TiVo 2004 Annual Report Download - page 23

Table of Contents
Index to Financial Statements
We define the TiVo-Owned Churn Rate as the average TiVo-Owned subscription (including both monthly and product lifetime subscriptions)
cancellations per month in the period divided by the average of TiVo-Owned subscriptions for the period. We calculate average subscriptions by adding the
average subscriptions for each month and dividing by the number of months in the period. We calculate average subscriptions for each month by adding the
beginning and ending subscriptions for the month and dividing by two. We are not aware of any uniform standards for calculating churn and caution that our
presentation may not be consistent with that of other companies.
The following table presents our TiVo-Owned Churn Rate information:
Fiscal Year Ended January 31,
2005
2004 2003
(In thousands)
TiVo-Owned subscription cancellations (for the year) (69) (22) (14)
Average TiVo-Owned subscriptions (for the year) 819 486 299
Annual churn rate -8.5% -4.6% -4.7%
Number of months 12 12 12
TiVo-Owned Churn Rate per month -0.7% -0.4% -0.4%
The TiVo-Owned Churn Rate per month was 0.7% for the fiscal year ended January 31, 2005, compared to 0.4% per month in the same prior-year
period. We believe most of the increase was due to the timing of our product lifetime subscriptions. We count as churn those product lifetime subscriptions
that have both reached the end of the four-year revenue recognition period and whose DVRs have not contacted the TiVo service within the prior six-months.
Since volume growth of the TiVo service began in late 1999 and early 2000, we are now experiencing the initial effects of churn from these product lifetime
subscriptions. The TiVo-Owned Churn Rate per month of 0.7%, for the fiscal year ended January 31, 2005, is comprised of 0.2% attributable to these product
lifetime subscriptions and 0.5% from cancellations of recurring subscriptions. Conversely, we do not count as churn product lifetime subscriptions that have
not reached the end of the four-year revenue recognition period, regardless of whether such subscriptions continue to contact the TiVo service. We anticipate
our TiVo-Owned Churn Rate will increase in future periods as a result of increased churn from these product lifetime subscriptions and increased competition
in the marketplace.
Subscription Acquisition Cost ("SAC") . Management reviews this metric, and believes it might be useful to investors, in order to evaluate trends in
the efficiency of our marketing programs and subscription acquisition strategies. We define SAC as our total acquisition costs divided by TiVo-Owned
subscription gross additions. We define total acquisition costs as the sum of sales and marketing expenses, rebates, revenue share, and other payments to
channel, minus hardware gross margin (defined as hardware revenues less cost of hardware revenues). We do not include DIRECTV subscription gross
additions in our calculation of SAC because we incur limited or no acquisition costs for new DIRECTV subscriptions. We are not aware of any uniform
standards for calculating total acquisition costs or SAC and caution that our presentation may not be consistent with that of other companies.
12 Months Ended January 31,
2005
2004 2003
(In thousands, except SAC)
Sales and marketing expenses $ 37,367 $ 18,947 $ 48,117
Rebates, revenue share, and other payments to channel 54,696 9,159 9,780
Hardware revenues (111,275) (72,882) (45,620)
Cost of hardware revenues 120,323 74,836 44,647
Total Acquisition Costs 101,111 30,060 56,924
TiVo-Owned Subscription Gross Additions 555 282 164
Subscription Acquisition Cost (SAC) $ 182 $ 106 $ 347
During the twelve months ended January 31, 2005, our total acquisition costs were $101.1 million, and SAC was $182. Comparatively, total acquisition
costs for the twelve months ended January 31, 2004 and 2003 were $30.1 million and $56.9 million, respectively and SAC was $106 and $347, respectively.
SAC increased by $76 or 72% for the twelve months ended January 31, 2005 compared to the prior-year period due primarily to increased rebate expense and
payments to retailers. As a result of the seasonal nature of our subscription growth, our SAC varies significantly during the year. Management primarily
reviews this metric on an annual basis due to the timing difference between our recognition of promotional program expense and the subsequent addition of
the related subscription acquisition. For example, historically we have incurred increased sales and marketing expense during our third quarter in anticipation
of new subscriptions that may be added during the fourth quarter and in subsequent periods in addition to those added during the third quarter.
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