TiVo 2003 Annual Report Download - page 8

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Table of Contents
Digital Video Recorders. To use the TiVo service, consumers first purchase a TiVo-enabled DVR and then activate the TiVo service. Currently, TiVo-
enabled DVRs are available from major retailers across the United States, including Best Buy, Circuit City, Amazon.com, Tweeter, and The Good Guys.
During the fiscal year ended January 31, 2004, approximately 80% of DVRs manufactured under contract to TiVo were sold to retail stores and approximately
20% were sold directly from our website.
We recognize revenues from the sale of TiVo-branded DVRs manufactured for us. To drive sales while managing costs, we have shared marketing
expenses with key retailers, and in some cases, we have offered to share a portion of the subscription revenues.
Other Revenue Streams. We also receive revenues from promotions and audience research. We market these services both through a dedicated team of
salespeople and through partnerships with companies like Nielsen Media Research.
Research and Product Development
Our research and development efforts are focused on designing and developing the components necessary to enable the TiVo service. These activities
included both hardware and software development.
Fiscal Year Ended
January 31,
TiVo Inc.
2004
2003
2002
(in millions)
Research and Development Expenses $ 22.2 $ 20.7 $ 27.2
Although our total company employee headcount increased by approximately 19%, we increased the number of our regular, temporary and part-time
employees engaged in research and development by 33% from a total of 160 to 212 as of January 2004 compared to January 2003.
Competition
We believe that the principal competitive factors in the DVR market are brand recognition and awareness, functionality, ease of use, availability, and
pricing. We currently see two primary categories of DVR competitors: DVRs offered by consumer electronics companies, and DVRs offered by cable and
satellite operators.
Within each of these two categories, the competition can be further segmented into those offering what we define as basic DVR functionality, and those
offering enhanced DVR functionality. Basic DVR functionality includes no or limited program guide data and "VCR-like" controls with manual timeslot-
based recordings, usually with no DVR service fee after the consumer purchases the enabling hardware. The TiVo Basic service is an example of basic DVR
functionality. Enhanced DVR functionality includes rich program guide data and enhanced scheduling and personalization features, and may or may not
require a DVR service fee. The TiVo service is an example of enhanced DVR functionality.
Consumer Electronics Competitors. We compete against several types of products with basic or enhanced DVR functionality offered by consumer
electronics companies. These products record an analog television signal output from a cable or satellite set-top box, analog cable feed, or antenna.
• DVRs: ReplayTV has been our primary competitor in the standalone DVR market, offering products with some enhanced DVR functionality.
ReplayTV was acquired by D&M Holdings in 2003. D&M Holdings is the parent company of Denon and Marantz, manufacturers of premium
audio and video consumer electronics products. In addition, a number of companies have introduced or announced plans for DVRs that can record
HD content, including RCA and Lucky Goldstar.
• DVD devices with integrated DVRs: Several consumer electronics companies, including Thomson Multimedia and Panasonic, are producing DVRs
integrated with DVD players or DVD recorders. In general, these products do not require DVR service fees and offer basic DVR functionality.
• Personal computers with DVR software: Several companies are developing DVR software for PC and PC-related platforms. For example,
Microsoft's Windows XP Media Center Edition contains expanded digital media features including some enhanced DVR functionality.
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