TiVo 2011 Annual Report Download - page 50

Table of Contents
competitors usually lease them to their customers. Therefore, TiVo is typically not able to obtain TPE of selling price.
When TiVo is unable to establish a selling price using VSOE or TPE, which is generally the case for sales of TiVo-enabled DVRs to consumers and
advertising and audience research measurement services, we use our BESP in determining the allocation of arrangement consideration. The objective of BESP
is to determine the price at which we would transact a sale if the product or service were sold on a standalone basis. BESP is generally used for offerings that
are not typically sold on a standalone basis or for new or highly customized offerings.
TiVo establishes pricing for our products and services by considering multiple factors including, but not limited to, geographies, market conditions,
competitive landscape, internal costs, gross margin objectives, and industry pricing practices. When determining BESP for a deliverable that is generally not
sold separately, these factors are also considered.
TiVo-enabled DVRs and TiVo service
TiVo sells the DVR and service directly to end-users through bundled sales programs through the TiVo website. Under these bundled programs, the
customer receives a DVR and commits to a minimum subscription period of one to three years or product lifetime and has the option to either pay a monthly
fee over the subscription term (monthly program) or to prepay the subscription fee in advance (prepaid program). After the initial committed subscription
term, the customers have various pricing options at which they can renew the subscription.
The VSOE of selling price for the subscription services is established based on standalone sales of the service and varies by service period. TiVo is not
able to obtain VSOE for the DVR element due to infrequent sales of standalone DVRs to consumers. The BESP of the DVR is established based on the price
that we would sell the DVR without any service commitment from the customer. Under these bundled programs, revenue is allocated between hardware
revenue for the DVR and service revenue for the subscription using on a relative basis, with the DVR revenue recognized upon delivery, up to an amount not
contingent on future service delivery, and the subscription revenue recognized over the term of the service.
Subscription revenues from product lifetime subscriptions are recognized ratably over our estimate of the useful life of a TiVo-enabled DVR associated
with the subscription. The estimates of expected lives are dependent on assumptions with regard to future churn of product lifetime subscriptions. TiVo
continuously monitors the useful life of a TiVo-enabled DVR and the impact of the differences between actual churn and forecasted churn rates. If subsequent
actual experience is not in line with our current assumptions, including higher churn of product lifetime subscriptions due to the incompatibility of its standard
definition TiVo units with high definition programming and increased competition, we may revise the estimated life which could result in the recognition of
revenues from this source over a longer or shorter period. Prior to November 1, 2011 we amortized all product lifetime subscriptions over a 60 month period.
Effective November 1, 2011, we have extended the period we use to recognize product lifetime subscription revenues from 60 months to 66 months for
product lifetime subscriptions where we have not recognized all of the related deferred revenue as of the reassessment date.
End users have the right to cancel their subscription within 30 days of subscription activation for a full refund. TiVo establishes allowances for expected
subscription cancellations.
Arrangements with MSOs
TiVo has two different types of arrangements with MSOs under technology deployment and engineering services agreements. Our arrangements with
MSOs typically include software customization and set up services, limited training, PCS, TiVo-enabled DVRs, non-DVR STBs, and TiVo service.
In instances where TiVo hosts the TiVo service, we recognize revenue under the general revenue recognition guidance. We determine whether evidence
of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collection is probable. Revenue recognition is deferred until such time as
all of the criteria are met. Elements in such arrangements usually include DVRs, non-DVR STBs, TiVo service hosting, associated maintenance and support
and training. Non-refundable payments received for customization and set up services are deferred and recognized as revenue ratably over the longer of the
contractual or customer relationship period. The related cost of such services is capitalized to the extent it is deemed recoverable and amortized to cost of
revenues over the longer of the contractual or customer relationship period. TiVo has established VSOE of selling prices for training, DVRs, non-DVR STBs,
and maintenance and support, based on the price charged in standalone sales of the element or stated renewal rates in the agreement. The BESP of TiVo
service is determined considering the size of the MSO and expected volume of deployment, market conditions, competitive landscape, internal costs, and
gross margin objectives. Total arrangement consideration is allocated among individual
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