TiVo 2004 Annual Report Download - page 84

Table of Contents
Index to Financial Statements
TiVo service. The Company also entered into the Fourth and Fifth Amendment to Development Agreement dated as of April 17, 2003 and December 19,
2003, respectively, with DIRECTV. These amendments revise provisions relating to, among other things, hardware and software requirements and
development schedules under the Development Agreement.
During the fiscal years ended January 31, 2005, 2004, and 2003, the Company recognized $21.1 million, $11.6 million and $12.6 million, respectively,
in DIRECTV-related service revenues which include subscription revenues and DIRECTV-related advertising revenues. During the fiscal years ended
January 31, 2005, 2004, and 2003, the Company recognized $2.0 million, $5.5 million and $5.3 million, respectively, in revenue for engineering professional
services related to the Development Agreement (see Note 2. "Revenue Recognition and Deferred Revenue").
15. ACQUISTION OF STRANGEBERRY INC.
On January 12, 2004, the Company acquired Strangeberry, a small Palo Alto, California, based technology company specializing in using home
network and broadband technologies to create new entertainment experiences on television. Strangeberry has created technology, based on industry standards
and including a collection of protocols and tools, designed to enable the development of new broadband-based content delivery services. The acquisition was
accounted for as an intangible asset purchase as Strangeberry as a company was in the development stage. The purchase price of approximately $1.9 million
was allocated to developed technology that will be amortized into cost of revenues over its estimated life of 5 years. In exchange for all of the issued and
outstanding capital stock of Strangeberry, the Company issued 216,760 shares of TiVo common stock, par value $.001, to the stockholders of Strangeberry in
a private placement. Redpoint Associates II, LLC and Redpoint Ventures II, LP were stockholders of Strangeberry prior to the acquisition. One of the
managing directors of Redpoint Ventures II, LLC who exercises investment control over Redpoint Associates II, LLC and Redpoint Ventures III, LP is a
member of our board of directors. In addition, the Company issued 108,382 shares of restricted stock to four former employees of Strangeberry that vest over
2 years of continued employment with TiVo Inc.
16. MARKETING AND MANUFACTURING AGREEMENTS
DIRECTV Agreement
On April 13, 1999, the Company entered into an agreement with DIRECTV to promote and offer support for the TiVo service and products that enable
the TiVo service (the "DIRECTV Agreement"). Under the DIRECTV Agreement, DIRECTV provides a variety of marketing and sales support to promote
TiVo and the TiVo service, collaborate on certain product development efforts and make a portion of the bandwidth capacity of DIRECTV's satellite network
available to TiVo.
In April 1999, the Company issued 1,128,867 shares of common stock in exchange for a $2.8 million promissory note due at the end of a three-year
service period that began October 2000. The shares were valued at an estimated fair value of $6.50 per share. The $4.5 million of estimated fair value in
excess of the balance of the note was recorded as a prepaid marketing expense contra-equity account. This $4.5 million prepaid marketing expense was
amortized into sales and marketing expense as the bandwidth services were provided over the three-year service period. DIRECTV repaid the note by
providing bandwidth capacity at no additional charge. Amortization of the prepaid marketing expense and the note receivable began in calendar year 2000.
For the fiscal years ended January 31, 2005, 2004, and 2003, zero, $627,000, and $941,000 was amortized, respectively, for providing bandwidth as
repayment of the note receivable as sales and marketing expense. In addition, zero, $1.0 million and $1.5 million, was amortized for prepaid marketing
expense as sales and marketing expense for the fiscal years ended January 31, 2005, 2004, and 2003, respectively.
DIRECTV was issued 155,941 two-year warrants in April 2002 in conjunction with the Warrant and Registration Rights Agreement. These warrants
were transferred by DIRECTV to their parent company, Hughes Electronics Corporation. In March 2004, Hughes Electronics Corporation exercised warrants
to purchase 149,291 shares in a cashless exercise that resulted in the net issuance of 63,233 shares of the Company's common stock. The remaining 6,650
warrants expired, unexercised on April 16, 2004.
On February 15, 2002, the Company entered into a product development agreement and a services agreement with DIRECTV with whom it jointly
introduced the first DIRECTV receiver with the Company's digital video recording technology in October of 2000. (See Note 14. "Development Agreement
and Services Agreement with DIRECTV, Inc.").
Philips Agreement
On March 31, 1999, the Company entered into an agreement with Philips for the manufacture, marketing and distribution of digital video recorders that
enable the TiVo service. Subject to certain limitations, this agreement granted Philips the right to manufacture, market, and sell digital video recorders that
enable the TiVo service in North America. Philips was also granted the right to manufacture, market, and sell digital video recorders in North America that
incorporate both DIRECTV's satellite receiver and the
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