TiVo 2005 Annual Report Download - page 91

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Table of Contents
The Company developed a web scheduling service for AOL that would require a DVR and the TiVo service. The future premium service described is
AOLTV running on a TiVo-enabled DVR. AOL has publicly announced that it has shut down AOLTV so there will be no further development under this
agreement.
20. DEVELOPMENT AGREEMENT AND SERVICES AGREEMENT WITH DIRECTV, INC.
On February 15, 2002, the Company entered into a product development agreement (the "Development Agreement") and a services agreement (the
"Services Agreement") with DIRECTV, Inc., with whom it jointly introduced the first DIRECTV receiver with the Company's digital video recording
technology in October of 2000. The Development Agreement provides for the development of the next generation DIRECTV-TiVo combination receiver,
based on the Company's Series2 digital video recording technology platform, known as the "Provo receiver" and for software upgrades to the existing
combination receivers, known as "Reno receivers," to enable customers to receive the upgraded DVR functionality.
Under the Development Agreement, DIRECTV assumed primary responsibility for customer acquisition and support for all next-generation DIRECTV
receivers, as well as packaging and branding of DIRECTV's digital video recording services. The revenue share provision on the Reno receivers was
discontinued and replaced by a per-household monthly fee that DIRECTV pays to TiVo. The per-household monthly fee also applies to the Provo receivers.
Therefore, under this new agreement, the relationship with the consumer was changed so that DIRECTV provides primary customer service and support to
DIRECTV subscribers with TiVo service. 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 was five years (now extended an additional three years on the terms discussed below) 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.
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