in research and development, training,
promotion and sales channel development, and management of existing product inventories to reduce the cost associated with returns and slow moving
inventory. As new products are introduced, we intend to monitor closely the inventory of products to be replaced, and to phase out their manufacture in a
controlled manner. However, we cannot assure you that we will be able to execute product transitions in this manner or that product transitions will be
executed without harming our operating results. Failure to develop products with required features and performance levels or any delay in bringing a new
product to market could significantly reduce our revenues and harm our competitive position.
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