TiVo 2003 Annual Report Download - page 7

Table of Contents
From 1999 thru October of 2002, we incurred upfront acquisition costs, recognized monthly recurring per subscriber revenues in a range from $4.15 to
$9.95, and incurred recurring service costs for these subscribers. We agreed to pay DIRECTV a share of the revenues we collect from TiVo service
subscriptions with standalone DVRs who subscribe to the DIRECTV service prior to June 30, 2003.
During 2002, we modified our agreements with the goal of giving DIRECTV the ability and economic incentive to drive volume growth. Under our
new agreement, DIRECTV pays us a recurring monthly per-household fee for access to the technology needed to offer its customers the TiVo service. We
incur limited recurring expenses and, on a marginal basis, limited or no acquisition costs for these subscriptions.
In January 2004, the average DIRECTV revenue per subscription, excluding advertising and audience research revenues, was approximately $1.62. We
expect the average monthly subscription revenue per DIRECTV subscription to decline in the future as the mix of DIRECTV subscriptions shifts to the
rapidly growing number of additions of new DIRECTV subscriptions, which involve no acquisition costs, lower recurring expenses, and lower subscription
fees.
Our current agreement with DIRECTV does not expire until February 2007. Afterwards, while DIRECTV will have the option to continue to service
the existing DIRECTV receivers with TiVo without further payment to us, it will not be able to add new DIRECTV receivers with TiVo unless DIRECTV
elects to either purchase a royalty-bearing technology license from us or renew or replace our current agreement.
We also recognize revenue from DIRECTV for engineering professional services work on integrated DIRECTV satellite receivers with TiVo service
and the related service infrastructure. We are currently providing DIRECTV with engineering professional services related to a new integrated DIRECTV
satellite receiver with TiVo service that supports high definition television service, as well as engineering professional services related to hardware and
service cost improvements and feature enhancements for existing platforms and customers.
Hardware Manufacturers. Several companies, including Toshiba, Pioneer, Sony, Philips, Thomson Multimedia, and Hughes, have manufactured and
distributed TiVo-enabled DVRs. Each manufacturer is responsible for the manufacturing and distribution of its branded DVRs. We are solely responsible for
the activation of the TiVo service on a manufacturer's DVR if the purchaser of the DVR decides to purchase a subscription to the TiVo service. A TiVo-
enabled DVR without a subscription to the TiVo service has minimal functionality and can be used to pause, rewind, and fast-forward through live or
recorded shows.
We also engage a contract manufacturer to build TiVo-enabled DVRs. We distribute the TiVo-enabled DVRs, selling them both directly to consumers
and to major retailers who offer these products to consumers. The table below shows the breakdown of DVRs compatible with the TiVo service that were
manufactured during the fiscal years ended January 31, 2004, 2003, and 2002.
Fiscal Year Ended
January 31,
TiVo-enabled DVRs Manufactured by:
2004 2003 2002
Consumer Electronics Manufacturers 61% 41% 100%
Contract Manufacturer for TiVo 31% 54% 0%
Licensing and Engineering Professional Services Customer 8% 5% 0%
Total Manufactured TiVo-enabled DVRs 100% 100% 100%
Sales and Marketing
The TiVo Service. We market the TiVo service in two ways. First, we sell directly to consumers who have purchased a TiVo-enabled DVR. We sell the
TiVo service either for a monthly subscription rate of $12.95, or for a single payment of $299 for the lifetime of the DVR. Second, we market our service
through our relationship with DIRECTV. DIRECTV pays us a per-household monthly fee for the ability to offer our service to their customers. DIRECTV
makes all pricing decisions regarding the service it sells to its own customer base.
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