TiVo 2009 Annual Report Download - page 78

Table of Contents
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 ratably 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. Effective November 1, 2008, the Company extended the period it uses to recognize product lifetime
subscription revenues from 54 months to 60 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. The new estimates of expected lives are dependant on assumptions
with regard to future churn of the product lifetime subscriptions. The Company 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 the Company's current assumptions,
including higher churn of product lifetime subscriptions due to the incompatibility of its standard definition TiVo units with high definition programming and
increased competition, the Company 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 subscription activation for a full refund. TiVo establishes allowances for
expected subscription cancellations.
Also included in service revenues are fees received from multiple system operators ("MSO"s), such as Comcast, DIRECTV, and Seven/Hybrid TV, 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 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 licensing and engineering services agreements dependent
upon the type of arrangement. In instances where TiVo hosts the TiVo service, 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, in
this instance vendor specific objective evidence ("VSOE") or verifiable objective evidence ("VOE") of fair value, respectively, 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 or VOE 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, 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 or because of the lack of reasonably dependable estimates of total costs. 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.
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