TiVo 2011 Annual Report Download - page 46

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product lifetime subscriptions) by providing services that are competitive in the market. Management believes factors such as service enhancements, service
commitments, higher customer satisfaction, and improved customer support may improve this metric. Conversely, management believes factors such as
increased competition, lack of competitive service features such as high definition television recording capabilities in our older model DVRs or access to
certain digital television channels or MSO Video On Demand services, as well as increased price sensitivity and installation and CableCARDTM technology
limitations, may cause our TiVo-Owned Churn Rate per month to increase.
We define the TiVo-Owned Churn Rate per month as the total TiVo-Owned subscription cancellations in the period divided by the Average TiVo-
Owned subscriptions for the period (including both monthly and product lifetime subscriptions), which then is divided by the number of months in the period.
We calculate Average TiVo-Owned subscriptions for the period by adding the average TiVo-Owned subscriptions for each month and dividing by the number
of months in the period. We calculate the average TiVo-Owned subscriptions for each month by adding the beginning and ending subscriptions for the month
and dividing by two. We are not aware of any uniform standards for calculating churn and caution that our presentation may not be consistent with that of
other companies.
The following table presents our TiVo-Owned Churn Rate per month information:
Fiscal Year Ended January 31,
2012 2011 2010
(In thousands, except percentages)
TiVo-Owned subscription cancellations (271) (359) (337)
Average TiVo-Owned subscriptions 1,174 1,367 1,577
Annual Churn Rate (23)% (26)% (21)%
Number of Months 12 12 12
TiVo-Owned Churn Rate per month (1.9)% (2.2)% (1.8)%
Included in our TiVo-Owned Churn Rate per month are those product lifetime subscriptions that have both reached the end of the revenue recognition
period and whose DVRs have not contacted the TiVo service within the prior six months. Conversely, we do not count as churn product lifetime subscriptions
that have not reached the end of the revenue recognition period, regardless of whether such subscriptions continue to contact the TiVo service. TiVo-Owned
Churn Rate per month was (1.9)%, (2.2)%, and (1.8)% for the fiscal year ended January 31, 2012, 2011, and 2010, respectively.
For the fiscal year ending January 31, 2013, we expect churn to be potentially higher on a percentage basis as total cancellations are being divided over a
smaller TiVo-Owned subscription base. Historically we have seen a large amount of churn associated with non-HD box subscriptions and we expect the
majority of our churn in fiscal 2013 continue to come from these non-HD box subscriptions.
Subscription Acquisition Cost or SAC . Management reviews this metric, and believes it may be useful to investors, in order to evaluate trends in the
efficiency of our marketing programs and subscription acquisition strategies. We define SAC as our total TiVo-Owned acquisition costs for a given period
divided by TiVo-Owned subscription gross additions for the same period. We define total acquisition costs as sales and marketing, subscription acquisition
costs less net TiVo-Owned related hardware revenues (defined as TiVo-Owned related gross hardware revenues less rebates, revenue share and market
development funds paid to retailers) plus TiVo-Owned related cost of hardware revenues. The sales and marketing, subscription acquisition costs line item
includes advertising expenses and promotion-related expenses directly related to subscription acquisition activities, but does not include expenses related to
advertising sales. We do not include third-parties’ subscription gross additions, such as MSOs' gross additions with TiVo subscriptions, in our calculation of
SAC because we typically incur limited or no acquisition costs for these new subscriptions, and so we also do not include MSOs’ sales and marketing,
subscription acquisition costs, hardware revenues, or cost of hardware revenues in our calculation of TiVo-Owned SAC. We are not aware of any uniform
standards for calculating total acquisition costs or SAC and caution that our presentation may not be consistent with that of other companies.
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