TiVo 2006 Annual Report Download - page 50

Table of Contents
sales program that we implemented in March 2006 which includes a reduced priced TiVo DVR in exchange for a customer commitment to either a one, two,
or three year service plan combined with higher hardware rebate offers that were available to consumers.
As a result of the seasonal nature of our subscription growth, SAC varies significantly during the year. Management primarily reviews this metric on an
annual basis due to the timing difference between our recognition of promotional program expenses and the subsequent addition of the related subscription
acquisition. For example, we have historically incurred increased sales and marketing expenses during our third quarter in anticipation of new subscriptions
that may be added during the fourth quarter and in subsequent periods in addition to those added during the third quarter.
Average Revenue Per Subscription or ARPU. Management reviews this metric, and believes it may be useful to investors, in order to evaluate the
potential of our subscription base to generate revenues from a variety of sources, including subscription fees, advertising, and audience research measurement.
ARPU does not include rebates, revenue share and other payments to channel that reduce our GAAP revenues. Additionally, under the accounting policy for
our bundled sales program, revenues associated with these bundled sales transactions, a portion of which were previously recognized as hardware revenues,
are now being recognized in service revenues. As a result, you should not use ARPU as a substitute for measures of financial performance calculated in
accordance with GAAP. Management believes it is useful to consider this metric excluding the costs associated with rebates, revenue share and other
payments to channel because of the discretionary and varying nature of these expenses and because management believes these expenses are more
appropriately monitored as part of SAC. We are not aware of any uniform standards for calculating ARPU and caution that our presentation may not be
consistent with that of other companies.
We calculate ARPU per month for TiVo-Owned subscriptions by subtracting DIRECTV-related service revenues (which includes DIRECTV
subscription service revenues and DIRECTV-related advertising revenues) from our total reported service revenues and dividing the result by the number of
months in the period. We then divide by Average TiVo-Owned subscriptions for the period, calculated as described above for churn rate. The following table
shows this calculation and reconciles ARPU for TiVo-Owned subscriptions to our reported service and technology revenues:
Fiscal Year Ended January 31,
TiVo-Owned Average Revenue per Subscription 2007 2006 2005
(In thousands, except ARPU)
Service and Technology revenues $ 217,985 $ 170,859 $ 115,476
Less: Technology revenues (19,061) (3,665) (8,310)
Total Service revenues 198,924 167,194 107,166
Less: DIRECTV-related service revenues (32,066) (32,788) (21,071)
TiVo-Owned-related service revenues 166,858 134,406 86,095
Average TiVo-Owned revenues per month 13,905 11,201 7,175
Average TiVo-Owned per month subscriptions 1,584 1,269 819
TiVo-Owned ARPU per month $ 8.78 $ 8.83 $ 8.76
TiVo-Owned ARPU per month for the fiscal year ended January 31, 2007 decreased from fiscal year ended January 31, 2006 and increased from fiscal
year ended January 31, 2005 to $8.78 from $8.83 and from $8.76, respectively. The decrease in TiVo-Owned ARPU for the fiscal year ended January 31,
2007 was due to an increase of 65,000 TiVo-Owned product lifetime subscriptions that reached the end of the four-year period we use to recognize lifetime
subscription revenue, as compared to the same prior year period. However, this decrease in TiVo-Owned ARPU due to the increase in fully-amortized and
still active product lifetime subscriptions was partially offset by our new multi-tiered pricing structure and bundled sales program which yielded a higher
monthly subscription rate for new TiVo-Owned subscriptions. We expect the number of fully-amortized and still active product lifetime subscriptions to
increase in fiscal year ended January 31, 2008. The increase of $.07 for the fiscal year ended January 31, 2006 was largely due to increased volume of
monthly subscriptions as compared to the same prior year period.
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