TiVo 2011 Annual Report Download - page 18

Table of Contents
software, and DVR and non-DVR set-top boxes, among other solutions, by the subscribers of our distribution customers and marketing partners. For example,
we are currently in trials in certain geographic markets with Charter and in the initial stages of deployment with other distribution customers, such as ONO. If
we are unable to complete development of these products in a timely and efficient manner to the satisfaction of our distribution customers, which includes
hiring and retaining the necessary number of engineers and software developers to develop each partner's customized solution, correctly estimating the
amount of time and resources that are necessary to develop each such solution, licensing necessary third-party technology (such as, for example, technology
which enables the display of VOD content from our partners), and enabling full-scale deployment of our TiVo-branded advanced television solutions and
services with these marketing partners and distributors, we may not be able to acquire new subscribers from them under these agreements and our business
would be harmed.
Furthermore, some of our partners have the right to receive certain most favored terms from us such that if we were to license similar products and
services to other parties at more attractive terms than what such partners receive under their agreements with us, then such partners may be entitled to receive
the new more favorable terms. Additionally, such partners may have the right to terminate their agreements with us in the event we are subject to certain
specified change of control transactions involving companies specified in their agreements. If any of these events occurred, including our inability to develop,
license, and deploy in a timely, efficient, and on a full-scale basis, we would have difficulty generating revenues and new subscriptions under these
agreements and our business would be harmed.
If we fail to adequately manage our increasingly complex distribution agreements, including licensing, development, and engineering services,
we could be subjected to unexpected delays in the expected deployment of TiVo's advanced television solutions, increased costs, possible penalties
and adverse accounting and contractual consequences, including termination of such distribution arrangements. In any such event, our business
would be harmed.
In connection with our deployment arrangements, we engage in complex licensing, development, and engineering services arrangements with our
marketing partners and distributors. These deployment agreements with television service providers usually provide for some or all of the following
deliverables: software engineering services, solution integration services, hosting of the TiVo service, maintenance and support. In general, these contracts are
long-term and complex and often rely on the timely performance of such television service provider's third-party vendors that are outside TiVo's control. The
engineering services and technology we agree to provide and/or develop may be essential to the functionality of the licensed software and delivered product or
such software may involve significant customization and modification for each customer. We have experienced or may experience delays in delivery with
television service providers including, for example, DIRECTV, Virgin, Suddenlink, ONO, and Charter, as well as significant increases in expected costs of
development and performance in certain instances in the past. Additional delays could lead to additional costs and adverse accounting treatments forcing us to
recognize costs earlier than expected. If we are unable to deliver the contracted for technology, including specified customizations and modifications, and
services in a timely manner or at all, then we could face penalties in the form of unreimbursed engineering development work, loss of subscriber or minimum
financial commitments on the part of our partners or in extreme cases the early termination of such distribution agreements. In any such case our business
would be harmed.
If we fail to properly estimate, manage, and perform the development and engineering services for our television service provider customers, we
could incur additional unexpected expenses and losses which could reduce or even eliminate any profit from these deployment arrangements, in
which case our business would be harmed.
When we enter into deployment agreements with television service providers, we are typically required to make cost estimates based on historical
experience and various other assumptions. These estimates are assessed continually during the term of the contract and revisions are reflected when the
conditions become known. Using different cost estimates related to engineering services may produce materially different operating results, in addition to
differences in timing and income statement classification of related expenses and revenues. An unfavorable change in estimates could result in a reduction of
profit due to higher cost or the recording of a loss once such a loss becomes known to us that would be borne solely by us. We also recognize revenues for
software engineering services that are essential to the functionality of the software or involve significant customization or modification using the percentage-
of-completion method. We recognize revenue by measuring progress toward completion based on the ratio of costs incurred, principally labor, to total
estimated costs of the project, an input method. If we are unable to properly measure and estimate our progress toward completion in such circumstances, we
could incur unexpected additional costs, be required to recognize certain costs earlier than expected, or otherwise be required to delay recognition of revenues
unexpectedly. A material inability to properly
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