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TIVO PART II Powered By Docstoc
					High Technology, Entrepreneurship and Strategy

TiVo – TV, Your Way

Dewole Aradeon
Ilia Dub
Vadim Kosin
Sharon Lee
Per Levin
Dimitrios Pazaitis

"Here is, in a nutshell, what a PVR can do for you: empower you to take control
of what you watch on TV. The consumer electronics industry has finally delivered
on what the VCR promised more than 25 years ago: the ability to time-shift TV."

-, July 2000

1. Introduction

Context for Innovation

The history of TiVo goes back as far as the early 1990s, when Silicon Graphics

collaborated with Time Warner in one of the first attempts to create something they

called “Interactive TV”. The trial the two companies eventually started in Orlando failed,

but the idea was born: the TV viewer should be in the “driver’s seat” of creating a

programming schedule that suits him.

In 1997, two former Silicon Graphics executives got together and founded TiVo, the

company dedicated to providing “personal television” – a technology that would allow

the viewer to watch his favorite movies any time, no matter when they were shown on

TV or on which network channel. This has critical implications for the TV network


At the same time, in 1997, the TV industry and the industry for consumer electronics

were undergoing major changes related to the proliferation of cable and satellite TV. This

brought with it up to 500 TV channels at the disposal of television viewers.

This was the setting, when TiVo Inc. was born. The relevant value chains of that time, are

depicted below in figure 1 and figure 2.

                                 Cable / satellite
                                 TV providers

                                       Consumer electronics
                                       Manufacturers (TV sets, Digital
                                       TV boxes, DVD players)

Figure 1: Value Chain of the TV Industry

                                  VHS tape / DVD disk

                                             Consumer electronics
                                             Manufacturers (TV sets,
                                             VCRs, DVD players)

Figure 2: Value Chain in the Video Records Industry

Technology Description

As TiVo Inc. puts it: “TiVo DVRs are like VCRs, but with a hard disk and without the

hassles of videotapes”. Essentially TiVo is a smart video recorder that “knows” which

movies its owner prefers and automatically records them. Furthermore: TiVo enables a

TV viewer to watch a live show, pause it for a moment, get himself a coffee and continue

watching the same movie with a “time-shift”. And of course, when watching a recorded

(or time-shifted) movie, the user can fast-forward through the much-hated commercials.

This of course has implications for TV advertisers and indirectly on the TV network

studios that sell air time to these advertisers based on when their spots were aired (now


From the technological point of view, TiVo is an amazingly simple device: it consists of

a basic PowerPC with an MPEG encoder / decoder and a universal Remote Control. The

PowerPC runs Linux OS and a piece of TiVo’s proprietary software. In addition the

company maintains a TiVo Broadcast Center. The Broadcast Center is a series of

computer servers that store the TV Guide and some additional content, such as the

TiVolution Magazine. Every TiVo device needs to be connected to a phone line, so that it

can regularly dial into the Broadcast Center in order to get up-to-date content and


It is interesting to compare the technological development of TiVo with the development

of DVD, especially because both are considered to be direct successors of the VCR. DVD

arose from a common effort of a consortium of the most influential consumer electronics

and media companies. The technology was developed in the best labs backed by huge

R&D budgets with a single goal: to create a replacement for the VCR. TiVo on the other

       hand can be considered a “by-product” of the development in several technological areas:

       PCs, hard drives, media compression (MPEG) and the Internet. This has implications on

       how TiVo has had to struggle with a fragmented and evolving base of strategic backers,

       some of whom are also demonstrating the potential to be rivals.

       Industry analysis

       To analyze the competitive situation in TiVo’s industry we are using Porter’s five forces


                                                 Easy Entry
                                      -         Biggest part of the
                                        technology, such as PC, hard-
                                        drives, MPEG is available to
                                      -         Information for the TV
                                        Guide is available
                                      -         There is almost no network
                                        effect, so that existing installed
                                        base doesn’t represent an entry

       Strong Suppliers                       Intense Rivalry                              Buyers
-         A few electronic            -         Two direct competitors
                                                                              -         Individual buyers have
  component manufacturers supply        (Moxi Digital, ReplayTV) backed
                                                                                low bargaining power, however
  critical parts                        by large corporations competing
                                                                                since PVR is a new technology,
-         Satellite / cable TV          in a very small market
                                                                                mass acceptance is crucially
  providers: high bargaining power,   -         Cable TV providers in the
  thanks to direct access to large      process of creating their own set-
                                                                              -         Buyers are price sensitive
  customer bases                        top boxes with DVR technology
                                                                              -         Consumer electronics
-         Powerful TV networks          incorporated (AT&T Broadband).          manufacturers: high bargaining
  supply program content                                                        power, due to established brands,
                                                                                manufacturing capabilites,
                                                                                distribution channels and
                                                                                financial strenght.
                                      -         VCR offers some of the
                                        functions of the PVR and has
                                        much higher acceptance and
                                        lower price
                                      -         It might be possible to add
                                        PVR functionality to VCRs so
                                        that they will become a perfect
                                      -         DVD writers are a
                                        potential substitute
                                      -         Set-top boxes with DVR
The five forces analysis show, that it will be difficult for TiVo to remain market leader in

this market and even to survive. On one hand its very uncertain whether the consumers

will accept TiVo’s product (and PVRs in general) and whether the market will take off.

On the other hand the established consumer electronics manufacturers have the biggest

power in this market, because they find themselves not only in a strong bargaining

position as suppliers (in the case of cable TV providers) as gateways to large customer

populations. In addition these players are also potential entrants in the market. In fact we

expect that they will enter the market by embedding PVR functionality into TV sets,

DVD players and set-top boxes as soon as the market takes off. In any case, even if no

new players enter the market, the bargaining power of the suppliers and the intense

rivalry in the market will make it very difficult for TiVo to capture value. We will expand

on these points in the next two sections.

2. TiVo: Business Model and Strategic Alliances

TiVo’s primary objective is to establish TiVo as the leader in convergence technology,

specifically with regards to household entertainment. TiVo would like to see its

technology, particularly its core digital video recording technology, licensed by

manufacturers of consumer electronics products, and its use and functionality extended

by content and other providers who will pay it co-development fees. This is of course, in

addition to a constant stream of subscription fees, although the sustainability of this over

the long term is in question, given the fierce competition on the horizon and the general

unpopularity of monthly fees.

Business Model

TiVo currently cites four sources of revenue: subscription revenue, non-subscription

revenue, licensing revenue and engineering professional services. Subscription revenue

comes from a monthly or lifetime fee charged to TiVo users. Non-subscription revenue

primarily includes charter advertising and sponsorship revenue from consumer

companies and media networks that have provided content on the TiVo Service.

Licensing revenue consists of revenues generated from licensing technology to consumer

electronics companies and service providers. Engineering professional services revenue

includes revenues earned for engineering services performed.

To date, $8.2 million of its latest quarter revenue (ended April 2002) of $9.9 million is

made up of recurring subscription revenue. Non-subscription and services revenue have

been insignificant to date. And until the battle around patents and an industry standard

has been conclusively won, it will be difficult to expect a steady stream of licensing


Non-subscription revenue may hold some promise. This includes revenue streams from

the following: advertising, audience measurement research, revenues from programmers

and electronic commerce. In early May of 2002, TiVo debuted a new advertising

campaign with partner Best Buy, dubbed “advertainment” that had some innovative

elements to it, including “telescoping” 30-second commercials that allow viewers to opt-

in to view interesting, branded entertainment and then return to their ‘live’ viewing

without skipping a beat. Contrary to popular opinion, this is not as ridiculous as people

think (who would deliberately choose to watch commercials?), as it appears that

advertisers are beginning to sit up now and to craft more interesting forms of

“advertainment” – an example here would be the BMW film shorts that were wildly

successful in driving viewers to the BMW website. A second would be the research done

by TiVo indicating that TiVo viewers did more instant replays of the Super Bowl

commercials than of the game itself, with the Pepsi ads featuring Britney Spears being

the unacknowledged “MVP.” Such entertainment is automatically stored on the TiVo

hard drive on reserved space (so as not to infringe on the viewer’s allotted recording

hours) and hence can be accessed whenever desired – a boon to advertisers.

Other aspects of this commercial included the ability to enter a free CD giveaway as well

as to order a CD using only the TiVo remote. Obviously, one can see how this can

translate to lead generation and Request for Information capabilities although

unfortunately, it is still too early to determine what the uptake will be. TiVo also plans to

offer brand marketers near real-time audience measurement data on their campaigns,

including when it was viewed and how often.

This evolution represents a fundamental change in advertising. A ‘pull’ model is

replacing the traditional ‘push’ model, where consumers pick and choose which

advertising they wish to consume. However, while exciting, this is still a nascent

development which success will depend heavily on mass adoption.

Ultimately, it appears that TiVo would like to see licensing revenue make up the bulk of

the business’s revenues. The licensing model recently gained credibility - the Sony

licensing deal inked in October 2001 (see Exhibit 1), was worth an estimated $10-15

million, and hopefully hailed as a ‘proxy licensing deal.’ Last month, Sony shipped its

first DVR powered by TiVo-licensed technology to the Japanese market. TiVo also

recently received $1.6 million in revenues for helping DirectTV develop their next

generation combined set-top/DVR box.

TiVo was also recently awarded several key patents, one around the pausing and

recording of live television broadcasts (“Multimedia Timewarping”) in May 2001 which

led to a 72% spike in the stock and one in December 2001 around core DVR technology

and home networking capabilities. TiVo expects that by 2003, between 30-40% of its

revenue will come from licensing revenue. Already, it is attempting to shift as much as

possible of the sales, marketing and distribution responsibilities to its partners (see details

in Exhibit 1 below), with TiVo providing only co-development efforts and technical

support. Clearly, in the long term TiVo sees itself as a technology company.

Manufacturing was outsourced from the very beginning (although not without cost in

terms of revenue sharing and equity). In fact, in October 2001, TiVo formed a separate

business unit just to support TiVo’s licensing strategy.

There are several risks associated with this business model. In the near and midterm,

subscription revenue is expected to be the bulk of their revenue. This reliance on

subscription revenue is unhealthy, given that portions of this revenue have been promised

to more than a few strategic partners. This is exacerbated by the nature of some of their

revenue sharing arrangements that, according to their 10K, “require us to share a portion

of our subscription fees whether or not we increase or decrease the price of the TiVo

Service.” This also makes TiVo’s pricing strategy a little inflexible. One of the biggest

points of psychological resistance for users is the need to pay both a cable/satellite

subscription fee, and a TiVo fee on top of that. If a competitor somehow manages to

disguise or do away with this cost, they will be at an instant advantage. The 10K

revelation implies the limitations of TiVo’s ability to match any changes in the

subscription model.

Another shortcoming is that the TiVo hardware alone, without the $9.95 TiVo

subscription, can already record, pause, rewind and fast-forward through live and

recorded programming. All the fee buys you is the ability to do a daily callback to TiVo’s

servers to get the TV guide data. The possibility of free riding thus exists, if to an

unknown extent.

In addition, as acknowledged in their 10K, the emerging enhanced-television industry is

highly litigious, particularly in the area of on-screen program guides. “Many patents

covering interactive television technologies have been granted but have not been

commercialized. For example, we are aware of at least seven patents for pausing live

television.”1 TiVo currently faces at least four lawsuits around intellectual property

infringement, and is counter-suing at least one of them (Sonicblue). Needless to say, this

is a costly endeavor.

And ultimately, the success of all these revenue streams hinges on broad-based mass

adoption. It has been a disappointment to many that TiVo has only sold just over 400,000

boxes in 3+ years. However, now that the product is hitting what is called the ‘magic’

number of $299, the price point at which popular devices like the DVD and the VCR

took off, the DVR may yet emerge as the new ubiquitous device. Whether it will be TiVo

that succeeds will be discussed in Part III.

Strategic Partnerships: The Drive Toward Marketing, Distribution, ADOPTION

TiVo’s selection and timing of strategic partners/equity investors display an excellent use

of alliances to simultaneously manage both development and adoption. The earliest

alliances for example, essentially represented a co-opting of three of the most threatened

segments: home electronics manufacturer (Philips, March 1999), satellite TV provider
    TiVo Form 10K for year ended Jan 3, 2002, 40

(DirecTV, April 1999) and television network (NBC, June 1999, followed by CBS,

Comcast, Cox, Walt Disney, Liberty Digital, Discover, TV Guide Interactive and

Advance/Newhouse, July 1999). These were also the segments that would be critical to

the development and deployment of the product. Philips (and later Sony in September

1999) would undertake the manufacturing of the hardware, subsidized by TiVo, while

DirecTV would open up its base of over 10 million subscribers and provide much needed

marketing and distribution resources.

The evolution of this network of strategic partners was followed by a sequential

accumulation of complementary resources in accordance to TiVo’s lifecycle needs. As

pointed out above, central to TiVo’s success is the need to promote the mass deployment

of digital video recording technology (TiVo has deliberately promoted an open standards,

Linux-based platform for this reason.) As such, TiVo began broadening its strategic

partners to make this technology more attractive, affordable and ubiquitous. Providers of

online entertainment and content such as AOL, Real Networks and AtomFilm were

added. Sony’s new satellite recorder will come bundled with TiVo technology at no extra

cost, ditto for DIRECTV’s 2nd generation box.

The short time-line of alliances below illustrates the focused campaign launched by TiVo

to drive 1) adoption and 2) the ubiquity of TiVo technology, particularly through pushing

the convergence of various types of entertainment.

                                                 Exhibit 1

Date           Partner         Details                                                       Financial Terms
May 2002       AOL             Joint development to converge PC and TV. TiVo users           $4M paid as
                               can schedule recordings online, Live chat can be used         development fee to
                               while watching TV.                                            TiVo

March 2002     Best Buy        TiVo will be the only stand-alone personal video recorders    TiVo will share with
                               with electronic program guide-based service sold by Best      Best Buy a portion of
                               Buy. Under the agreement, Best Buy will be the exclusive      the TiVo Service
                               retail distributor of the TiVo-only branded Series2 digital   revenue.
                               video recorders. Valid until Feb 2003.

Feb 2002       DIRECTV         TiVo to jointly develop 2nd generation Digital Satellite      DIRECTV pays per-
               (over 10.7
                               Receiver with inbuilt DVR, removing adoption barrier of       account monthly fees to
               subscribers)    “teeter factor” (too many entertainment devices).             provide server support
                               DIRECTV also to take over manufacturing of the set-top        and limited customer.
                               boxes, which should greatly reduce cost of boxes. Also
                               responsible for marketing and distribution of boxes.

Jan 2002       RealNetworks,   RealNetworks to bundle its music player into TiVo             Unknown
                               allowing customers to download, manage and play their
                               favorite music, streaming video and other digital content
                               on TV. Jellyvision will co-develop video party games for
                               the mass audience. In addition, new TiVo will allow
                               digital photos to be stored and viewed as well as prints

Nov 2001       AT&T            AT&T to introduce DVRs to cable customers. Note               AT&T Broadband gets
               Broadband (14
                               AT&T regards this as an interim strategy to provide           portion of subscription
               subscribers)    customers with PVR service while developing integrated        fee. Also portion of
                               box with same functions. Unsure if licensing structure will   revenues received from
                               then follow. NOTE: AT&T is not exclusively committed          advertising and
                               to TiVo for future PVR rollouts. Recently concluded a         promotional activities
                               service trial with TiVo competitor ReplayTV

October 2001   Sony            Signed 7-year licensing deal to allow it to incorporate       Sony pays upfront fee

                                  TiVo technology into its line of consumer products               for access to client
                                  worldwide. “This deal is the cornerstone of TiVo’s               source code + royalties
                                  licensing strategy.” Deal expected to bring in $10-15M           on per product basis.
                                  over next 12 months. NOTE: This is a non-exclusive deal.         Option to license server
                                                                                                   code as well.
                                  Sony plans to bundle TiVo technology with its satellite tv
                                  set top controller at no extra cost (reducing ‘teeter factor’)
                                  Predicts 100k more boxes to be sold as a result

May 2001          AtomFilms       These web only short-film companies will distribute their        Unknown
                  and IFILM
                                  shorts to TiVo, allowing viewers to watch these films in
                                  greater comfort than on a PC screen

October 2000     BskyB            Jointly developing and delivering the TiVo service on            Equity investor. No
                                  stand-alone PVRs in the UK market                                licensing revenue
                                                                                                   recognized yet

July 2000        Comcast          Deploying TiVo market by market to its captive cable             Equity investor
                                  customers. Also jointly developing Comcast’s Personal
                                  TV Service

    This portfolio of alliances is perhaps TiVo’s biggest competitive advantage, apart from

    its list of patents, which may be considered more contentious in its nature. In the

    entertainment industry where “every technical innovation is viewed as an act of war,”2

    TiVo has done a surprising job of keeping this network together despite evolving agendas

    and occasional conflicts of interest. To date, this has been achieved through a careful

    balancing act. For example, while allowing viewers to speed through advertisements at

    warp speed, nonetheless, it didn’t go as far as ReplayTV in allowing viewers to

    completely skip through commercials in 30 second passages. In addition, TiVo offers an

    added carrot for advertisers – the ability to tap into an anonymous database (zipcode-

        “End Of An Affair”, Damian Cave, Technology, 20 June 2001

specific only) that reveals what ads have been fast-forwarded, saved and retrieved, and

how often.

Privacy-minded geeks/early adopters were placated by the use of an open Linux

architecture and by the officially lax attitudes toward the “hacking” of the TiVo core.

‘Backdoors’ were deliberately left open. Richard Bulwinkle, TiVo’s director of customer

relations even publicly announced that TiVo would not go after hackers who tried to

increased the capacity of the boxes.3 This created what was seen as a “mutually beneficial

relationship;” allegedly, some staunch Replay TV supporters even switched sides solely

because of this capability to increase the capacity of the TiVo receivers.

TiVo may also have capitalized on stiff competition in the cable TV market – the AT&T

Broadband deal for example materialized after AT&T rival EchoStar Communciations

announced a similar deal with Moxi Digital first.

Ironically, the very strengths of the alliance (which has resulted in TiVo’s heavy

dependence) may turn out to be TiVo’s undoing in the long term particularly as conflicts

of interest continue to evolve. For example, ABC, CBS, Viacom, Walt Disney, NBC,

AOL Time Warner and 20th Century Fox are asking the Federal Court to stop Sonicblue

from selling a new PVR that allows customers to skip commercials without hitting the FF

button, and which would allow owners to send shows to each other over the Internet.

 "I essentially made a public statement saying we would not go after people for adding memory to their
boxes," Bulwinkle says. "We did not say you can hack us ad infinitum, but we did say we would not
prosecute people for putting in more memory," Ibid

Given that a group of four hackers have just released ExtractStream, a software code that

allows TiVo users to move compressed copies TV shows from their TiVo boxes to their

computers and share them, it is not difficult to see TiVo being the next target. Needless to

say, more than half of the above litigators are TiVo equity investors.

The rapid evolution of the industry, and of the underlying technology, has led to key

TiVo partners also holding equity stakes in rival companies, and to sign non-exclusive

contracts that do not preclude in-house development or multiple contractors. For

example, AOL Time Warner also holds a stake in Moxi Digital. AT&T Broadband,

although currently using TiVo technology, is still looking to develop its own integrated

DVR/satellite set top box. This could clearly influence the depth of AT&T’s commitment

to distributing TiVo, and leaves open the possibility that it may, one day, abruptly shut

TiVo out of the country’s largest cable subscriber base. More current is DIRECTV’s

pending merger with Echostar Communications. TiVo is heavily dependent on

DIRECTV for distribution - almost 50% of its new subscribers come through them.

A realization of this vulnerability may be a part of what’s driving TiVo to focus on

diminishing the importance of subscription fees to their revenues, and towards licensing

and other non-subscription revenues such as advertising.

III. TiVo: Challenges and Competition

Strategic Challenges

TiVo faces a number of serious challenges specific to the “early adopter phase.” The

issues in trying to establish its PVR technology as a standard for home entertainment are:

   Ø Adoption/Education: educating customers on TiVo’s fairly large number of

       technical features;

   Ø Willingness to Pay: requiring customers to pay both a monthly cable service fee

       and a TiVo service fee poses a psychological price barrier

   Ø Competition: The entry of competition, both from powerful industry
       ‘incumbents’ and from start-ups

   Ø Sustainable Competitive Advantage: Does TiVo have a competitive advantage
       over its rivals and how sustainable is it?

   Ø Product Longevity: Is TiVo a fad? Can TiVo make the leap from ‘geek toy’ to a

       mass-market product?

The challenges inherent in its chosen business model, e.g. around patents and its strategic

partners have already been touched on. As such, in this section, we will only discuss the

above issues in the context of two broad categories: Competition and Adoption. Part IV

will then talk about the long-term prospects for TiVo and the sustainability of its


1. The Competitive Challenge

TiVo believes that principal competitive factors in the intensely competitive market for

home entertainment goods and services will be:

           ð Name recognition (brand)
           ð Level of performance
           ð Pricing
           ð Ease of use
           ð Functionality

Currently, although TiVo ranks comparably with its rivals on all of the above, none of

them really provides TiVo with any sustainable competitive advantages. Ease of use,

performance, pricing, and functionality can be easily imitated or out-matched, and as we

have noted, many brand name companies are considering entry into this market. TiVo

can defend its technology by suing based on its patents, but as we have mentioned, this

will be a difficult, lengthy and costly road.

While one of TiVo’s major advantages is its alliances with strong partners who are

equally interested in seeing widespread deployment of the TiVo technology and are

hence incented to help drive the price down e.g. AOL Time Warner and Sony. However,

even this advantage does not seem to be sustainable as few of these contracts are

exclusive, and we see major rival Replay TV adopting the same strategy, partnering with

powerful industry players, and in some cases, even partnering with the same people.

TiVo faces competition from 2 different sources. The first comes from established

companies in consumer electronic market, especially VCRs (DVD) and cable TV. The

second comes from ‘pure-plays’ such as ReplayTV and Moxi Digital.


When PVR technology was first made available on a large scale to consumers—with

products such as the Replay TV and the TiVo PTV 100—it was seen as interesting but

not quite as functional as the good old-fashioned VHS standard. Some observers find

PVRs cool but question whether they're really worth the higher price. Others like all the

new functions and options that PVRs provide but don't consider these devices permanent

recording solutions. Over time, with the help of technological improvements and a loyal,

almost cult-like following (TiVo claims that over 97% of TiVo users have recommended

it to a friend), TiVo has emerged as a strong competitor to VCR. (See Appendix II for a

full comparison of TiVo and VCR).

VCR’s Advantages:

   •   The technology is well established and has been around for a long time – no fear
       factor to overcome
   •   Millions of users own VCRs – network effect. Users can easily swap tapes with
       each other
   •   Both the device and the medium are inexpensive.

TiVo’s Advantages:

   •   Longer recording times (14-60 plus hours of hard drive space available);
   •   No need to buy or label or store tapes
   •   Automatic recording process so that you always automatically record the latest
       episode even if the scheduling changes;
   •   “Intelligent” recording; automatically records shows you might like based on your
       preferences. Also allows you to record by actor or genre of show
   •   Pause control over live programs, so you can leave the TV without missing
       anything, and
   •   A single button that lets you speed through commercials

Cable TV

Current trends in cable and satellite TV providers are a major concern to TiVo and other

set-top boxes companies that are the first movers in this space. They face the risk of

having created value (through developing the technology), only to ultimately be locked

out of the value capture process. They are bearing the cost of consumer education

currently, and face the risk that once people have been converted to the idea, cable TV

companies may offer TiVo-like services directly to their customers. These players

currently have the advantage of owning the channels into people’s homes and most are

already thinking of incorporating TiVo-like technology directly into the set top boxes.

Whether they license the technology from TiVo as Sony did, or choose to create their

own (as AT&T Broadband has said it will do), or use a competing technology (like

EchoStar using Moxi Digital) will greatly morph the competitive landscape.

There is no question that TiVo has the potential to be a disruptive technology as it

continues to improve. Eventually, consumer demand will require cable TV operators to

provide such services with each set top box. The only question that remains then is how

they will go about meeting this demand.

Replay TV

TiVo’s biggest competitor has traditionally been Replay TV. Unlike TiVo’s business

model, i.e. one based on subsidizing retail products and making it up on service revenues,

Replay did not charge a monthly or lifetime fee – the money was built into the higher

price tags on these units. The major difference was that Replay TV has allowed the

viewer to completely skip all commercials, while TiVo only fast-forwarded the

commercials. In February 2001, Replay TV was acquired by SONICblue. After merging

with SONICblue, their business model has been changed to model of licensing the

technology – like TiVo.

Replay TV’s latest debut features a broadband Internet connection and home networking

capabilities which allows programming to be shared with up to 15 users. The current

focus of Replay TV is to develop and market next generation digital platform, and while

the company does not have enough resources on its own, the SONICblue acquisition

should provide all the required assets.

Ultimate TV

In February 2001, Microsoft dove into the personal video-recorder market with Ultimate

TV, buoyed by a $50 million marketing campaign. The pitch for Microsoft's Ultimate TV

was designed to crack one problem TiVo couldn't: effectively communicating how the

technology works and how it can benefit viewers. Ultimate TV only works with DirecTV

satellite - not with Dish Network, not with digital cable, not with traditional cable, and

not with broadcast TV. If customer is already a DirecTV subscriber, he can't use his

current receiver; he needs to replace it. Storage is limited to a single hard drive. The

much-hyped ability to record two channels at the same time only works with the more

expensive "dual LNB" dish antennas and Microsoft's isn't the only system capable of

doing it. Microsoft was first to offer dual DirecTV satellite tuner design--allowing viewer

to watch one program while recording another, or even record two programs while

watching something recorded previously. But TiVo quickly added the feature, requiring

only a software change since its units already had the dual-tuner hardware (See Appendix

2 for full comparison)

Early this year, Microsoft announced its exit from the Ultimate TV hardware business.

One report had Microsoft selling only 1,200 units a month since Ultimate TV’s

introduction in March 2001! Lack of market acceptance is the obvious reason for this

decision mainly stemming from resistance to the high price and monthly fees. Microsoft

charges $9.95 a mont0h for the program guide necessary for Ultimate TV to function.

Ironically, this is not the best news for TiVo, which had been secretly hoping to leverage

off Microsoft’s deep pockets and marketing expertise to aid in the uphill task of

educating the mass market.

Dish Network

In 2001, Open TV and Echo Star Communication Corporation released Dish 501, which

is a product that combines basic VCR-like disk recording with a program guide and the

ability to pause life television. Later, Dish Network and Web TV offered a “complete

enhanced TV”, package with four products built into one. It includes a single set-top box

with digital video recording, games, Internet access and interactive TV shows. They

adopted the strategy, which allowed customers not to pay for the box; service was

bundled with the box and attractiveness of the product substantially increased as a result.

Moxi Digital

The latest entrant in the product category is Moxi Digital. They announced that their

product will not be sold directly to consumers, but to cable TV operators, who will then

lease the boxes out to their customers.

2. The Adoption Challenge

The early expectations for the volume of TiVo sales have been very high, many predicted

the adoption rate to be much higher that that of VCR in the late 1970s. Unfortunately for

TiVo, these predictions have turned to be unrealistic. When the first recorders hit the

market couple years ago, the reason for the low adoption rate was attributed to consumers

not completely understanding what the machine could do. One of the reasons was

deemed to be TiVo’s over clever and hence somewhat cryptic 30-second TV spots.

Another reason contributing to relatively low adoption rate was the price of the unit,

which at $699, eventually turned to be higher that consumer’s willingness to pay.

Yet, several price drops two years later, there have been no major explosion in sales -

only 300,000 to 400,000 units have been sold over the past 3 years – an adoption rate

comparable with VCR’s in the late 1970’s, but nowhere near the amount projected or the

amount needed to crack the 21 million-unit cable box-market.

A challenge related to this issue of adoption is often called “crossing the chasm.” As is

common with the rollout of new technologies, a high level of technological performance

is often deemed a major competitive advantage. What this often leads to is a cycle of

R&D for the sake of R&D, a technology push as opposed to a pull by mass market

demand. In the case of TiVo, considerable engineering resources are still being devoted

to improving its essential technologies. While this has endeared TiVo to the “early

adaptors” and the “techno-geeks” who adore the eminently hackable Linux platform used

by TiVo, there has been a price to pay. This price is usually, literally, higher prices and

more complex features which end up pigeonholing the product to a narrow niche

segment. Hence, the product never quite “crosses the chasm” to the much larger mass

market segment which is generally the key to profitability and break even. While TiVo

recognizes the need to keep finding ways to drop the price and increase mass market

accessibility, the rush toward incorporating more interactive features, internet capabilities

(a la Replay TV), digital photo storage smacks dangerously of the “more technology for

technology’s sake” syndrome.

To sum up the adoption challenge: It is estimated that TiVo will need approximately

675,000 subscribers to break even. As of April 2002, TiVo hit the 425,000 mark. The

recent slew of deals inked by TiVo, as described in Part II, ranging from exclusive

distribution deals inked with Best Buy and AT&T to the rollout of TiVo boxes priced

below $200 may well boost the numbers further and faster, but whether this will be in

time to avert a cash crunch or to firmly establish TiVo in the ranks of ubiquity before the

next hot product/technology hits the market remains to be seen.

4.Predictions for Future of TiVo


Until now, TiVo has not been able to generate revenues at a significant rate and has

suffered big net losses every year since the start-up of the company in 1997. TiVo will

need considerably more funds to continue its research and development program and to

market and launch new products. In January 31, 2002, TiVo had $52.3 million of cash

and cash equivalents. The management of TiVo believes that these funds should keep the

company liquid for one more year. TiVo launched a savings program earlier this year,

slashing jobs to reduce cash outflow. It may be difficult for TiVo to raise more funding

from venture capitalists since many of these are focusing on projects with a track record

of profitability theses days. AOL holds a 30% equity stake in TiVo but has until now

refused to increase its ownership in the company. Unless the market takes off seriously

during 2002 and generates revenue through subscription revenues, TiVo will be in a

situation where more capital is needed. See appendix IV and V for full income statement

and balance sheet.

Patents/Intellectual Property

Until January 31, 2002, TiVo had filed 131 patent applications and been awarded 33.

According to the management of TiVo, the patent applications have been kept broad in

nature to try to cover the basic technology, rather than special technical details or

features. The patent applications are supposed to cover the entire TiVo technology,

including hardware, software and the TiVo service. TiVo has also filed numerous

trademark applications on brands and slogans related to TiVo’s field of activities. Patents

are very important since TiVo (and its competitor Replay TV) wants to make the cable

TV operator and consumer electronics manufacturers dependent on their technology. It is

however at this point unclear how strong the patents that TiVo and its competitors hold

are. TiVo’s patents are currently being contested in lawsuits filed by several companies

(Sonicblue, Command Audio, Pause Technology) holding other patents on PVR. TiVo

has also filed a lawsuit against SonicBlue for patent infringement. If TiVo would lose

these trials, it is likely that their business would be harmed considerably. Many of the

companies that TiVo is meeting in court have considerably better financial strength TiVo

can just not afford to fight off their competitors through lengthy legal procedures.

International Expansion

United Kingdom is the only country outside the United States where TiVo has chosen to

establish itself. Until now, the only market TiVo has entered is UK, where subscriptions

are being acquired at a very slow pace. In most European countries the offering of TV

channels is much more limited than in the United States, making TiVo’s key value

proposition (the ability to organize a wealth of channels and programming) considerably

weaker. Cable TV is less built out in Europe, which makes it more difficult for TiVo to

reach out to a captive audience of TV viewers. Considering TiVo’s limited resources it is

probably wise to focus on the US market. If TiVo is not able to establish a market in

America where the TV has a very strong position it is unlikely that they will have success

on other continents.

Concluding Remarks

TiVo’s ambition to create an open standard for personal TV and earn revenues on

licensing their technology to producers of consumer electronic goods is tenuous. The key

to success in this field would be strong patents. The value of TiVo’s patents have

however not yet been tested in court. We doubt that TiVo will have enough resources to

win long, drawn-out battles against their more financially solid rivals.

All new consumer electronic products are subject to some inertia in the market at the

beginning of their lifetime. We feel that it will very difficult for TiVo to educate the

customers and reach the critical mass of consumers they so desperately need in order to

earn revenues on boxes and subscriptions while disciplining their cash outflow. The only

viable option for TiVo to survive is to gain access to a secure source of cash to enable

them to continue the education process of its viewers and to adequately defend its

patents. A possible option would be a merger or and acquisition of TiVo by a larger firm.

TiVo has been able to create partnerships with important players in the whole value

chain. While this has probably been TiVo’s strongest competitive advantage so far, TiVo

will face a major challenge in balancing the different interests of their partners and

continue keeping the alliance together.

If more people begin using a PVR, there is a risk that cable companies and broadcasting

companies will lose a big part of their advertising revenues. As mentioned earlier in this

report, co-opting advertisers through the sale of interactive commercials and sponsored

TV may be one way around the problem. If TiVo does not succeed here, it is likely that

the powerful networks will try to drive TiVo out of business by lawsuits and other means.

To conclude, we believe that the road ahead for TiVo will be a difficult one due to the

slow market growth, the TV networks’ interest in maintaining advertising in the form it is

today, the unclear patent situation, and the financial burden involved in fending off

determined rivals while growing a brand and a customer base.

5. List of References

   [1] - Tivo Inc. Homepage

   [2] SEC filing 10-K for the fiscal year ended January 31, 2002, Tivo Inc.

   [3] “TiVo - Don't Buy One Just Yet”, Phil Karn, January 2000

   [4] “TiVo Revisited”, Phil Karn, October 2001

   [5] “End of an affair?”, Damien Cave, June 2001

   [6] “ReplayTV vs. TiVo, the comparison chart”, Eric W. Lund, January 2001

   [7] “10 ways Tivo will change your life”, BBC News, Septembet 2000

   [8] “TiVo Or Not TiVo?”, Chris Taylor,, May 2001

   [9] “Entertainment; Clicking Outside the Box”, Saul Hansell, The New York Times,

        September 2000

   [10] “Outlook 2000: Technology & Media; Technology Could Soon Hand TV

        Control to the Viewer”, Bernard Weinraub, The New York Times,

        December 1999

   [11] “In the U.S., Interactive TV Still Awaits An Audience”, Jennifer 8. Lee, The

        New York Times, December 2001

   [12] “Technology; Networks See Threat in New Video Recorder”, LAurie J. Flynn,

        The New York Times, November 2001

   [13] “Skip-the-Ads TV Has Madison Ave. Upset”, Amy Harmon, The New York

        Times, May 2002

   [14] “TiVo Shares Soar on Patent Win”, Reuters, May 2001

   [15] “Don't People Want to Control Their TV's?”, Roy Furchgott, The New York

        Times, August 2000

[16] “TiVo revamps business plan, sheds workers”, Richard Shim, CNET,

    April 2001

[17] “TiVo vs. UltimateTV, Part I”, David Coursey, AnchorDesk, April 2001

[18] “TiVo vs. UltimateTV”, Fresh Gear, January 2002

[19] “TiVo Shifts Marketing Focus, Unveils AOL Deal”, Bob Tourtellotte, Reuters,

    January 2001

[20] “Great Gadget, But...”, Daniel Kadlec, ON Magazine, July 2001

[21] “The Next Digital TV Recorders”, Arik Hesseldahl,, January 2002

[22] “TiVo Buys Itself Time by Raising $51 Million”, George Mannes,, August 2001

[23] “TiVo files for IPO, teams with Sony”, Stephanie Miles, CNET,

    September 1999

[24] “Sony to make TiVo personal TV”, Robert Lemos, ZDNet News, September


[25] “ReplayTV revisits recorder strategy”, Anna Mathews, Wall Street Journal,

    November 2000

[26] “Digital TV in the UK: the story so far”, Luke Goode, University of Auckland

[27] “TiVo and the Internet: A Portent of Things to Come”, Justin Belinski, January


[28] “The digital TV Revolution – Setting the Pace, Analysis of the Digital Set-Top

    Box Industry”, High Technology Strategy and Entrepreneurship, INSEAD,

    June 2001

[29] “DVD”, High Technology Strategy and Entrepreneurship, INSEAD

[30] “TiVo and Replay Drive Media Companies Nuts”, Josh Bernoff and Joseph L.

    Butt, Jr., Forrester Research, August 1999

[31] “Is TiVo’s Signal Fading?”, Business Week Online, September 2001

[32] “One to watch”, Deborah Claymon, RedHerring, August 1998

[33] “Vulcan hedges bet on personalized TV”, Georgie Raik-Allen, RedHerring,

    January 1999

[34] “The VCR, version 2.0”, Rafe Needleman, RedHerring, April 1999

[35] “Tivo IPO winners include…”, Tom Davey, RedHerring, October 1999

[36] “Revenge of Tivo (and ReplayTV)”, Rafe Needleman, RedHerring, August 2000

[37] “A media merger in your living room”, Rafe Needleman, RedHerring,

    February 2002

[38] “TiVo Inc. Financials”, Hoover’s Online


Equity Investors
America Online (AOL), Advance/Newhouse, CBS, Comcast Corporation, Cox Communications,
DIRECTV, Discovery Communications, Encore Media Group, Liberty Media subsidiaries, Liberty
Digital, NBC, Philips Electronics, Showtime Networks, SONY, TV Guide Interactive and The Walt
Disney Company — leading companies from every facet of both the television and
communications industries have embraced TiVo's concept of personal television and made equity
investments in the company.

Consumer Electronics
Philips Electronics, Sony Corporation of America and Thomson Multimedia — top consumer
electronic manufacturers — have incorporated TiVo Personal TV Service into their own branded
personal video recorders.

    TiVo website

Animal Planet, Cinemax, CNBC, Discovery, E! Entertainment, Encore, FLIX, HBO, Home &
Garden Television, The Learning Channel, The Movie Channel, NBC, Showtime, Starz!,
Sundance Channel, Travel Channel, and Westerns Encore — TiVo has created "Network
Showcases," branded areas in which TiVo users can search for and record from daily updates of
the best shows these networks have to offer.

Technology Suppliers
Liberate — interactive capabilities for the TiVo-enabled personal video recorder will be enabled
by Liberate's TV set-top box software. OpenTV — integration with OpenTV will further allow
multiple service offerings to run on the TiVo platform, including the ability for TiVo and its partners
to author content for the TiVo Service using standard protocols such as HTML and JavaScript.
Quantum — the Consumer Electronics Business Unit (CEBU) of Quantum Corporation's Hard
Disk Drive Group is a premier partner and supplier of digital storage technology for TiVo's
Personal TV Service. Powered from the beginning by Quantum QuickView audio/video
technology, the TiVo Personal TV Service digitally records television shows without videotape.

Satellite Service Providers
DIRECTV - Developing personal video recorders that incorporate both the TiVo Personal TV
Service and its own service offerings into one receiver. British Sky Broadcasting Group and TiVo
Inc. are jointly developing and delivering the TiVo service on stand-alone personal video
recorders in the U.K. market.

Interactive TV
America Online - AOL will develop a co-branded AOLTV and TiVo-enabled personal video

Video on Demand
Blockbuster - Working together to develop a video on demand-like service that will eventually
allow TiVo subscribers to obtain movies directly through their TiVo recorders.

AtomFilms and IFILM — These innovative web-based short-film companies have partnered with
TiVo to deliver their programming on "TiVo Takes," TiVo's weekly guide to the best programming
on television.

Creative Artists Agency - A talent agency that is promoting TiVo to bring it into the mainstream of
American entertainment.


      Feature                  Replay TV                TiVo                     VCR
          Manual Yes, with "Are you sure?" Yes, with "Are you sure?" May overwrite
       deletion of confirmation. Deleting a confirmation.            whole tape or
       recordings Replay Channel removes                             any portion.
                   all recordings belonging
                   to that Channel.
       Automatic Repeating, non-              TiVo Suggestions deleted     If you leave a
       deletion of guaranteed recordings      as needed to make room       rewound tape
       recordings deleted oldest-first. New   for other recordings.        in, new
                   episodes overwrite old     Scheduled recordings are     recordings will
                   ones, keeping up to        saved for at least as long   overwrite old
                   seven shows at once (for   as their expiration          ones.
                   a show-based Replay        (default is two days), and
                   Channels) or within a      are deleted in order of
                   maximum space              their expiration dates
                   allotment (for zone and    when room is needed for
                   theme-based Replay         more scheduled
                   Channels). Guaranteed      recordings. Only
                   recordings will never be   individual shows (not
                   auto-deleted.              Season Passes) may
                                              have their expiration
                                              extended when
                                              scheduling them, but all
                                              recordings may be
                                              extended after they are
                                              recorded. Shows may
                                              also have their expiration
                                              shortened, at your
                                              option, when there is a
                                              scheduling conflict After
                                              software release this
                                              year, Season Passes may
                                              be extended at
                                              scheduling time, and may
                                              be limited to keeping
                                              only a certain number at
          Save a Yes, any show may be         Yes, any show may be         Yes, take out
       recording saved permanently after      saved permanently after      the tape and
    permanently it has been recorded.         it has been recorded, but    hide it in your
                 Since Guaranteed             not at scheduling time.      sock drawer.
                 recordings are never         However, see "Automatic
                 auto-deleted, marking a      deletion of recordings"
                 show as guaranteed let's     regarding extending a
                 you save a show              show's expiration date at

    Source: Internet website

                permanently when            scheduling time.
                scheduling it. Still, you
                might want to explicitly
                mark a guaranteed
                recording as saved to
                move it out of its Replay
Video editing No, get over it.              No, don't even think it.   May overwrite
                                                                       portions of
                                                                       some allow
                                                                       audio dubbing;
                                                                       programs may
                                                                       be duped (and
                                                                       in some cases
                                                                       edited) in two-
                                                                       machine setups.
      Delete No.                            No.                        No, short of
  portions of                                                          cutting the tape
  recordings                                                           with scissors.
     Dump to    Displays an episode         Philips boxes display a  It's already on
   videotape    slate" with show name       countdown timer from 10 tape, silly.
(convenience    and details while           (but no episode slate).
    features)   displaying a countdown      Sony units display an
                timer from 10.              episode slate with show
                                            name and details while
                                            pausing ten seconds (but
                                            no countdown shown).
                                            SVR-2000 has VCR
                                            control for Sony VCRs
                                            only. VCR control for
                                            other models in future
                                            software release.


                                                    TV     TiVo  Dish PVR
Record                                           DIRECTV DIRECTV    501
Up to 35 hours of digital
video recording
(actual recording capacity depends on the type
of programming being recorded)

Guide to future programs                         Up to 14        Up to 14
                                                                            2 days
                                                  days            days
Watch two live shows at once
using Picture-In-Picture (PIP)
Record two shows at the same
Watch one show while
recording another
Record two live shows while
watching a recorded one
Record with one touch of a
Protect recordings so they
don't get erased
Custom record segments of

    Source: Internet website

                                   TV     TiVo  Dish PVR
Control live TV                 DIRECTV DIRECTV    501
Pause live TV
Create your own instant
replays anytime
Skip Ahead 30 seconds in
recorded programs
Reverse                         4 speeds               4 speeds
                                   up       3 speeds      up
                                to 300X                to 300X
Fast Forward                    4 speeds               4 speeds
                                   up       3 speeds      up
                                to 300X                to 300X
Slow motion
Frame by frame
Get all the above controls in
your PIP tool

                                    TV     TiVo  Dish PVR
It's Easy                        DIRECTV DIRECTV    501
Search TV for your favorite
Personalized TV Favorite
                                   6        2        4
Channel lists
Reminders when your favorite
TV shows are on
Order Pay Per View programs
with your remote control
Parental Locks - lock channels
or shows based on content and
Limit spending on Pay Per
View programs
Software upgrades via the
Dolby Digital enabled

                               TV     TiVo  Dish PVR
Internet-enabled            DIRECTV DIRECTV    501
Internet access
Up to 6 e-mail user names
Attach pictures to email
Discussion groups
MSN TV Centers
Kid Friendly® service
Build personal Web pages
Surf Watch™
Web PIP™
Interactive TV


                                                                One-Month       One-Month
                                               Year Ended       Ended           Ended          Year Ended      Year Ended
                                               January 31,      January 31,     January 31,    December 31,    December 31,
                                               2002             2001            2000           2000            1999
                                               -------------    ------------    -----------    -------------   ------------
  Revenues................................     $19,297,000      $989,000        $134,000       $3,571,000      $223,000
  Revenues--related parties...............     100,000              --              --             --              --
                                                -------------   ------------    -----------    -------------   ------------
Total revenues..............................   19,397,000       989,000         134,000        3,571,000       223,000
Costs and expenses
  Cost of revenues (excludes ($35,000),
   $9,000, $16,000, $141,000 and
   $116,000 of amortization of stock-
   based compensation)....................     19,888,000       1,710,000       1,204,000      18,382,000      4,067,000
  Cost of revenues--related parties.......     61,000              --              --             --              --
  Research and development (excludes
   $346,000, $37,000, $89,000,
   $791,000 and $431,000 of
   amortization of stock-based
   compensation)..........................     26,859,000       2,507,000       1,694,000      24,279,000      9,727,000
  Sales and marketing (excludes
   $556,000, $60,000, $78,000,
   $992,000 and $176,000 of
   amortization of stock-based
   compensation)..........................     28,509,000       7,884,000       3,532,000      102,091,000     24,502,000
  Sales and marketing--related parties....     75,832,000       6,632,000       2,225,000      53,604,000      15,172,000
  General and administrative (excludes
   $380,000, $69,000, $138,000,
   $1,191,000 and $807,000 of
   amortization of stock-based
   compensation)..........................     18,495,000       1,326,000       614,000        14,346,000      7,027,000
  Stock-based compensation................     1,247,000        175,000         321,000        3,115,000       1,530,000
  Other operating expense, net............         --               --              --             --          7,210,000
                                               -------------    ------------    -----------    -------------   ------------
Loss from operations........................   (151,494,000)    (19,245,000)    (9,456,000)    (212,246,000)   (69,012,000)
  Interest income.........................     2,163,000        672,000         721,000        7,928,000       2,913,000
  Interest expense and other..............     (2,681,000)      (17,000)        (29,000)       (522,000)       (466,000)
  Interest expense--related parties.......     (1,643,000)          --              --             --              --
                                               -------------     ------------    -----------   -------------   ------------
Loss before taxes...........................   (153,655,000)    (18,590,000)    (8,764,000)    (204,840,000)   (66,565,000)
Provision for income taxes..................   (1,000,000)          --              --             --              --
                                               -------------    ------------     -----------   -------------   ------------
Net loss....................................   (154,655,000)    (18,590,000)    (8,764,000)    (204,840,000)   (66,565,000)
Less: Series A redeemable convertible
preferred stock dividend...................    (3,018,000)      (423,000)           --         (1,514,000)         --
                                               -------------    ------------    -----------    -------------   ------------
Net loss attributable to common
stockholders...............................    $(157,673,000) $(19,013,000)     $(8,764,000)   $(206,354,000) $(66,565,000)
                                               ========== =========             ========       ========== =========
Net loss per common share basic and
diluted....................................    $(3.67)          $(0.47)         $(0.25)        $(5.55)         $(5.49)
                                               ==========       =========       ========       ==========      =========
Weighted average common shares
outstanding--basic and diluted.............    42,956,310       40,850,353      35,274,071     37,175,493      12,128,560
                                               ==========       =========       ========       ==========      =========

Source: Form 10K, United States Securities and Exchange Commission


                                                                  January 31,                  January 31,
                                                                  2002                         2001

   Cash and cash equivalents                                      $52,327,000                  $124,474,000
   Restricted cash                                                51,735,000                   50,104,000
   Accounts receivable, net of allowance for doubtful
    accounts of $23,000 and $201,000                              2,185,000        1,834,000
   Accounts receivable--related parties, net of allowance
    for doubtful accounts of zero and $62,000                     6,687,000        4,816,000
   Prepaid expenses and other                                     5,384,000        6,693,000
   Prepaid expenses and other--related parties                    7,541,000        1,698,000
     Total current assets                                         125,859,000                  189,619,000
   Property and equipment, net of accumulated depreciation        18,146,000                   21,924,000
   Prepaid expenses and other                                     7,762,000                        --
   Prepaid expenses and other--related parties                    4,882,000                        --
     Total long-term assets                                       30,790,000                   21,924,000

      Total assets                                                $156,649,000                 $211,543,000
                                                                  ============                 ============

   Accounts payable                                                   $7,003,000       $21,971,000
   Accrued liabilities                                                12,618,000       19,863,000
   Accrued liabilities--related parties                               26,640,000       49,839,000
   Deferred interest income on restricted cash                        3,735,000        2,104,000
   Notes payable--related parties                                     2,262,000            --
   Deferred revenue                                                   12,786,000       6,210,000
   Deferred revenue--related parties                                  11,427,000           --
   Current portion of obligations under capital lease                 536,000          796,000
     Total current liabilities...................................     77,007,000       100,783,000
   Series A Redeemable convertible preferred stock, par value $0.001:
    Issued and outstanding shares 1,600,000                           $2,000           $2,000
   Additional paid-in capital                                         46,553,000       46,553,000
     Total current redeemable convertible preferred stock             46,555,000       46,555,000
       Total current liabilities and current redeemable
        convertible preferred stock                                   123,562,000      147,338,000
   Long-term portion of obligations under capital lease..........     $2,000           $538,000
   Convertible notes payable                                          24,280,000          --
   Convertible notes payable--related parties                         12,453,000          --
   Deferred revenue                                                   23,552,000       12,113,000
   Other                                                              5,021,000        1,217,000
     Total long-term liabilities                                      65,308,000       13,868,000
       Total liabilities and current redeemable
        convertible preferred stock............................       $188,870,000     $161,206,000
                                                                      ============     ============
   Series A Convertible preferred stock, par value
    $0.001: Authorized shares are 10,000,000 Issued and
    outstanding shares are 1,111,861                                  $1,000           $1,000
   Common stock, par value $0.001: Authorized shares are
    150,000,000 Issued and outstanding shares are
    47,411,355 and 43,430,023                                         47,000           43,000
   Additional paid-in capital                                         444,502,000      406,294,000
   Deferred compensation                                              (1,099,000)      (2,786,000)
   Prepaid marketing expenses                                         (14,183,000)     (48,458,000)
   Note receivable                                                    (1,568,000)      (2,509,000)
   Accumulated deficit                                                (459,921,000)    (302,248,000)
     Total stockholders' equity (deficit)                             (32,221,000)     50,337,000

      Total liabilities, current redeemable convertible
       preferred stock and stockholders' equity (deficit)         $156,649,000                 $211,543,000
                                                                   =============               =============

Source: Form 10K, United States Securities and Exchange Commission


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