TiVo 2004 Annual Report Download - page 9

Table of Contents
Index to Financial Statements
Research and Product Development
Our research and development efforts are focused on designing and developing the components necessary to enable the TiVo service. These activities
include both hardware and software development.
Fiscal Year Ended
January 31,
TiVo Inc.
2005 2004 2003
(in millions)
Research and Development Expenses $ 37.6 $ 22.2 $ 20.7
Although our total company employee headcount increased by approximately 11% in fiscal year 2005, we increased the number of our regular,
temporary, and part-time employees engaged in research and development by 8% from a total of 212 to 228 as of January 31, 2005 compared to January 31,
2004.
Competition
We believe that the principal competitive factors in the DVR market are brand recognition and awareness, functionality, ease of use, availability, and
pricing. We currently see two primary categories of DVR competitors: DVRs offered by consumer electronics companies, and DVRs offered by cable and
satellite operators.
Within each of these two categories, the competition can be further segmented into those offering what we define as basic DVR functionality, and those
offering enhanced DVR functionality. Basic DVR functionality includes no or limited program guide data and "VCR-like" controls with manual timeslot-
based recordings, usually with no DVR service fee after the consumer purchases the enabling hardware. TiVo Basic service, offered on select TiVo-enabled
DVD recorders made by Toshiba and Pioneer, which provides limited program data without a subscription, is an example of basic DVR functionality.
Enhanced DVR functionality includes rich program guide data and enhanced scheduling and personalization features, and may or may not require a DVR
service fee. The TiVo service, required for most TiVo-enabled DVRs, and offered as an upgrade for select TiVo-enabled DVD recorders made by Toshiba
and Pioneer, are examples of enhanced DVR functionality.
Consumer Electronics Competitors. We compete against several types of products with basic or enhanced DVR functionality offered by consumer
electronics companies and PC manufacturers. These products record an analog television signal output from a cable or satellite set-top box, analog cable feed,
or antenna.
• DVRs and hard drive-equipped DVD recorders, TVs, and Game Consoles: ReplayTV continues to offer standalone DVRs with enhanced DVR
functionality in limited retail distribution. Several consumer electronics companies, including Panasonic and Sony, produce DVD recorders with
hard drives. In addition, several consumer electronics companies, including RCA and Toshiba, offer TVs that can connect to external hard drives
to allow for recording of television programming. Some of these TVs offer CableCARD functionality, allowing the receipt of encrypted digital
cable programming without the need for a digital cable set-top box. In general, these hard-drive equipped DVD recorders and TVs do not require
DVR service fees and offer basic DVR functionality. In the future, companies such as Sony and Microsoft could incorporate DVR technology
into their video game consoles.
• Personal computers with DVR software: Microsoft's Windows XP Media Center Edition contains expanded digital media features including
enhanced DVR functionality. PC manufacturers including Dell and Hewlett Packard offer PCs running this Microsoft software.
Satellite and Cable DVR Competitors. We compete against cable and satellite set-top boxes that integrate basic or enhanced DVR functionality into
multi-channel receivers.
• Satellite: EchoStar offers a range of DVR models, including standard definition and high definition models, most of which offer dual tuner
capabilities. Certain models can output signals to multiple TVs within the household. Certain models now offer name-based recordings instead of
timeslot-based recordings. Our single largest customer, DIRECTV, has announced that it plans to introduce a competing DVR service to its
customers this year.
• Cable: Scientific-Atlanta sells Explorer 8000 integrated digital cable DVR set-top box to cable operators. Motorola sells the DCT6208 and
DCT6412 integrated digital cable DVR set-top boxes to cable operators. These products combine digital and analog cable reception with DVR
functionality; some versions offer dual tuner and/or high definition capabilities. In addition, Scientific-Atlanta and Motorola have announced
plans to build integrated cable DVRs for cable operator Charter Communications and others using Moxi Media Center software from Digeo. In
November 2004, Comcast and Microsoft
8