TiVo 2011 Annual Report Download - page 11

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sales.
On September 3, 2008, we extended our current agreement with DIRECTV for the development, marketing, and distribution of a new HD DIRECTV
DVR featuring the TiVo service.Under this new agreement, DIRECTV will pay a substantially higher monthly fee for households using the new HD
DIRECTV DVRs with TiVo, which are being deployed by DIRECTV, than the fees for previously deployed DIRECTV DVRs with TiVo service. DIRECTV
will continue to pay the previous monthly fee for all households using only the previously deployed DIRECTV DVRs with TiVo service. The fees paid by
DIRECTV are subject to monthly minimum payments that escalate during the term of the agreement (which expires on February 15, 2015, unless extended
until February 15, 2018 by DIRECTV). We will continue to defer a portion of these fees as a non-refundable credit to fund mutually agreed development,
with excess development work to be funded by DIRECTV. DIRECTV also has certain additional annual obligations to market and promote the new HD
DIRECTV DVR featuring the TiVo service now that it has launched.
Best Buy . Best Buy is one of the largest nationwide retailers of consumer electronics in the United States and our largest retail customer. We have had a
long-standing relationship with Best Buy since 1999 to sell our TiVo DVRs to consumers. On July 7, 2009, we entered into the Master Marketing and
Development Agreement (the “Marketing Agreement”), and as later amended, with Best Buy Stores, L.P., which amends and supplements our existing
Vendor Agreement, as amended, dated as of March 3, 2002, with Best Buy Purchasing, L.L.C., under which we developed and deployed a broadband
connected TV with a TiVo user interface and continue our long-standing retail marketing and DVR sales relationship.
Customer Service and Support
For our TiVo-Owned standalone DVRs, we provide customer support through outsourced service providers as well as our internal customer service
personnel. In most cases, when our product is sold through a television service provider (such as Charter, DIRECTV, Grande, ONO, RCN, Suddenlink, and
Virgin for example) the service provider is primarily responsible for customer support. We may provide training and other assistance to these service
providers.
Individual customers have access to an Internet-based repository for technical information and troubleshooting techniques. They also can obtain support
through other means such as the TiVo website, web forums, email, and telephone support.
We offer a manufacturer’s warranty of 90 days for labor and one year for parts on the DVRs TiVo manufacturers which enable our TiVo-Owned
subscriptions. We contract with third-parties to handle warranty repair. Warranties provided to service providers who distribute TiVo hardware vary in length
depending on the pricing paid by the buyer.
Research and Product Development
Our research and development efforts are focused on designing and developing the components necessary to enable the TiVo service. These activities
include hardware and software development.
Fiscal Year Ended January 31,
2012 2011 2010
(in millions)
Research and Development Expenses $110.4 $81.6 $63.0
We increased the number of our regular, temporary, and part-time employees engaged in research and development by 2% from a total of 514 as of
January 31, 2011 to 526 as of January 31, 2012. However, during fiscal year 2011 we worked to ramp up our R&D headcount resources to accommodate our
development work and grew our research and development headcount by 48% from 347 to 514 with the majority of the hiring during the last four months of
the year. Thus, in fiscal year ended January 31, 2012, while we only moderately increased our staffing levels over the prior year, we experienced significantly
higher levels of spend related to R&D headcount resources because we maintain the higher staffing levels we achieved at the end of January 31, 2011 for the
entire fiscal year ended January 31, 2012. In the fiscal year ending January 31, 2013, we currently expect our research and development expense to be
consistent with fiscal year 2012 in the aggregate; however, we do expect our research and development expenditures to begin to decrease in the second half of
fiscal year 2013 as compared to the same prior year periods.
Manufacturing and Supply Chain
10