TiVo Digital Video Recording Technology “TiVo, TV your way®” TiVo Digital Video Recording Technology 70-381 Marketing I Group C5 April 24, 2002 Corinne Allarde Robert Dimaggio Edward Liang James Tseng Ann-Marie Wun

Overview Background Market Situation Distribution Situation SWOT Analysis Market Research Market Positioning Perceptual Map Marketing Plans Q & A

Background Vision: “to create and continually enhance a new, easy - and much better - way to watch television” TiVo, the creator of television services for digital video recorders (DVR) Considered best DVR by Business Week,The New York Times, and Popular Science Revenue increased by 437% in 2001 280,000 subscribers to TiVo Service in 2001 TiVo Series2 DVR $399.99, monthly subscription fee $12.95

Market Situation DVR penetration highest in digital cable and DSL homes Market Share: TiVo 47% ReplayTV 35% Philips 7% Sony 6% UltimateTV 4% Satellite 1% 1 out of 10 consumers had hoped to buy a DVR by the summer of 2001

Distribution Situation Two primary methods of distribution Online retailers Amazon.com, Spiegel.com Walk-in store Circuit City, Best Buy and Sears TiVo and big-name strategic partners AOL Time Warner AT&T Sony

SWOT Analysis Strengths Opportunities Weaknesses Threats Versatile Customer service Product quality Good brand image Opportunities Unique features Interactivity Weaknesses Advertising Monthly pricing plan Funding Threats ReplayTV UltimateTV DVD recorders VCR ReplayTV Prices from $699 to $1999 Recording time ranging from 40 hours to 320 hours UltimateTV Interactive TV Costs $199.99 Subscription fee $9.95 per month

Problem Failure in sales growth attributed to: Recommendation: Ineffective advertising Pricing issues Recommendation: New marketing strategy to increase market and profitability

Marketing Research Primary Data Source (questionnaire) Location : Waterfront Shopping Center Contact method : Personal Sampling unit : Individual households Sampling procedure : Random Data Source Analysis Increase awareness in the general public Overcome the perception of “expensive VCR” Adjust pricing plans High customer satisfaction Huge potential market - Waterfront was chosen because it was a crowded middle-class shopping mall, and most shoppers are consumers with desirable income level and spending power - Contact method : Personal - Sampling unit : individual households - Sample size : 214 - Sampling procedure : random - Sample was representative of the target - Sample was sufficiently large and reliable - The data strongly stuggest that we need to increase awareness because - 28% of non-DVR owner never heard of TiVo - 28% don’t find a need - 21% price too high - Need to overcome perception because - 70% own VCR - Thus, we need to develop a new marketing scheme to make consumers believe TiVo is a new technology they need - Need to have a new pricing scheme to exploit the perceived consumer value in TiVo - only 8% of all surveyed are willing to spend $600 or more - 69% look for $450 or less - It is encouraging to se TiVo achieves high customer satisfaction with 72% of surveyed owner - A significant portion of all surveyed, 79%, do not own any form of DVR - A huge potentially untapped market and consumer base

Marketing Research Sample

Target Market Young professionals (23-37 year-old) Males Middle-income households Middle-aged adults aged 23-37 years old -> from survey results, this age group is the most financially stable, with disposable income. Also, young people tend to be more tech-savvy than the older generation. But we did not target teenagers even though they are tech-savvy because they do not have the disposable income to spend. Target males because survey results show that many more males said they would purchase a DVR within the next 6 months. This shows that males are more receptive to the new technology that TiVo provides. Since our goal is to gain as many subscribers as possible and capture a large market share, we decided to target middle-income households. We are not targeting high-income households as only a small % of people come from high-income households. We are also not targeting low-income households because we are offering a quality product and at a reasonable price. We cannot possibly lower the price a lot to make it affordable to low-income households. Lowering the price by a lot might give people the false impression that TiVo is not a quality product.

Market Positioning Perceptual Map High Price DVD-Video Recorder ReplayTV TiVo Low Functionality High Functionality We intend to position TiVo as a high functionality product, sold at a fair price. Observe that closest competitor is ReplayTV. Price is about $300 higher than TiVo, but has slightly less functions. ReplayTV allows sharing of recorded shows over the home network which TiVo doesn’t. However, we still feel that TiVo has greater functionality because TiVo learns what you prefer and finds shows you’ll like, even if you didn’t know about them. We think that TiVo’s ability to personalize and cater programs greatly adds to its functionality. Next closest competitor is UltimateTV. UltimateTV is offers multiple functions such as Web browsing and interactive TV. Price is about $300 lower than TiVo. However, UltimateTV is known to be of low quality – slow performance, hard disk spoils easily, web text is hard to read. Hence, even with its competitive price and higher functionality, we do not see UltimateTV as a big threat to our market position. UltimateTV VCR Low Price

Marketing Plan Initiate new pricing strategy Goal: Achieve 200,000 unit sales Launch advertising campaign Goal: Achieve additional 200,000 unit sales Reassess market

New Pricing Strategy Promotional period will last 4 months Consumers will be given two purchasing options Present method Pay $399 for hardware Pay $12.95 monthly for service subscription Or pay one-time $200 lifetime service subscription New method Sign a three-year contract and pay only $24.95 monthly for service and hardware After three year contract is up Pay $12.95 monthly rate Or pay reduced price ($149) lifetime subscription

New Pricing Strategy (continued) Expect to sell 200,000 units with new pricing strategy 200,000 units cost $60 million ($299 per unit) TIVO will pay half of the cost to produce the units ($30 million) The remainder will be paid through a portion of the monthly subscription $4.60 of each month’s subscription will go to hardware providers

Advertising Campaign $104,341,000 is available in Sales and Marketing budget 63% of budget for promotion and advertising $30 million for new pricing strategy promotion $35.5 million for advertising campaign ($65,734,830)

Advertising Campaign (continued) Allocation of Advertising budget (in millions) Television $20 Print $8 Sponsor $5 Radio $2 Giveaways $0.5 Total $35.5

Budget Sales and Marketing: $66M (same as 2001 S&M budget) Projected Revenue: assuming 200,000 sold under new pricing plan TIVO Revenue over three years 36 months x 200,000 x ($24.95 - $4.60) = $146,520,000 Hardware provider portion 36 months x 200,000 x ($4.60) = $33,120,000 Projected Return on Investment over three years: 488% We have chosen to use the current sales and marketing budget and have just changed the ways in which we use it. Therefore, we will not influence the current bottom line. Since our goal is to increase sales by 143%, we project there to be a directly proportional increase in revenue. Also, since we have retained the same sales and marketing budget we project that the return on investment also be directly proportional to our increase in sales.

Reassessing the Market After the 4 month promotional period is over, we will look at Unit sales Number of contracts signed Compare the two to determine if the contract is effective If the contract is effective, we will extend it for the remainder of the year and reassess the market again. If the contract is ineffective, we will discontinue it and look into promotional methods to increase sales.

Q & A