TiVo 2004 Annual Report Download - page 6

Table of Contents
Index to Financial Statements
Our Technology
The TiVo service relies on three key components: the TiVo service client software platform, the TiVo service infrastructure, and the TiVo-enabled
DVR hardware design. Each of these components serves a vital function in the TiVo service.
TiVo Service Client Software. The TiVo service client software runs on TiVo-enabled DVRs. It consists of all operational software required for a
TiVo-enabled DVR to deliver the TiVo service properly and reliably. TiVo client software is based on the open-source Linux operating system, but the bulk
of the software is proprietary to TiVo. The software includes system components such as a media-oriented file system, a high-performance transactional
database, an integrated security system, and application components such as media management and user interface. We have enhanced the client software to
support multiple services and applications, such as digital music and photos. The TiVo client software manages interaction with the TiVo service
infrastructure. After the initial set-up of the TiVo service, the TiVo-enabled DVR will automatically connect to the TiVo service infrastructure over a dial-up
or broadband connection to download the program guide data, client software upgrades, Showcases, and other content.
TiVo Service Infrastructure. The TiVo service infrastructure enables the ongoing operation of the TiVo service, managing the distribution of
proprietary services and specialized content such as program guide data, Showcases, and TiVo client software upgrades. It interfaces with our billing and
customer support systems for service authorization and bug tracking. In addition, the TiVo service infrastructure collects anonymous viewing behavior data
uploaded from TiVo-enabled DVRs for use in our audience measurement efforts. We believe the TiVo service infrastructure technology is scalable, robust,
and reliable. The infrastructure has also been designed to take advantage of the networks of service provider customers, for example, by utilizing DIRECTV's
satellite bandwidth to deliver data to DIRECTV receivers with TiVo service. The TiVo service infrastructure is extensible to support future initiatives such as
e-commerce and lead generation, and authorization and billing for premium services.
DVR Hardware Design. The TiVo-enabled DVR hardware design is a specification developed by us for set-top boxes containing a hard disk drive, a
CPU and memory, digital video chips, a modem, and other components. We license this technology to consumer electronics manufacturers for them to modify
and use in the production of DVRs that enable the TiVo service. We also provide the design to our contract manufacturer that produces TiVo-branded DVRs.
The DVR hardware design has been integrated into a variety of products including DVD players, DVD recorders, DIRECTV receivers, and TiVo service
DVRs. The DVR hardware design includes a modular front-end that allows the basic platform to be used for digital and analog broadcast, digital and analog
cable, and satellite applications. In addition, the design includes USB ports to allow connection to broadband networks and external devices to enable future
services.
Significant Relationships
DIRECTV. DIRECTV is the largest provider of satellite television in the U.S. We have had a longstanding relationship with DIRECTV in which
DIRECTV has assisted us in marketing and delivering the TiVo service to its customer base. This relationship began in 1999 and was expanded in September
of 2000 with the release of the first integrated DIRECTV DVR with TiVo. In early 2004, DIRECTV launched its HD DVR with TiVo. As of January 31,
2005, we had acquired approximately 1.9 million subscriptions through this relationship.
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 also paid DIRECTV a share of the revenues we collected from TiVo service
subscriptions with DVRs who subscribed 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.
We entered into a services agreement with DIRECTV on February 15, 2002. Under the services agreement, DIRECTV has agreed to distribute, under a
revenue-sharing relationship, features of the TiVo service that enable advanced automatic recording capabilities and the delivery of promotional video to
DIRECTV receivers with TiVo service. We entered into a new services agreement with DIRECTV on March 31, 2005. Under this amended and restated
services agreement, DIRECTV has agreed to continue to distribute features of the TiVo service that enable advanced automatic recording capabilities and the
delivery of promotional video to DIRECTV receivers with TiVo service. Subject to certain restrictions and exceptions, both DIRECTV and TiVo may sell
advertising and audience measurement data under the agreement, with each party retaining all their respective revenues generated from such sales. The
agreement also provides for DIRECTV to receive certain audience measurement reports from TiVo related to use of DIRECTV DVR receivers with the TiVo
service, and for TiVo to sell additional custom research services to DIRECTV and DIRECTV advertising clients at the request of DIRECTV. The term of the
amended and restated services agreement expires concurrently with termination or expiration of the development agreement with DIRECTV, discussed
below.
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