TiVo 2005 Annual Report Download - page 50

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Table of Contents
Of the total service revenues and technology revenues for the fiscal year ended January 31, 2006, 2005, and 2004, $0, $6.8 million, and $19.7 million,
respectively, were generated from related parties.
• Service Revenues. Service revenues for the fiscal year ended January 31, 2006 increased 56% or $60.0 million over the service revenues for the
fiscal year ended January 31, 2005. This increase was primarily due to the growth in our subscription base. Service revenues for the year ended
January 31, 2005 were $107.2 million, 74% higher than the service revenues for the year ended January 31, 2004. During the fiscal year ended
January 31, 2006, we activated 1.4 million new subscriptions to the TiVo service bringing the total cumulative subscriptions to nearly 4.4 million
as of January 31, 2006, just over three times greater than the installed base as of January 31, 2004. Consumer demand for TiVo-enabled DVR and
DVD products was driven by broad availability and strong support in the retail channel, consumer rebate programs, and increased consumer
awareness of TiVo. We intend to generate continued TiVo-Owned subscription growth by managing our relationships with leading retailers like
Best Buy, Circuit City, Target, Radio Shack, and others. Further on March 8, 2006 we announced a new multi-tiered pricing model for direct sales
that will allow customers to receive a TiVo DVR for no upfront payment, in exchange for the customer's commitment to either a one, two, or three
year service plan. We anticipate fiscal year 2007 will have continued service revenue growth as our TiVo-Owned subscription base grows,
however we expect this to be partially offset by losses of DIRECTV subscriptions. Revenues from advertising and research, which are included in
our service revenues, while not material in this period, have increased.
• Technology Revenues. In the fiscal year ended January 31, 2006, we derived 2% of our net revenues, or $3.7 million, from licensing and
engineering services compared to 5% or $8.3 million in the prior fiscal year. Technology revenues for the fiscal year ended January 31, 2006 were
56% lower than the prior fiscal year. Additionally, during the three months ended July 31, 2005, we determined that we needed to incur $1.0
million of development costs related to a loss contract deemed substantially complete in fiscal year 2005. As a result, we recorded a total charge of
$1.0 million to the statement of operations in the three months ended July 31, 2005 of which $435,000 was a reduction in technology revenues and
$598,000 was an increase in costs of technology revenues. Technology revenues for the fiscal year ended January 31, 2005 were 47% lower than
the prior fiscal year due to our decision to pursue fewer licensing agreements in the fiscal year 2005. Additionally, in the quarter ended October 31,
2004 we reduced our technology revenues by approximately $766,000 after we determined it was unlikely we would receive estimated revenues
from one customer. Technology revenues for the twelve months ended January 31, 2006 are largely a result of amortization of deferred revenue on
existing contracts, where development services have been substantially completed. To date, the Comcast development work is in the preliminary
stages as the companies work towards an agreement of the engineering services to be delivered, and as such, no revenue has been recognized.
• Hardware Revenues. Hardware revenues, net of allowance for sales returns, for the fiscal year ended January 31, 2006 was 37% of our net
revenues compared to 65% for the prior fiscal year. For the fiscal year ended January 31, 2006, 2005 and 2004 one retail customer generated $31.7
million, $49.5 million and $28.3 million of hardware revenues or 44%, 29% and 20% of net revenues, respectively. For fiscal year ended
January 31, 2006, the decrease in hardware revenues is largely a result of decreased hardware sales volume due to increased competition from
DIRECTV's TiVo products, as well as from other DVR distributors' and cable and service providers. Additionally, the average selling price has
declined quarter-over-quarter due to consumer incentive programs, including one program which offered a free DVR with the purchase of an
annual or product lifetime product subscription. Although volume of units sold increased for the fiscal year ended January 31, 2005 by 200% from
the prior fiscal year, hardware revenue from these units was lower per unit as we decreased our sales price per unit by nearly 22% to both our retail
customers and consumers. We anticipate a further decline in hardware revenues due to our recent announcement regarding our new multi-tiered
pricing model that will allow customers to receive a TiVo DVR for no upfront payment, in exchange for the customer's commitment to either a
one, two, or three year service plan.
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