TiVo 2004 Annual Report Download - page 83

Table of Contents
Index to Financial Statements
Additionally, DIRECTV is obligated to absorb all customer acquisition costs. The Company provides server support and limited customer support. The
monthly per-household fees paid by DIRECTV for the Company to provide server support and limited customer support are recognized as service revenues as
the services are provided.
The term of the Development Agreement is five years and includes a minimum volume commitment from DIRECTV to deploy next-generation
DIRECTV receivers with the Company's digital video recording technology. Under the terms of the agreement, DIRECTV has the option to fulfill its
obligations under the minimum volume commitment with a one-time cash payment to the Company. Under the agreement, DIRECTV additionally has the
option to purchase a non-exclusive license of the Company's digital video recording technology. In connection with its exercise of this option, DIRECTV
would be required to pay TiVo an up-front fee, per-unit royalties and other fees. The technology license that DIRECTV has the election of exercising is
similar in price and structure to other client and server technology source licenses sold to one customer and offered to other customers.
The Services Agreement provides DIRECTV the option to license certain authoring tools from TiVo that would allow DIRECTV to distribute
automatic recording capabilities and delivery of promotional video to a receiver's hard-disk drive. In exchange for the Company's license to use the software
tools that allow DIRECTV to distribute these services directly, DIRECTV has agreed to pay TiVo a fee. The license would be granted to DIRECTV in
exchange for the fee on an annual basis and would be renewable up to four times. The initial term of the services agreement is three years, which the parties
can mutually renew twice for subsequent one year terms. The Company 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 previously entered into between the parties.
The Company also signed an Amendment to Marketing Agreement and Tax Agreement with DIRECTV on February 15, 2002. The Amendment to
Marketing Agreement and Tax Agreement amends the Marketing Agreement dated April 13, 1999 and the Tax Agreement dated July 24, 2001. The
amendment provides that several terms of the Marketing Agreement, including those relating to, among other things, the billing system, customer service and
customer data, be replaced by the terms set forth in the Development Agreement. In conjunction with 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 does not change from revenue share arrangements previously in effect for which DIRECTV receives a
percentage of TiVo's subscription revenues attributable to DIRECTV/TiVo subscribers. These amounts are included in sales and marketing expense. For
product lifetime subscription revenue share, the Company capitalized upfront revenue share payments and expenses the revenue share payments ratably over a
four-year period, in the same manner that it recognizes product lifetime subscription revenues. Monthly subscription revenue share is expensed on a monthly
basis as they are earned by DIRECTV. 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
77