TiVo 2009 Annual Report Download - page 55

Table of Contents
As a result of the seasonal nature of our subscription growth, total acquisition costs vary significantly during the year. Management primarily reviews
the SAC metric on an annual basis due to the timing difference between our recognition of promotional program expense and the subsequent addition of the
related subscriptions. For example, we have historically experienced increased TiVo-Owned subscription gross additions during the fourth quarter, however,
sales and marketing, subscription acquisition activities occur throughout the year.
During the twelve months ended January 31, 2010, our total acquisition costs were $23.8 million and SAC was $161. Comparatively, total acquisition
costs for the twelve months ended January 31, 2009 and 2008 were $23.4 million and $81.3 million, respectively and SAC was $125 and $295, respectively.
The increase in our total acquisition costs of $451,000 from the same prior year period is primarily a result of an increase in our hardware gross margin loss
by $1.4 million. This increase in hardware gross margin loss is related in part to a lower benefit from utilization of previously reserved inventory sold during
the fiscal year ended January 31, 2010 as compared to the same prior year period as well as a result of our decision to reduce the price of our DVRs during our
fourth quarter of fiscal year 2010. During the fiscal year ended January 31, 2010 we had a net benefit of $1.5 million mainly from changes in inventory
reserves as compared to $4.9 million utilization of previously reserved inventory in the same prior year period. These increases were partially offset by lower
sales and marketing, subscription acquisition costs of $1.0 million as we continue to efficiently manage these costs. For the fiscal year ending January 31,
2011, we expect to have decreased subscription acquisition costs. We believe this improvement will predominately be driven by lower hardware costs on our
new TiVo Premiere boxes; however, we expect to increase our sales and marketing, subscription acquisition costs in the aggregate in an effort to promote
these new product offerings. As such, this increase in our sales and marketing, subscription acquisition cost is expected to offset some of the expected benefit
from our lower hardware cost.
The increase in SAC of $36, for the twelve months ended January 31, 2010 as compared to the same prior year period, was a result of lower
subscription gross additions during the twelve month period.
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. 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, which are included in hardware revenues, net, 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.
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