TiVo 2007 Annual Report Download - page 67

Table of Contents
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 No. 98-1 "Accounting for Cost of Computer Software Developed or Obtained for
Internal Use." (SOP 98-1) 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.
Sales Taxes
In accordance with the guidance of EITF Issue No. 06-3, "How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be
Presented in the Income Statement" (EITF 06-3), the Company accounts for sales taxes imposed on its goods and services on a net basis in the consolidated
statement of operations.
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 technology and by 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 the Company's estimate of the useful life of a
TiVo-enabled DVR associated with the subscription. Prior to November 1, 2007, the estimate of the useful life of these DVRs was 48 months. Effective
November 1, 2007, the Company extended the period it uses to recognize product lifetime subscription revenues from 48 months to 54 months for the product
lifetime subscriptions acquired on or before October 31, 2007 and such change is being recognized on a prospective basis with no adjustment to previously
recognized revenues. Additionally, the Company also increased the amortization period to 60 months for new product lifetime subscriptions acquired on or
after November 1, 2007 which are offered on a limited basis and primarily related to the TiVo HD DVR. The new estimates of expected lives are dependant
on assumptions with regard to future churn of the product lifetime subscriptions. During fiscal year ending January 31, 2009, we will continue to monitor the
useful life of a TiVo-enabled DVR and the impact of the differences between actual churn and forecasted churn rates. If subsequent actual experience is not in
line with our current assumptions, including higher churn of product lifetime subscriptions due to the incompatibility of our standard definition TiVo units
with high definition programming and increased competition, we may revise the estimated life which could result in the recognition of revenues from this
source over a longer or shorter period.
End users have the right to cancel their subscription within 30 days of the activation for a full refund. TiVo establishes allowances for expected
subscription cancellations. Also included in service revenues are fees received from multiple system operators (MSOs), such as Cablevision and DIRECTV,
as well as other service providers for provision of the TiVo service that are recognized as services are provided.
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 agreement or arrangement, the Company determines whether evidence of an
arrangement exists, delivery has occurred, the fee is fixed or determinable and collection is probable. 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
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