TiVo 2011 Annual Report Download - page 51

Table of Contents
elements on a relative basis and revenue for each element is recognized when the basic revenue recognition criteria are met for the respective elements.
In arrangements where TiVo does not host the TiVo service and which include engineering services that are essential to the functionality of the licensed
technology or involve significant customization or modification of the software, we recognize revenue under industry specific software revenue recognition
guidance. Under this guidance, such arrangements are accounted for using the percentage-of-completion method or a completed-contract method. The
percentage-of-completion method is used if we believe we are able to make reasonably dependable estimates of the extent of progress toward completion and
the arrangement as a whole is reasonably expected to be profitable. We measure progress toward completion using an input method based on the ratio of costs
incurred, principally labor, to date to total estimated costs of the project. These estimates are assessed continually during the term of the contract, and
revisions are reflected when the changed conditions become known.
In some cases, it may not be possible to separate the various elements within the arrangement due to a lack of VSOE of selling prices for undelivered
elements in the contract or because of the lack of reasonably dependable estimates of total costs. In these situations, provided that TiVo is reasonably assured
that no loss will be incurred under the arrangement, we recognize revenues and costs based on a zero profit model, which results in the recognition of equal
amounts of revenues and costs, until the engineering professional services are complete. Costs incurred in excess of revenues are deferred up to the amount
deemed recoverable. Thereafter, any profit from the engineering professional services is recognized over the period of the maintenance and support or other
services that are provided, whichever is longer. If we cannot be reasonably assured that no loss will be incurred under the arrangement, we will account for the
arrangement under the completed contract method, which results in a full deferral of the revenue and costs until the project is complete. Provisions for losses
are recorded when estimates indicate that a loss will be incurred on the contract.
Advertising and Audience Research Measurement Services
Advertising and audience research measurement service revenue is recognized as the service is provided. Such services are usually sold in packages
customized for each campaign which generally lasts for up to three months. Because of the significant customization of offerings, TiVo historically has not
been able to obtain VSOE of selling prices for each element in the package. Accordingly, we would combine all elements in the package as a single unit and
recognize revenue ratably over the campaign period. As a result of the updated guidance on multiple element revenue arrangements, we can now estimate
BESP for each element in the package and separate them into individual units of accounting. Nonetheless, the new units of accounting have very similar
revenue earning patterns and timing and the amounts of revenue recorded in each period are not significantly impacted by the new guidance.
Hardware Revenues
Hardware revenues represent revenues from standalone hardware sales and amounts allocated to hardware elements in multiple element arrangements.
Revenues are recognized upon product shipment to the customers or receipt of the products by the customer, depending on the shipping terms, provided that
all fees are fixed or determinable, evidence of an arrangement exists, and collectibility is reasonably assured. End users have the right to return their product
within 30 days of the purchase. TiVo establishes allowances for expected product and service returns and these allowances are recorded as a direct reduction
of revenues and accounts receivable.
Certain payments to retailers and distributors such as market development funds and revenue share are recorded as a reduction of hardware revenues
rather than as a sales and marketing expense. TiVo's policy for revenue share payments is to reduce revenue when these payments are incurred and fixed or
determinable. TiVo's policy for market development funds is to reduce revenue at the later of the date at which the related hardware revenue is recognized or
the date at which the market development program is offered.
Recognition Period for Product Lifetime Subscription Revenues. We perform a quarterly quantitative and qualitative analysis of the expected life of
a product lifetime subscription which incorporates historical and future churn rates. Effective November 1, 2011, we extended the period we use to recognize
product lifetime subscription revenues from 60 months to 66 months for product lifetime subscriptions acquired on or before October 31, 2006 and such
change is being recognized on a prospective basis. This change resulted in a reduction of service revenues of $623,000 for the quarter and fiscal year ended
January 31, 2012. The new estimates of expected lives are dependent on assumptions with regard to future churn of the product lifetime subscriptions. As of
January 31, 2012, 253,000 product lifetime subscriptions have exceeded the period we use to recognize product lifetime subscription revenues and had made
contact with the TiVo service within the prior six month period. This represents approximately 51% of our cumulative lifetime subscriptions. We will
continue to monitor the useful life
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