TiVo 2003 Annual Report Download - page 79

Table of Contents
the execution of the Development Agreement, the amendment also revises provisions relating to, among other things bandwidth allocation, promotional
activities, the subscriber billing system and certain indemnification obligations set forth in the Marketing Agreement. Additionally, this amendment affirms
that revenue share arrangements with DIRECTV for TiVo stand-alone receivers are permanent and do not change from revenue share arrangements
previously in effect. The Amendment also modifies the Company's indemnity obligations under the Tax Agreement, such that, following a specific milestone
date set forth in the Development Agreement, DIRECTV will have responsibility for taxability determinations.
On October 31, 2002, the Company entered into the First Consolidated Amendment to the Development Agreement. The amendment revised provisions
related to, among other things, the manufacturing release date of the Two-Chip option.
On December 20, 2002, the Company entered into the Second Amendment to the Development Agreement dated February 15, 2002 with DIRECTV,
Inc. The amendment revises provisions relating to, among other things, the specifications, development schedules, milestone payment schedule and transition
services for the development and manufacture of Series2 DIRECTV receivers and new versions of the associated client software.
On January 8, 2003, the Company entered into the Third Amendment to the Development Agreement dated February 15, 2002 with DIRECTV, Inc.
The amendment adds provisions relating to, among other things, the product requirements, the development schedule and the milestone payment schedule for
the development of a TiVo-DIRECTV combination device capable of receiving and recording high-definition television signals and new versions of the
associated client software. The amendment also revises provisions relating to, among other things, various obligations of the parties under the Development
Agreement.
During the year ended January 31, 2004, the Company entered into the following agreements with DIRECTV: The Second Consolidated Amendment to
Marketing Agreement, dated as of June 30, 2003 and Amendment No. 1 to the Services Agreement, dated as of October 3, 2003. These amendments revise
provisions relating to, among other things, the amount, timing and duration of revenue share payments made by the Company to DIRECTV for each
subscription from integrated DIRECTV satellite receivers with TiVo service. The Company also entered into the Fourth and Fifth Amendment to
Development Agreement dated as of April 17, 2003 and December 19, 2003, respectively, with DIRECTV. These amendments revise provisions relating to,
among other things, hardware and software requirements and development schedules under the Development Agreement.
During the fiscal years ended January 31, 2004 and 2003, the Company recognized $5.5 million and $5.3 million in revenue for engineering
professional services related to the Development Agreement (see Note 2. "Revenue Recognition and Deferred Revenue").
13. SALES OF SERIES2 PLATFORM
TiVo introduced its Series2 TiVo-enabled DVRs in January 2002. The Company sells these units to retailers and distributors, including Best Buy and
Circuit City, and directly to consumers through TiVo's online direct sales. TiVo is currently involved in the manufacturing and fulfillment process for TiVo
branded DVRs, including: hiring a contract manufacturer to build the TiVo-enabled DVRs, taking ownership of finished goods from the contract
manufacturer at an order fulfillment center, and selling these goods from the order fulfillment center to our customers. As part of this effort, TiVo maintains a
finished goods inventory of the TiVo-enabled DVRs.
The Company recognizes hardware revenues from the sales of its TiVo-enabled DVRs. Hardware revenues are recognized upon shipment to consumers
and upon delivery to retail customers. Cost of hardware revenues include all product costs as well as direct costs related to these operations, including
manufacturing-related overhead and personnel, certain licensing expenses, and order fulfillment expenses.
14. ACQUISTION OF STRANGEBERRY INC.
On January 12, 2004, the Company acquired Strangeberry Inc. ("Strangeberry"), a small Palo Alto, California, based technology company specializing
in using home network and broadband technologies to create new entertainment experiences on television. Strangeberry has created technology, based on
industry standards and including a collection of protocols and tools, designed to enable the development of new broadband-based content
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