TiVo 2011 Annual Report Download - page 44

Table of Contents
Executive Overview
Fiscal year 2013
In the fiscal year ending January 31, 2013, we plan to continue to be focused on our efforts to build leading advanced television products, enter into new
distribution agreements, engage in development work for existing distribution agreements, and continue deployment activities for our existing distribution
agreements. Additionally, we have been and plan to continue to actively protect our intellectual property. We will continue to focus on the following
priorities:
• We expect to continue our efforts to increase our subscription base by adding new subscriptions through our TiVo-Owned direct and retail sales
with the roll out of our new products, as well as our mass distribution partnerships both in the U.S. and internationally. We expect the growth trend in our
MSO subscription base to continue in fiscal year 2013 with the continued contributions from current deployments and the expected future deployment of
additional distribution deals. However, this growth in our installed base of MSO subscriptions will likely be slightly offset by further losses in our TiVo-
Owned subscription base stemming from continued competition and our efforts to manage the amount of TiVo-Owned marketing dollars we are devoting to
TiVo-Owned subscription acquisition activities.
• We believe that our investment in research and development is critical to remaining competitive and being a leader in advanced television
solutions that go beyond the DVR. Therefore, we expect our annual research and development spending in fiscal year 2013 to be consistent with the fiscal
year ended January 31, 2012 as we continue to pursue new technological and product developments which include the continued development of whole-home
and multi-screen offerings which includes non-DVR STBs and software solutions that extend the TiVo experience to personal computers, tablets, and mobile
devices, increasing our operational capacity to handle increased operator deployments, and gaining more efficiency in our distribution efforts. However, we
do expect our research and development costs to decrease on a quarterly basis later in the year.
• We will continue our efforts to protect our technological innovations and intellectual property. As a result, we expect to continue to incur litigation
expenses for our ongoing patent infringement lawsuits, which includes litigation with Verizon and Motorola Mobility.
• We expect to continue our development efforts under our existing MSO deployment agreements. To the extent that our upfront development
efforts are not paid for through development fees from such arrangements, but such development expenses are recoverable through future guaranteed service
fees from these MSOs, we will defer the cost of the development and expense it in our Statement of Operations. However, despite the deferral of these
development costs, we do incur cash outflows associated with these development efforts resulting in potentially higher cash usage in the near term. Later,
when related revenues from service fees are received, they are first recognized as technology revenues until the previously deferred costs of development of
such arrangements are expensed. This recognition of such associated service fees as technology revenues will negatively impact the average revenue per
subscription ("ARPU") for MSOs metric until such service fees are later recognized as service revenues. We expect that our MSO ARPU will be negatively
impacted by the recovery of these previously incurred development cost in fiscal year 2013.
• As a result of the flooding in Thailand and the impact on the suppliers of hard disk drives, including our primary supplier, Western Digital, we
expect to incur incremental hardware costs relating to the increased pricing of hard disk drives, including up to $3.9 million of expenses relating to increased
hard disk drive costs in the first half of fiscal year 2013. This amount of additional cost is not necessarily reflective of the impact we expect for the full fiscal
year 2013 as we may be able to pass along some of the increased costs to either consumers or distribution partners.
Key Business Metrics
Management periodically reviews certain key business metrics in order to evaluate our operations, allocate resources, and drive financial performance in
our business. Management monitors these metrics together and not individually as it does not make business decisions based upon any single metric.
Subscriptions . Management reviews this metric, and believes it may be useful to investors, in order to evaluate our relative position in the marketplace
and to forecast future potential service revenues. The TiVo-Owned lines refer to subscriptions sold directly or indirectly by TiVo to consumers who have
TiVo-enabled DVRs and for which TiVo incurs acquisition costs. The MSOs lines refer to subscriptions sold to consumers by multiple
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