TiVo 2004 Annual Report Download - page 7

Table of Contents
Index to Financial Statements
Our current development agreement with DIRECTV expires in February 2007. Afterwards, while DIRECTV will have the option to continue to service
the existing DIRECTV receivers with TiVo service without further payment to us, it will not be able to add new DIRECTV receivers with TiVo service unless
DIRECTV elects either to purchase a royalty-bearing technology license from us or to renew or replace our current agreement.
DIRECTV has recently announced that its core initiatives and new customer acquisition will focus on its new DVR from NDS. We expect that our
DIRECTV subscription growth rate may decline in the future.
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 version of our 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.
Comcast. On March 15, 2005, we entered into a non-exclusive licensing and marketing agreement with Comcast STB Software DVR, LLC, a wholly-
owned subsidiary of Comcast Corporation, and Comcast Corporation, as guarantor of Comcast STB's obligations under the agreement. Pursuant to this
agreement, we have agreed to develop a TiVo-branded software solution for deployment on Comcast's DVR platforms, which would enable any TiVo-
specific DVR and networking features requested by Comcast, such as WishList searches, Season Pass recordings, home media features, and TiVoToGo
transfers. In addition, we have agreed to develop an advertising management system for deployment on Comcast platforms to enable the provision of local
and national advertising to Comcast subscribers.
Under the agreement, Comcast will pay TiVo an upfront fee and a recurring monthly fee per Comcast subscriber who receives the TiVo service through
Comcast. Comcast will also pay us fees for engineering services for the development and integration of the TiVo service software solution (subject to
adjustment under certain circumstances) and the advertising management system.
The initial term of this agreement is for seven years from completion of the TiVo service software solution, with Comcast permitted to renew for
additional 1-year terms for up to a total of 8 additional years as long as certain deployment thresholds have been achieved. During the term of the agreement,
TiVo will provide Comcast with certain customer and maintenance support and will provide certain additional development work. TiVo will have the
continuing right to sell certain types of advertising in connection with the TiVo service offered through Comcast. TiVo will also have a limited right to sell
certain types of advertising on other Comcast DVR set-top boxes enabled with the advertising management system, subject to Comcast's option to terminate
such right in exchange for certain advertising-related payments. Development and deployment of the TiVo service software solution and advertising
management system is targeted to occur within two years from the date of the agreement, with certain consequences, including, but not limited to, termination
of the agreement, in the event development of the TiVo service software solution has not been completed by such date. As part of this agreement, Comcast is
receiving a non-exclusive, non-transferable license to our intellectual property in order to deploy the TiVo service software solution and advertising
management system, including certain trademark branding rights and a covenant not to assert under our patents, which rights extend only to Comcast
Corporation, its affiliates, and certain of its vendors and suppliers with respect to Comcast products and services. Such non-exclusive, non-transferable license
to our intellectual property will, under certain circumstances, continue after the termination of this agreement. In addition, Comcast is entitled to certain most
favored customer terms as compared with other multi-channel video distributors who license certain TiVo technology. Pursuant to the terms of this
agreement, Comcast has the right to terminate the agreement in the event we are subject of certain change of control transactions involving any of certain
specified companies.
Hardware Manufacturers. Several companies, including Toshiba, Humax, Pioneer, Sony, Philips, Thomson Multimedia, and Hughes, have
manufactured and distributed TiVo-enabled DVRs during the last three years. Each third party manufacturer is responsible for the manufacturing and
distribution of its branded DVRs and DVD recorders. We are solely responsible for the activation of the TiVo service on a third party manufacturer's DVR or
DVD recorders if the purchaser of the unit decides to purchase a subscription to the TiVo service. A TiVo-enabled DVR or DVD recorder without a
subscription to the TiVo service has minimal functionality but can be used to pause, rewind, and fast-forward through live or manually recorded shows.
We also engage contract manufacturers to build TiVo-enabled DVRs. We distribute these DVRs, selling them both directly to consumers and to major
retailers. The table below shows the breakdown of DVRs compatible with the TiVo service that were manufactured during the fiscal years ended January 31,
2005, 2004, and 2003.
Fiscal Year Ended
January 31,
TiVo-enabled DVRs Manufactured by:
2005 2004 2003
Consumer Electronics Manufacturers 72% 61% 41%
Contract Manufacturers for TiVo 26% 31% 54%
Licensing and Engineering Professional Services Customer 2% 8% 5%
Total Manufactured TiVo-enabled DVRs 100% 100% 100%
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