TiVo 2007 Annual Report Download - page 26

Table of Contents
The product lifetime subscriptions to the TiVo service that we currently are obligated to service commit us to providing services for an
indefinite period. The revenue we generate from these subscriptions may be insufficient to cover future costs and will negatively impact our TiVo-
Owned Average Revenue per Subscription.
In the past and currently to existing customers, we offer a product lifetime subscription option to the TiVo service that commits us to provide TiVo
service for as long as the DVR is in service. We received the product lifetime subscription fee for the TiVo service in advance and amortize it as subscription
revenue over 54 months for product lifetime subscriptions sold prior to November 1, 2007 and 60 months for product lifetime subscriptions sold on or after
November 1, 2007, which is our estimate of the service life of the DVR. If these product lifetime subscriptions use the DVR for longer than anticipated, we
will incur costs such as telecommunications and customer support costs without a corresponding subscription revenue stream and therefore will be required to
fund ongoing costs of service from other sources. Additionally, if these product lifetime subscriptions use the DVR for longer than the period in which we
recognize revenue, our average revenues per subscription (ARPU) for our TiVo-Owned subscriptions will be negatively impacted as we continue to count
these customers as subscriptions without corresponding subscription revenue thus lowering our average revenues across our TiVo-Owned subscription base.
As of January 31, 2008, we had approximately 175,000 product lifetime subscriptions that had exceeded the 54 or 60 month period we use to recognize
product lifetime subscription revenues and had made contact to the TiVo service within the prior six-month period. This represents approximately 26% of our
cumulative lifetime subscriptions as compared to 23% in fiscal year ended January 31, 2007. If the useful life of the recorder were shorter or longer than
currently estimated, we would recognize revenues earlier or later. We will continue to monitor the useful life of a TiVo-enabled DVR and the impact of higher
churn, increased competition, and compatibility of our existing TiVo units with high-definition programming. Further analysis will allow us to determine if
our useful life is shorter or longer than currently estimated, in which case we may revise the estimated life and we would recognize revenues from this source
over a shorter or longer period.
We share a substantial portion of the revenue we generate from subscription fees with some of our retail customers and consumer electronics
companies. We may be unable to generate enough revenue to cover these obligations.
In some of our agreements, we have agreed to share a substantial portion of our subscription and other fees with some of our retail customers and
consumer electronics manufacturing companies in exchange for manufacturing, distribution and marketing support, and discounts on key components for
DVRs. These agreements require us to share substantial portions of the subscription and other fees attributable to the same subscription with multiple
companies. These agreements also require us to share a portion of our subscription fees whether or not we increase or decrease the price of the TiVo service.
If we change our subscription fees in response to competitive or other market factors, our operating results would be adversely affected. Our decision to share
subscription revenues is based on our expectation that these relationships will help us obtain subscriptions, broaden market acceptance of digital video
recorders, and increase our future revenues. If these expectations are not met, we may be unable to generate sufficient revenue to cover our expenses and
obligations.
Bundled pricing with varying commitment terms for the TiVo service may involve increased acquisition costs and subject us to increased
customer credit risk.
In certain circumstances, we have elected to offer the TiVo service at various price points bundled with a TiVo-enabled DVR as part of the subscription
fee. The bundled TiVo service and DVR offerings may involve higher acquisition costs including, for example, the offering of a no cost or significantly
discounted DVR in exchange for a commitment to pay a specified subscription price for a minimum period of time from one to three years. As a result of
these bundled offers, we may be subject to increased amounts of customer credit risk in the future. If we incur these increased subscription acquisition costs
without a corresponding return in expected future revenues, our business could be harmed.
We engage in various advertising, marketing, and other promotions that are regulated by state and federal laws and regulations and any
violation of these laws and regulations could harm our business.
We engage in various advertising, marketing, and other promotional activities, such as offering rebates and gift subscriptions to consumers, which are
subject to state and federal laws and regulations. An evolving network of state and federal laws is increasingly regulating these promotional activities. If we
were to violate any of these laws or regulations governing these promotional activities, we could be subject to suit, penalties, and/or negative publicity in
which case our business could be harmed.
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