TiVo 2011 Annual Report Download - page 22

Table of Contents
and services are a continually evolving consumer electronic category. Retailers, consumers, and potential partners may perceive little or no benefit from DVR
products and services. Many consumers are not aware of its benefits, such as the ability to seamlessly integrate linear and broadband/VOD-based video, time-
shifting of linear television, transfer of recorded programs to portable devices, access to web based and broadband delivered content not available through
traditional cable and satellite operators, and therefore may not value the benefits of the TiVo service and products. We will need to continue to devote a
substantial amount of time and resources to educate consumers and promote our products in order to increase our subscriptions. We cannot be sure that a
broad base of consumers will ultimately subscribe to the TiVo service or purchase the products that enable the TiVo service.
We face competitive risks in the provision of an entertainment offering involving the distribution of digital content through broadband,
including from broadband devices connected directly to the TV or through a PC connected to the TV.
We have previously launched access to the entertainment offerings of Amazon Video on Demand service, Netflix, Hulu Plus, Pandora, and others for the
distribution of digital content directly to broadband-connected TiVo DVRs. Our offerings with Amazon Video On Demand, Netflix, Hulu Plus, Pandora, and
others typically involve no significant long-term commitments. We face competitive, technological, and business risks in our on-going provision of an
entertainment offering involving the distribution of digital content through broadband to consumer televisions with Amazon, Netflix, and others, including
availability of premium content and speed and quality of the delivery, including the availability of high definition content, of such content to TiVo DVRs. For
instance, we face increased competition from a growing number of broadband-enabled devices from providers such as Roku, AppleTV, and Google that
provide broadband delivered digital content directly to a consumer's television connected to such a device. Additionally, we face competition from online
content providers and other PC software providers who deliver digital content directly to a consumer's personal computer, which in some cases may then be
viewed on a consumer's television. If we are unable to provide a competitive entertainment offering with Amazon Video On Demand, Netflix, Hulu Plus,
Pandora, and our other partners, on our own, or an equivalent offering with other third-parties, the attractiveness of the TiVo service to new subscribers could
be harmed as consumers increasingly look for new ways to receive and view digital content and our ability to retain and attract subscribers could be harmed.
Our ability to retain our current customers may continue to decrease in the future which could increase our TiVo-Owned subscription monthly
churn rate and could cause our revenues to suffer.
We believe factors such as increased competition in the DVR marketplace, failure by us to continue to innovate and deliver new features on current
deployed DVRs as well as deliver new DVR models in the future, changing television technologies such as the increasing penetration of high definition, the
use of switched digital technology to deliver encrypted digital television signals, and the failure of cable operators in the future to transmit both an analog and
digital transmission thus impacting our Series2 DVRs, increased price sensitivity in the consumer base, any deterioration in the quality of our service, and
product lifetime subscriptions no longer using our service may cause our TiVo-Owned subscription monthly churn rate to increase. If we are unable to retain
our subscriptions by limiting the factors that we believe increase subscription churn, our ability to grow our subscription base could suffer and our revenues
could be harmed.
The product lifetime subscriptions to the TiVo service that we currently are obligated to service commit us to providing services for an
indefinite period. The revenue we generate from these subscriptions may be insufficient to cover future costs and will negatively impact our TiVo-
Owned Average Revenue per Subscription.
We offer a product lifetime subscription option to the TiVo service that commits us to provide the TiVo service for as long as the DVR is in service. We
receive product lifetime subscription fees for the TiVo service in advance and amortize these fees as subscription revenue over 66 months for product lifetime
subscriptions which is our current estimate of the service life of the DVR. If these product lifetime subscriptions use the DVR for longer than anticipated, we
will incur costs such as telecommunications and customer support costs without a corresponding subscription revenue stream and therefore will be required to
fund ongoing costs of service from other sources, such as advertising revenue. Additionally, if these product lifetime subscriptions use the DVR for longer
than the period in which we recognize revenue, our average revenue per subscription (“ARPU”) for our TiVo-Owned subscriptions will be negatively
impacted as we continue to count these customers as subscriptions without corresponding subscription revenue thus lowering our average revenues across our
TiVo-Owned subscription base. As of January 31, 2012, we had approximately 253,000 product lifetime subscriptions that had exceeded the
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