TiVo 2011 Annual Report Download - page 47

Table of Contents
Fiscal Year Ended January 31,
Subscription Acquisition Costs 2012 2011 2010
(In thousand, except SAC)
Sales and marketing, subscription acquisition costs $ 7,392 $ 8,169 $ 5,048
Hardware revenues (47,893) (51,618) (48,787)
Less: MSOs related hardware revenues 31,483 14,885 14,497
Cost of hardware revenues 59,439 69,033 65,909
Less: MSOs related cost of hardware revenues (23,577) (11,296) (13,706)
Total Acquisition Costs 26,844 29,173 22,961
TiVo-Owned Subscription Gross Additions 114 160 148
Subscription Acquisition Costs (SAC) $ 235 $ 182 $ 155
As a result of the seasonal nature of our subscription growth, total acquisition costs vary significantly during the year. Management primarily reviews the
SAC metric on an annual basis due to the timing difference between our recognition of promotional program expense and the subsequent addition of the
related subscriptions. For example, we have historically experienced increased TiVo-Owned subscription gross additions during the fourth quarter; however,
sales and marketing, subscription acquisition activities occur throughout the year.
During the twelve months ended January 31, 2012 our total acquisition costs were $26.8 million, a decrease of $2.4 million compared to $29.2 million
during the same prior year period. TiVo's sales and marketing, subscription acquisition costs decreased by $777,000, as compared to the same prior year
period combined with a decrease in TiVo's hardware gross margin losses of $1.6 million as compared to the same prior year period. This decrease in hardware
gross margin loss is largely due to the lower number of subscription gross additions as compared to the same prior year period. The increase in SAC of $53
for the twelve months ended January 31, 2012 as compared to the same prior year period was largely a result of the decrease in subscription gross additions as
compared to the same prior year period and full year of the impact from our new consumer pricing (whereby consumers pay lower hardware price in exchange
for higher subscription fees) that we initiated during the fourth quarter of the fiscal year ended January 31, 2011.
Average Revenue Per Subscription or ARPU. Management reviews this metric, and believes it may be useful to investors, in order to evaluate the
potential of our subscription base to generate revenues from a variety of sources, including service fees, advertising, and audience research measurement. You
should not use ARPU as a substitute for measures of financial performance calculated in accordance with GAAP. Management believes it is useful to consider
this metric excluding the costs associated with rebates, revenue share, and other payments to channel because of the discretionary and varying nature of these
expenses and because management believes these expenses, which are included in hardware revenues, net, are more appropriately monitored as part of SAC.
We are not aware of any uniform standards for calculating ARPU and caution that our presentation may not be consistent with that of other companies.
Furthermore, ARPU for our MSOs may not be directly comparable to the service fees we may receive from these partners on a per subscription basis as the
fees that our MSOs pay us may be based upon a specific contractual definition of a subscriber or subscription which may not be consistent with how we
define a subscription for our reporting purposes or be representative of how such subscription fees are calculated and paid to us by our MSOs. For example,
an agreement that includes contractual minimums may result in a higher than expected MSOs ARPU if such fixed minimum fee is spread over a small number
of subscriptions. Additionally, ARPU for our MSO subscriptions may not be reflective of revenues received by TiVo as in certain cases the cost of
development for such MSO customer may be deferred on our consolidated balance sheet until later when related revenues from service fees are received and
are first recognized as Technology revenues by us until the previously deferred costs of development are fully expensed. This recognition of service fees as
Technology revenues will have the effect of lowering ARPU for certain of our MSO subscriptions until such costs of development are fully expensed.
We calculate ARPU per month for TiVo-Owned subscriptions by subtracting MSOs'-related service revenues (which includes MSOs’ subscription
service revenues and MSOs’-related advertising revenues) from our total reported net service revenues and dividing the result by the number of months in the
period. We then divide the resulting average service revenue by Average TiVo-Owned subscriptions for the period, calculated as described above for churn
rate. The following table shows this calculation:
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