TiVo 2006 Annual Report Download - page 77

Table of Contents
Capitalized Software
Costs of computer software to be sold, leased or otherwise marketed have been accounted for in accordance with Statements of Financial
Accounting Standards (SFAS) No. 86, "Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed." The Company achieves
technological feasibility upon development of a working model. The period between the development of a working model and the release of the final product
to customers is short, and, therefore, the development costs incurred during this short period are immaterial and, as such, are not capitalized.
The Company accounts for costs related to internally-developed software and software purchased for internal use in accordance with the
American Institute of Certified Public Accountants ("AICPA") Statement of Position ("SOP") No. 98-1 "Accounting for Cost of Computer Software
Developed or Obtained for Internal Use." In accordance with SOP 98-1, software development costs incurred as part of an approved project plan that result in
additional functionality to internal use software are capitalized and amortized on a straight-line basis over the estimated useful life of the software, between
one and five years.
Intangible Assets
Purchased intangible assets include intellectual property such as patent rights carried at cost less accumulated amortization. Useful lives generally
range from five to seven years.
Revenue Recognition and Deferred Revenue
The Company generates service revenues from fees for providing the TiVo service to consumers and through the sale of advertising and audience
research measurement services. The Company also generates technology revenues from licensing software and providing engineering professional services. In
addition, the Company generates hardware revenues from the sale of hardware products that enable the TiVo service.
Service Revenues. Included in service revenues are revenues from recurring and prepaid subscription plans to the TiVo service and fees received
from the sale of advertising and audience research measurement services. Monthly and prepaid fixed-length subscription revenues are recognized over the
period the service is provided. Subscription revenues from product lifetime subscriptions are recognized ratably over a four-year period, which is the
Company's estimate of the useful life of a TiVo-enabled DVR. End users have the right to cancel their subscription within 30 days of the activation. TiVo
establishes allowances for expected subscription cancellations. Also included in service revenues are fees received from third parties, such as DIRECTV,
which are recognized as earned.
Technology Revenues. The Company recognizes technology revenues under technology license and engineering services agreements in
accordance with the SOP 97-2, "Software Revenue Recognition," as amended. For each arrangement, the Company determines whether evidence of an
arrangement exists, delivery has occurred, the fee is fixed or determinable and collection is probable. If any of these criteria are not met, revenue recognition
is deferred until such time as all of the criteria are met. Elements included in the Company's arrangements may include technology licenses and associated
maintenance and support, engineering services and other services. Under SOP 97-2, vendor specific objective evidence ("VSOE") of fair value is required for
all undelivered elements in order to recognize revenue related to the delivered element. The timing of revenue recognition related to these transactions will
depend, in part, on whether the Company can establish VSOE for undelivered elements and on how these transactions are structured. As such, revenue
recognition may not correspond to the timing of related cash flows or the Company's work effort.
In arrangements which include engineering services that are essential to the functionality of the software or involve significant customization or
modification of the software, the Company
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