TiVo 2008 Annual Report Download - page 68

Table of Contents
recognize product lifetime subscription revenues from 48 months to 54 months and the subsequently to 60 months in the quarter ended January 31, 2009 for
the product lifetime subscriptions acquired on or before October 31, 2007. Such change is being recognized on a prospective basis with no adjustment to
previously recognized revenues. The total impact of recognizing subscription revenue over 6 additional months on product lifetime subscription revenue is a
reduction of revenue in the quarter ended January 31, 2009 of approximately $1.7 million. Additionally, the Company also increased the amortization period
to 60 months for new product lifetime subscriptions acquired on or after November 1, 2007. 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, 2010, 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 Comcast, Cablevision and
DIRECTV, as well as other service providers for provision of the TiVo service that are recognized as services are provided. When applicable, a percentage of
such fees, equal to the fair value of the undelivered development services, is deferred and recognized as technology revenues when development services are
provided or as service revenues when the right to use these deferred fees is forfeited.
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. In instances where TiVo hosts the TiVo service we follow the provisions of the SEC Staff
Accounting Bulletin No. 104, "Revenue Recognition," or SAB 104, and FASB Emerging Issues Task Force Issue No. 00-21, "Revenue Arrangements with
Multiple Deliverables," or EITF No. 00-21. 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. 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.
The Company applies the residual method, under which 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. The Company has established VSOE of fair value for engineering services based on hourly
rates charged for engineering services sold on a standalone basis.
In arrangements which include engineering services that are essential to the functionality of the licensed technology or involve significant
customization or modification of the software, the Company recognizes revenue using the percentage-of-completion method, as described in SOP 81-1
"Accounting for Performance of Construction-Type and Certain Production-Type Contracts," if the Company believes it is able to make reasonably
dependable estimates of the extent of progress toward completion. The Company measures progress toward completion using an input method based on the
ratio of costs incurred, principally labor, to date to total estimated costs of the project. These estimates are assessed continually during the term of the contract,
and revisions are reflected when the changed conditions become known. Provisions for losses on contracts are recorded when estimates indicate that a loss
will be incurred on a contract. In some cases, it may not be possible to separate the various elements within the arrangement due to a lack of VSOE or VOE
for undelivered elements in the contract. In these situations, provided that the Company is reasonably assured that no loss will be incurred under the
arrangement, the Company recognizes revenues and costs based on a zero profit model, which results in the recognition of equal amounts of revenues and
costs, until the engineering professional services are complete. Thereafter, any profit from the engineering professional services is recognized over the period
of the maintenance and support or other services that are provided, whichever is longer.
Hardware Revenues. Revenues are recognized upon product shipment to the customers or receipt of the products by the customer, depending on the
shipping terms, provided that all fees are fixed or determinable, evidence of an arrangement exists and collectibility is reasonably assured. End users have the
right to return their product within 30 days of the purchase. TiVo establishes allowances for expected product returns in accordance with SFAS No. 48,
"Revenue Recognition When Right of Return Exists". These allowances are recorded as a direct reduction of revenues and accounts receivable.
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