TiVo 2013 Annual Report Download - page 20

Table of Contents
February 15, 2018 by DIRECTV) and the revenues from DIRECTV are material to TiVo's net income. Due to the decline in the number of
DIRECTV MSO subscriptions in recent years, in fiscal year 2014, we recognized the monthly minimum amount each month during the
entire year. We incur limited recurring expenses related to the DIRECTV relationship. If we are unable to renew or extend our existing
contract with DIRECTV on similar terms, then our business could be harmed.
Many of our current deployment arrangements with television service providers require us to incur significant upfront
development and engineering expenses for which we are in total or in part compensated through future service fees received
after a solution is launched. If we are required to incur such upfront development and integration costs in excess of any development
revenues and we are reasonably assured that these excess upfront development costs are recoverable, we will defer such cost and recognize
them on a zero margin or straight-line basis after the solution is launched. 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. In situations where
we are recovering upfront project-specific development costs, we would start recognizing service revenues (and related margin) only after the
initial project-specific development costs are fully recovered. As of January 31, 2014, we had approximately $27.2 million in such project-
specific deferred costs. The assessment of recoverability is highly dependent on our estimates of engineering and operating costs related to
the project. As a consequence, it may be a significant period of time after a solution launches and after we are adding new subscriptions from
such deployment arrangement before we experience a corresponding impact on our service revenues (and related margins) from such a
deployment arrangement. If we fail to properly estimate, manage, and perform these development and engineering services and otherwise
comply with the terms of these deployment arrangements, we could incur additional unexpected expenses and losses in connection with
these arrangements.
In the event of an early termination of these arrangements with our television service provider customers prior to
deployment, we would be forced to recognize any deferred development costs which we have incurred but not recognized
without corresponding revenues from development or subscription fees, and in such an event we would be forced to incur
unexpected losses. From time to time during development and integration for our television service provider customers, we or our
customers may request to revise certain terms of our contracts or statements of work to modify such deliverables required or to otherwise
address circumstances and technological requirements not anticipated by the parties when the contract or statement of work was originally
agreed upon. Additionally, from time to time, we have experienced delays and may in the future experience delays in our development work
with our television service provider customers, which may cause us to modify the terms of those arrangements. If we were to fail in
modifying the terms of these arrangements to the satisfaction of both parties and the arrangements were unexpectedly terminated early, we
would have to recognize immediately any associated deferred costs that may no longer be deemed recoverable. In such an event that we
would have to recognize early such deferred development and integration costs, we would be required to do so without any corresponding
revenue in which case we would incur unexpected losses which would harm our business.
We face risks from the consolidation or change of control of television service providers both in the U.S. and internationally.
We have marketing and distribution agreements with a number of different television service providers for the licensing and distribution of
our technology, products, and services. To the extent our existing television service providers merge or are acquired by other television
service providers, we risk losing an existing customer whose new owner may have an existing relationship with a competitor or we risk the
loss of a potential customer who otherwise may have been interested in our products and services but whose new owner may not. We may
also experience delays in adoption of our products or services due to a change in control of such television service providers. Recently
Vodefone has announced a proposal to acquire our customer Ono and Comcast has agreed to acquire our customer Time Warner Cable. In
the event of such consolidation in the television industry, our business could be harmed by the loss of existing or potential future customers
opportunities.
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The DVR and advanced television solutions market is rapidly evolving, and we face significant competition. Moreover, the market for in-
home entertainment is intensely competitive and subject to rapid technological change. As a result of this intense competition, we could incur
increased subscription acquisition costs that could adversely affect our ability to reach or sustain profitability in the future. If new technologies
render the DVR market obsolete, we may be unable to generate sufficient revenue to cover our expenses and obligations.
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