TiVo 2003 Annual Report Download - page 39

Table of Contents
The lifetime subscriptions to the TiVo service that we currently offer commit us to providing services for an indefinite period. The revenue we
generate from these subscriptions may be insufficient to cover future costs.
We currently offer product lifetime subscriptions that commit us to provide service for as long as the DVR is in service. We receive the lifetime
subscription fee for the TiVo service in advance and amortize it as subscription revenue over four years, which is our estimate of the service life of the DVR.
If these lifetime subscriptions use the DVR for longer than anticipated, we will incur costs without a corresponding revenue stream and therefore will be
required to fund ongoing costs of service from other sources. As of January 31, 2004, we had approximately 14,000 product lifetime subscriptions that had
exceeded the four-year period we use to recognize lifetime subscription revenues.
Tiered pricing for the TiVo service may reduce our average revenue per user.
We may elect to offer additional tiers of the TiVo service at various price points, which may have the effect of reducing our average revenue per user.
The nature of some of our relationships may restrict our ability to operate freely in the future.
From time to time, we may engage in discussions with other parties concerning relationships, which may include equity investments by such parties in
our company. We currently have such relationships with companies, including DIRECTV and Sony. While we believe that such relationships have enhanced
our ability to finance and develop our business model, the terms and conditions of such relationships may place some restrictions on the operation of our
business in the future.
We have limited experience in overseeing manufacturing processes and managing inventory and failure to do so effectively may result in
supply imbalances or product recalls.
We have contracted for the manufacture of certain TiVo-enabled DVRs with a contract manufacturer. We sell these units to retailers and distributors, as
well as through our own online sales efforts. As part of this effort, we expect to maintain some finished goods inventory of the units throughout the year.
Overseeing manufacturing processes and managing inventory are outside of our core business and our experience in these areas is limited. If we fail to
effectively oversee the manufacturing process and manage inventory, we may suffer from insufficient inventory to meet consumer demand or excess
inventory. Ineffective oversight of the manufacturing process could also result in product recalls.
We have agreed to subsidize the cost of manufacturing DVRs, which may adversely affect our operating results and ability to achieve
profitability.
In prior years, we entered into agreements with our consumer electronics manufacturers to manufacture DVRs that enable the TiVo service. In certain
agreements, we agreed to pay our manufacturers a per-unit subsidy for each DVR that they manufactured and sold. The amount of the payments varied
depending upon the manufacturing costs and selling prices. Under some of these arrangements, we paid a portion of the subsidy when the DVR was shipped,
and we did not receive any revenues related to the unit until the unit was sold and the purchaser activated the TiVo service. We may make additional subsidy
payments in the future to consumer electronic and other manufacturers in an effort to maintain a commercially viable retail price for the DVRs and other
devices that enable the TiVo service.
Product defects, system failures or interruptions to the TiVo service may have a negative impact on our revenues, damage our reputation and
decrease our ability to attract new customers.
Our ability to provide uninterrupted service and high quality customer support depends on the efficient and uninterrupted operation of our computer and
communications systems. Our computer hardware and other operating systems for the TiVo service are vulnerable to damage or interruption from
earthquakes, floods, fires, power loss, telecommunication failures and similar events. They are also subject to break-ins, sabotage, intentional acts of
vandalism and similar misconduct. These types of interruptions in the TiVo service may reduce our revenues and profits. We currently house the server
hardware that delivers the TiVo service at only one location and continue to explore the benefits of establishing a backup facility. Our business also will be
harmed if consumers believe our service is unreliable. In addition to placing increased burdens on our engineering staff, service outages will create a flood of
customer questions and complaints that must be responded to by our customer support personnel. Any frequent or persistent system failures could irreparably
damage our reputation and brand.
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