TiVo 2003 Annual Report Download - page 40

Table of Contents
We have detected and may continue to detect errors and product defects. These problems can affect system uptime and result in significant warranty and
repair problems, which could cause customer service and customer relations problems. Correcting errors in our software or fixing defects in our products
requires significant time and resources, which could delay product releases and affect market acceptance of the TiVo service. Any delivery by us of products
or upgrades with undetected material product defects or software errors could harm our credibility and market acceptance of the DVRs and the TiVo service.
In addition, defective products could cause a risk of injury that may subject us to litigation or cause us to have to undertake a product recall. For example, we
have become aware of occasions where a part has come loose from the remote control device that comes with the DVRs that enable the TiVo service,
including occurrences where a young child has gagged on or ingested a part of the remote control device. While we are unaware of any injuries resulting from
the use of our products, if we are required to repair or replace any of our products, we could incur significant costs, which would have a negative impact on
our financial condition and results of operations.
We need to safeguard the security and privacy of our subscriptions' confidential data, and any inability to do so may harm our reputation and
brand and expose us to legal action.
The DVR collects and stores viewer preferences and other data that many of our customers consider confidential. Any compromise or breach of the
encryption and other security measures that we use to protect this data could harm our reputation and expose us to potential liability. Advances in computer
capabilities, new discoveries in the field of cryptography, or other events or developments could compromise or breach the systems we use to protect our
subscriptions' confidential information. We may be required to make significant expenditures to protect against security breaches or to remedy problems
caused by any breaches.
Uncertainty in the marketplace regarding the use of data from subscriptions could reduce demand for the TiVo service and result in increased
expenses. Consumers may be concerned about the use of viewing information gathered by the TiVo service and DVR. Currently, we gather anonymous
information about our customers' viewing choices while using the TiVo service, unless a customer affirmatively consents to the collection of personally
identifiable viewing information. This anonymous viewing information does not identify the individual customer. Privacy concerns, however, could create
uncertainty in the marketplace for digital video recording and our products and services. Changes in our privacy policy could reduce demand for the TiVo
service, increase the cost of doing business as a result of litigation costs or increased service delivery costs, or otherwise harm our reputation and business.
We may be required to repurchase our outstanding convertible senior notes upon a repurchase event; however, we may not be able to do so.
Holders of our convertible senior notes may require us to repurchase all or any portion of their notes for cash upon a repurchase event, which includes
certain changes in control and a failure of our shares of common stock to be listed for trading on Nasdaq or a U.S. national securities exchange. Our Silicon
Valley Bank line of credit agreement may limit us, under certain circumstances, from repaying the repurchase price in cash if we have amounts borrowed
against it. Additionally, future debt agreements may prohibit us from repaying the repurchase price in cash. If we are prohibited from repurchasing the notes,
we could seek consent from our lenders to repurchase the notes. If we are unable to obtain their consent, we could attempt to refinance the notes. If we were
unable to obtain a consent or refinance, we would be prohibited from repurchasing the notes. Even if we are not prohibited from repurchasing the notes, we
may not have sufficient funds to do so. If we were unable to repurchase the notes upon a repurchase event, it would result in an event of default under the
indenture governing the notes. The occurrence of an event of default under the notes could lead to the acceleration of all amounts outstanding under the notes,
and may also trigger cross-default provisions resulting in the acceleration of our other then-existing debt. These events in turn could harm our share price as
well as our ability to continue our operations.
Entertainment companies may claim that some of the features of our DVRs violate copyright laws, which could force us to incur significant
costs in defending such actions and affect our ability to market the TiVo service and the products that enable the TiVo service.
Although we have not been the subject of such actions to date, one of our former competitor's digital video recorders was the subject of several
copyright infringement lawsuits by a number of major entertainment companies, including the three major television networks. These lawsuits alleged that the
competitor's digital video recorders violate copyright laws by allowing users to skip commercials, delete recordings only when instructed and use the Internet
to send recorded materials to other users. TiVo-enabled DVRs have some similar features, including the ability to fast-forward through commercials, the
ability to delete recordings only when instructed, and when the TiVoToGoTM service is released, the ability to transfer recordings from a TiVo-enabled DVR
to a PC. Based on
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