You should read the following discussion and analysis in conjunction with the consolidated financial statements and the accompanying notes included in this report and our most recent annual report on Form 10-K filed on April 3, 2009, the sections entitled "Risk Factors" in Item 1A of our most recent annual report on Form 10-K and Part II, Item 1A of this quarterly report, as well as other cautionary statements and risks described elsewhere in this report and our most recent annual report on Form 10-K filed on April 3, 2009, before deciding to purchase, sell or hold our common stock.

Company Overview

We are a leading provider of technology and services for digital video recorders. The subscription-based TiVo service redefines home entertainment by providing consumers with an easy way to record, watch, and control television and receive videos, pictures, and movies from cable, broadcast, and broadband sources. We offer features such as Season Pass™ recordings, WishList ® searches, TiVoToGo™ transfers, access to broadband video content (including premium content delivered from Amazon's Video on Demand service, Netflix, and in the future Blockbuster), TiVo KidZone, and TiVo Online Scheduling. As of July 31, 2009, there were approximately 3.1 million subscriptions to the TiVo service. We distribute the TiVo DVR through consumer electronics retailers and through our on-line store at TiVo.com. Additionally, we provide the TiVo service through

agreements with leading satellite and cable television service providers such as DIRECTV, Comcast, Cablevision Mexico, and potentially, in the future Cox, as well as broadcasters such as Seven/Hybrid TV (Australia) and in the future Television New Zealand (TVNZ) (New Zealand). We also provide innovative marketing solutions for the television industry, including a unique platform for advertisers and audience research measurement.

Executive Overview

During the three and six months ended July 31, 2009, our net revenues decreased $7.9 million and $13.8 million, respectively as compared to the same prior year periods. We recorded a net loss of $2.9 million and $7.1 million for the three and six months ended July 31, 2009, respectively, as compared to a net income of $2.9 million and $6.5 million, respectively, in the same prior year periods. During the three months ended July 31, 2009, we continued to experience a decrease in our TiVo-Owned subscription base as compared to the same prior year period. Our TiVo-Owned subscription gross additions for the quarter ended July 31, 2009 were 31,000, down 14% from 36,000 in the same prior year period. The loss of TiVo-Owned subscriptions was 73,000 subscriptions, leading to net subscription losses of 42,000 TiVo-Owned subscriptions during the quarter ended July 31, 2009. The continued decrease in TiVo-Owned subscription gross additions was primarily due to increased competition and adverse global economic conditions leading to a slow down in the sales of consumer electronic products and TiVo-enabled DVRs in particular.

For this fiscal year ending January 31, 2010, we expect to incur lower consumer hardware rebate expenses as we terminated our rebate programs on August 30, 2008 and do not have plans to engage in further rebate programs this year; however, we anticipate our hardware gross margin loss will increase, as we will have a lower benefit from the utilization of previously reserved inventory during this fiscal year, as compared to the fiscal year ended January 31, 2009. For the fiscal year ended January 31, 2009 we incurred $469,000 of rebate costs and recognized $4.9 million benefit from the utilization of previously reserved inventories. During the six months ended July 31, 2009 we have recognized $288,000 benefit from the utilization of previously reserved inventories and have incurred no rebate expense.

In this fiscal year ending January 31, 2010, we expect to continue our efforts to increase our subscription base by adding new subscriptions through our mass distribution partnerships such as Comcast and through our TiVo-Owned direct and retail sales. However, we expect continued losses in our installed base of MSOs/Broadcasters subscriptions as DIRECTV will not deploy new TiVo boxes prior to the launch of the new HD platform described below and our mass distribution deals with Comcast and Cox are still in the early phases of development and/or deployment. We anticipate service revenue in the fiscal year ending January 31, 2010 to be lower than in fiscal year 2009 as revenues from new TiVo-Owned subscriptions, advertising sales, audience research measurement sales, and from mass distribution partnerships including Comcast, DIRECTV, Seven/Hybrid TV (Australia), and others are expected to be more than offset by the continued decline of product lifetime subscription related revenues as such revenues become fully recognized and continued subscription losses in our TiVo-Owned and MSOs/Broadcasters' subscriptions.

The TiVo service on Comcast is available in its initial market, Comcast's New England Division, which includes metro Boston, Southeast Massachusetts, New Hampshire, and Connecticut, with Comcast expected to continue its rollout of the TiVo service on Comcast to additional markets beyond the New England Division.

Key Business Metrics

Management periodically reviews certain key business metrics in order to evaluate our operations, allocate resources, and drive financial performance in our business. Management monitors these metrics together and not individually as it does not make business decisions based upon any single metric.

Subscriptions. Management reviews this metric, and believes it may be useful to investors, in order to evaluate our relative position in the marketplace and to forecast future potential service revenues. Below is a table that details the change in our subscription base during the last three fiscal years. The TiVo-Owned lines refer to subscriptions sold directly or indirectly by TiVo to consumers who have TiVo-enabled DVRs and for which TiVo incurs acquisition costs. The MSOs/Broadcasters lines refer to subscriptions sold to consumers by MSOs/Broadcasters such as DIRECTV, Cablevision Mexico, Seven/Hybrid TV (Australia), and Comcast and for which TiVo expects to incur little or no acquisition costs. Additionally, we provide a breakdown of the percent of TiVo-Owned subscriptions for which consumers pay recurring fees, including on a monthly and a prepaid one, two, or three year basis, as opposed to a one-time prepaid product lifetime fee.

                                                                                              Three Months Ended
                                                   July 31,      April 30,      Jan 31,      Oct 31,      July 31,      April 30,      Jan 31,      Oct 31,
(Subscriptions in thousands)                         2009          2009          2009         2008          2008          2008          2008         2007
TiVo-Owned Subscription Gross Additions:                 31             37           59           44            36             48          109           69

Subscription Net Additions/(Losses):
TiVo-Owned                                              (42 )          (30 )         (4 )        (28 )         (42 )          (17 )         33            4
MSOs/Broadcasters                                      (104 )         (109 )       (121 )       (135 )        (136 )         (128 )       (155 )       (134 )

Total Subscription Net Additions/(Losses)              (146 )         (139 )       (125 )       (163 )        (178 )         (145 )       (122 )       (130 )

Cumulative Subscriptions:
TiVo-Owned                                            1,582          1,624        1,654        1,658         1,686          1,728        1,745        1,712
MSOs/Broadcasters                                     1,468          1,572        1,681        1,802         1,937          2,073        2,201        2,355


Total Cumulative Subscriptions                        3,050          3,196        3,335        3,460         3,623          3,801        3,946        4,067

Fully Amortized Active Lifetime Subscriptions           219            215          225          236           194            163          175          190

% of TiVo-Owned Cumulative Subscriptions paying
recurring fees                                           59 %           59 %         59 %         60 %          60 %           61 %         61 %         60 %

We define a "subscription" as a contract referencing a TiVo-enabled DVR for which (i) a consumer has committed to pay for the TiVo service and (ii) service is not canceled. We count product lifetime subscriptions in our subscription base until both of the following conditions are met: (i) the period we use to recognize product lifetime subscription revenues ends; and (ii) the related DVR has not made contact to the TiVo service within the prior six month period. Product lifetime subscriptions past this period which have not called into the TiVo service for six months are not counted in this total. Effective November 1, 2008, we extended the period we use to recognize product lifetime subscription revenues from 54 months to 60 months for all product lifetime subscriptions acquired on or before October 31, 2007. We now amortize all product lifetime subscriptions over a 60 month period. We are not aware of any uniform standards for defining subscriptions and caution that our presentation may not be consistent with that of other companies. Additionally, the subscription fees that some of our MSOs/Broadcasters 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.

TiVo-Owned subscriptions declined by 42,000 subscriptions slightly decreasing the TiVo-Owned installed subscription base to approximately 1.6 million subscriptions as of July 31, 2009. We believe this decrease in total TiVo-Owned subscriptions was largely due to the continued decrease in subscription gross additions resulting from increased competition from DVRs distributed by cable and satellite providers as well as the impact of global economic conditions on sales of consumer electronic products. As a result of this competition and current economic conditions, we are cautious about our sales in the near term and we may experience further net losses in our TiVo-Owned subscription base.

As of July 31, 2009, approximately 219,000 product lifetime subscriptions had exceeded the period we use to recognize product lifetime subscription revenues, but had made contact to the TiVo service within the prior six months. Such TiVo product lifetime subscriptions represent approximately 34% of our cumulative lifetime subscriptions as compared to 29% for the same prior year period. We continue to incur minimal costs of service for these subscriptions without recognizing corresponding subscription revenues. We expect the number of fully amortized lifetime subscriptions will further increase during the fiscal year ending January 31, 2010.

Our MSOs/Broadcasters installed subscription base decreased by 469,000 subscriptions to approximately 1.5 million subscriptions as of July 31, 2009, as compared to the same prior year period. This decrease is due to DIRECTV's promotion of a competing DVR and service and our other mass distribution deals being still in the early phases of development and/or deployment. We have agreed to work with DIRECTV to develop a version of the TiVo service for DIRECTV's broadband-enabled HD DVR platform which we expect to launch to consumers in calendar 2010.

TiVo-Owned Churn Rate per Month. Management reviews this metric, and believes it may be useful to investors, in order to evaluate our ability to retain existing TiVo-Owned subscriptions (including both monthly and product lifetime subscriptions) by providing services that are competitive in the market. Management believes factors such as service enhancements, service commitments, higher customer satisfaction, and improved customer support may improve this metric. Conversely, management believes factors such as increased competition, lack of competitive service features such as high definition television recording capabilities in our low cost product offerings, current economic conditions, and increased price sensitivity may cause our TiVo-Owned Churn Rate per month to increase.

We define the TiVo-Owned Churn Rate per month as the total TiVo-Owned subscription cancellations in the period divided by the Average TiVo-Owned subscriptions for the period (including both monthly and product lifetime subscriptions), which then is divided by the number of months in the period. We calculate Average TiVo-Owned subscriptions for the period by adding the average TiVo-Owned subscriptions for each month and dividing by the number of months in the period. We calculate the average TiVo-Owned subscriptions for each month by adding the beginning and ending subscriptions for the month and dividing by two. We are not aware of any uniform standards for calculating churn and caution that our presentation may not be consistent with that of other companies.

The following table presents our TiVo-Owned Churn Rate per month information:

                                                                                              Three Months Ended
                                                   July 31,      April 30,      Jan 31,      Oct 31,      July 31,      April 30,      Jan 31,      Oct 31,
(Subscriptions in thousands)                         2009          2009          2009         2008          2008          2008          2008         2007
Average TiVo-Owned subscriptions                      1,604          1,639        1,656        1,675         1,712          1,737        1,727        1,708

TiVo-Owned subscription cancellations                   (73 )          (67 )        (63 )        (72 )         (78 )          (65 )        (76 )        (65 )


TiVo-Owned churn rate per month                        -1.5 %         -1.4 %       -1.3 %       -1.4 %        -1.5 %         -1.3 %       -1.5 %       -1.3 %

Included in our TiVo-Owned Churn Rate per month are those product lifetime subscriptions that have both reached the end of the revenue recognition period and whose DVRs have not contacted the TiVo service within the prior six months. Conversely, we do not count as churn product lifetime subscriptions that have not reached the end of the revenue recognition period, regardless of whether such subscriptions continue to contact the TiVo service. TiVo-Owned Churn Rate per month was 1.5% for the quarters ended July 31, 2009 and 2008. We expect churn to increase further in future periods as a result of increasing inactive product lifetime subscriptions, competition from other providers, the weak economy, and the growing importance of encrypted digital and high definition television recording capabilities which can only be accessed through either a cable or satellite provided set top box or through a box which incorporates CableCARD™ technology (which is only available through cable and some telco providers) and a switched digital adapter if necessary.

Subscription Acquisition Cost or SAC. Management reviews this metric, and believes it may be useful to investors, in order to evaluate trends in the efficiency of our marketing programs and subscription acquisition strategies. We define SAC as our total TiVo-Owned acquisition costs for a given period divided by TiVo-Owned subscription gross additions for the same period. We define total acquisition costs as sales and marketing, subscription acquisition costs less net TiVo-Owned related hardware revenues (defined as TiVo-Owned related gross hardware revenues less rebates, revenue share and market development funds paid to retailers) plus TiVo-Owned related cost of hardware revenues. The sales and marketing, subscription acquisition costs line item includes advertising expenses and promotion-related expenses directly related to subscription acquisition activities, but does not include expenses related to advertising sales. We do not include third parties subscription gross additions, such as MSOs/Broadcasters' gross additions with TiVo subscriptions, in our calculation of SAC because we typically incur limited or no acquisition costs for these new subscriptions, and so we also do not include MSOs/Broadcasters' sales and marketing, subscription acquisition costs, hardware revenues, or cost of hardware revenues in our calculation of TiVo-Owned SAC. We are not aware of any uniform standards for calculating total acquisition costs or SAC and caution that our presentation may not be consistent with that of other companies.

                                                                                              Three Months Ended
                                          July 31,         Apr 30,          Jan 31,         Oct 31,         Jul 31,         Apr 30,          Jan 31,         Oct 31,
                                            2009             2009            2009            2008            2008             2008            2008            2007
Subscription Acquisition Costs                                                            (In thousands, except SAC)
Sales and marketing, subscription
acquisition costs                         $     838       $      982       $   1,690       $   2,301       $     888       $    1,159       $   7,195       $   9,050
Hardware revenues                            (8,533 )         (6,376 )       (10,712 )       (12,777 )       (11,699 )         (5,945 )       (16,066 )       (17,240 )
Less: MSOs/Broadcasters-related
hardware revenues                             1,516              (27 )           362           3,339           4,934              698              -               -
Cost of hardware revenues                    12,935           10,576          15,764          16,339          15,274           10,365          23,929          29,144
Less: MSOs/Broadcasters-related cost
of hardware revenues                         (1,433 )             (6 )          (385 )        (3,100 )        (4,524 )           (581 )            -               -


Total Acquisition Costs                       5,323            5,149           6,719           6,102           4,873            5,696          15,058          20,954


TiVo-Owned Subscription Gross
Additions                                        31               37              59              44              36               48             109              69

Subscription Acquisition Costs (SAC)      $     172       $      139       $     114       $     139       $     135       $      119       $     138       $     304


                                                                                              Twelve Months Ended
                                          July 31,        April 30,         Jan 31,         Oct 31,        July 31,        April 30,         Jan 31,         Oct 31,
                                            2009             2009            2009            2008            2008             2008            2008            2007
Subscription Acquisition Costs                                                    (In thousands, except SAC)
Sales and marketing, subscription
acquisition costs                         $   5,811       $    5,861       $   6,038       $  11,543       $  18,292       $   26,419       $  31,050       $  33,770
Hardware revenues                           (38,398 )        (41,564 )       (41,133 )       (46,487 )       (50,950 )        (45,450 )       (41,798 )       (45,622 )
Less: MSOs/Broadcasters-related
hardware revenues                             5,190            8,608           9,333           8,971           5,632              698              -               -
Cost of hardware revenues                    55,614           57,953          57,742          65,907          78,712           91,677          92,052         111,760
Less: MSOs/Broadcasters-related cost
of hardware revenues                         (4,924 )         (8,015 )        (8,590 )        (8,205 )        (5,105 )           (581 )            -               -


Total Acquisition Costs                      23,293           22,843          23,390          31,729          46,581           72,763          81,304          99,908


TiVo-Owned Subscription Gross
Additions                                       171              176             187             237             262              267             276             330

Subscription Acquisition Costs (SAC)      $     136       $      130       $     125       $     134       $     178       $      273       $     295       $     303

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. As such, we have also provided SAC on a rolling twelve month basis.

During the three months ended July 31, 2009, our total acquisition costs were $5.3 million, an increase of $450,000 from the same prior year period. Our TiVo-Owned hardware gross margin loss increased by $500,000. This increase in hardware gross margin loss is related in part to a lower benefit from utilization of previously reserved inventory sold during the quarter ended July 31, 2009 as compared to the same prior year period. During the quarter ended July 31, 2009 we had a net benefit of $29,000 mainly from changes in inventory reserves as compared to $1.4 million utilization of previously reserved inventory in the same prior year period. These increases were offset by lower sales and marketing, subscription acquisition costs of $50,000 as we continue to manage these costs.

During the twelve months ended July 31, 2009 our total acquisition costs were $23.3 million, a 50% decrease when compared to the $46.6 million in total acquisition costs from the same prior year period. The decrease in total acquisition costs was primarily related to a decrease in our sales and marketing subscription acquisition costs of $12.5 million, largely related to decreased advertising spending. Additionally we had a decrease in our hardware gross margin loss of $10.8 million for the twelve months ended July 31, 2009 as compared to the same prior year period. This hardware gross margin loss improvement was primarily related to lower DVR sales volumes.

The decrease in SAC of $42, for the twelve months ended July 31, 2009 as compared to the same prior year period, was largely related to decreased sales and marketing subscription acquisition spending of $12.5 million, offset by fewer subscription gross additions during the twelve month period.

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 subscription fees, advertising, and audience research measurement. ARPU does not include rebates, revenue share, and other payments to channel that reduce our GAAP revenues. As a result, 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.

We calculate ARPU per month for TiVo-Owned subscriptions by subtracting MSOs/Broadcaster-related service revenues (which includes MSOs/Broadcasters' subscription service revenues and MSOs/Broadcasters'-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 by Average TiVo-Owned subscriptions for the period, calculated as described above for churn rate. The following table shows this calculation:

                                                                                                             Three Months Ended
                                                          July 31,         April 30,        Jan 31,        Oct 31,        July 31,         April 30,        Jan 31,        Oct 31,
TiVo-Owned Average Revenue per Subscription                 2009             2009             2009           2008           2008             2008             2008           2007
                                                                                                                 (In thousands, except ARPU)
Total service revenues                                       41,500            42,129         44,115         47,676          48,174            48,443         51,025         52,940
Less: MSOs/Broadcasters-related service revenues             (4,315 )          (4,522 )       (5,137 )       (5,772 )        (5,781 )          (5,699 )       (7,133 )       (6,599 )

TiVo-Owned-related service revenues                          37,185            37,607         38,978         41,904          42,393            42,744         43,892         46,341
Average TiVo-Owned revenues per month                        12,395            12,536         12,993         13,968          14,131            14,248         14,631         15,447
Average TiVo-Owned per month subscriptions                    1,604             1,639          1,656          1,675           1,712             1,737          1,727          1,708

TiVo-Owned ARPU per month                                 $    7.73       $      7.65       $   7.85       $   8.34       $    8.25       $      8.20       $   8.47       $   9.04

The decrease in TiVo-Owned ARPU per month for the quarter ended July 31, 2009 was largely due to a higher number of product lifetime subscriptions that are fully amortized, as compared to the same prior year period coupled with lower product lifetime revenues as the amortization period we use to recognize product lifetime subscriptions is longer. Effective November 1, 2008, we have extended the period we use to recognize product lifetime subscription revenues from 54 months to 60 months for all new and not fully amortized product lifetime subscriptions. We now amortize all product lifetime subscriptions over a 60 month period. Refer to Critical Accounting Estimates "Recognition Period for Product Lifetime Subscriptions Revenues." Due to this extended revenue recognition period and the reduction in our subscription rates in November 2008, we expect fiscal year 2010 TiVo-Owned ARPU per month to be lower.

We calculate ARPU per month for MSOs/Broadcasters' subscriptions by first subtracting TiVo-Owned-related service revenues (which includes TiVo-Owned subscription service revenues and TiVo-Owned related advertising revenues) from our total reported service revenues. Then we divide average revenues per month for MSOs/Broadcasters'-related service revenues by the average . . .