In case anyone was still wondering about Customer Acquisition Costs...

[bicker]

http://www.multichannel.com/article/CA6544085.html?nid=4262

Overall, the company’s cost to acquire each new TiVo-owned subscriber dropped to $138 for the most recent quarter, versus an average of $302 over the previous 12 months.I've found that folks very often substantially underestimate the costs associated with providing them service (any type of service, not just TiVo), typically by ignoring the cost of customer acquisition. This provides some hard numbers for folks to work with. Note that this doesn't include the cost of subsidizing the hardware... that is over and above the cost of customer acquisition (costs that are limited to marketing and promotional expenses). That means that at current price-points, the TiVo HD is still, essentially, a profitless box: TiVo probably doesn't break-even until well into the first service-commitment. However, with such a substantial reduction in customer acquisition cost, they are much closer to where they need to be.

[esb1981]

This is definitely good news for Tivo. We can only hope that they will be a profitable company in the near future so that the service is around for us for years to come.

[dylanemcgregor]

Customer acquisition costs are important, but as a customer I don't consider them part of the cost of "providing me service."

[bicker]

This is definitely good news for Tivo. We can only hope that they will be a profitable company in the near future so that the service is around for us for years to come.Let's not get ahead of ourselves. :) This is one quarter's worth of data. For all we know, this could be an anomaly, or could have downstream ramifications (i.e., lower number of new subscriptions).

Customer acquisition costs are important, but as a customer I don't consider them part of the cost of "providing me service."That's the issue: They are part of the cost of providing you service. You may not derive any value from those costs, but they're attributable to providing you service all-the-same. As long as the companies you do business with are profit-making ventures, these kinds of things will be factored into whether or not you're offered service you want. If the costs, including the costs you choose to ignore, are too high, then you'll get lower quality or less service (or no service, as the case may be).

[doopstr]

Apparently the plan is to let Comcast and other cable companies spend the money to market Tivo. If they get enough cable companies on board I wouldn't be surprised to see the end of the stand alone Tivo.

[dylanemcgregor]

It's semantics, but the cost of acquiring me as a customer is not the same thing as the cost of providing me service. Yes a for profit business needs to make money, so all costs have to in total be less than I am willing to pay (or I am worth in the forms of ads or Unbox revenue, etc...) But Tivo could make a business decision to cut marketing spend drastically and they would still be left with the cost of providing me service...the big business issue is whether that cost is more than I'm worth in revenue. If it is then TiVo obviously would have very little chance as an ongoing concern. But customer acquisition costs are obviously a much more variable cost that can be ramped up or down depending on current business goals (growing your customer base vs. profitability). It is obviously a sliding scale, but the cost of providing me service doesn't change if TiVo suddenly decides to buy every 30 second spot in the super bowl.

What you are doing is similar to pharma companies when they try and put marketing spending under the "R&D" umbrella and then claim that they spend so much on R&D and so drugs have to cost lots.

[Curtis]

http://www.multichannel.com/article/CA6544085.html?nid=4262

I've found that folks very often substantially underestimate the costs associated with providing them service (any type of service, not just TiVo), typically by ignoring the cost of customer acquisition. This provides some hard numbers for folks to work with. Note that this doesn't include the cost of subsidizing the hardware... that is over and above the cost of customer acquisition (costs that are limited to marketing and promotional expenses). That means that at current price-points, the TiVo HD is still, essentially, a profitless box: TiVo probably doesn't break-even until well into the first service-commitment. However, with such a substantial reduction in customer acquisition cost, they are much closer to where they need to be.
Here is TiVo's definition of SAC.

"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 acquisition costs for a
given period divided by TiVo-Owned subscription gross additions for the same period. We define total acquisition costs as the sum of sales and
marketing expenses, rebates, revenue share, and other payments to channel, minus hardware gross margin (defined as hardware revenues less
cost of hardware revenues). This includes all fixed costs including headcount related expense, such as stock based compensation, marketing not
directly associated with subscription acquisition, operating expenses for the advertising sales business, and allocations. We do not include
DIRECTV subscription gross additions in our calculation of SAC because we incur limited or no acquisition costs for new DIRECTV
subscriptions. 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. "

[pdhenry]

[ Note that this doesn't include the cost of subsidizing the hardware... that is over and above the cost of customer acquisition

Subscription Acquisition Cost or SAC (includes) rebates...I always thought the list price was right around break-even at worst, and the rebates were the carrot. Makes no sense to have the pre-retail street price be a money loser since it doesn't necessarily equate to new subcriptions (e.g., a user upgrading his box doesn't impriove TiVo's custmoer numbers).

[bicker]

Well, reading through TiVo's definition, I'm no longer sure whether they're including in the cost of customer acquisition how much they subsidize the hardware costs of each box: Hardware revenues minus cost of hardware revenues -- "cost of hardware revenues" -- that isn't the same as cost of hardware -- hmmm. If it does include the loss on the hardware itself, the fact that they mention that seems to imply that they are still losing money on each box.

[Curtis]

Well, reading through TiVo's definition, I'm no longer sure whether they're including in the cost of customer acquisition how much they subsidize the hardware costs of each box: Hardware revenues minus cost of hardware revenues -- "cost of hardware revenues" -- that isn't the same as cost of hardware -- hmmm. If it does include the loss on the hardware itself, the fact that they mention that seems to imply that they are still losing money on each box.
"Costs of hardware revenues include all product costs associated with the TiVo-enabled DVRs we distribute and sell, including
manufacturing-related overhead and personnel, warranty, certain licensing, order fulfillment, and freight costs. We engage a contract
manufacturer to build TiVo-enabled DVRs. We sell this hardware as a means to grow our service revenues and, as a result, do not intend to
generate positive gross margins from these hardware sales. The hardware gross margin loss, as a percentage of hardware revenue, for the fiscal
year ended January 31, 2007 increased by approximately 6% compared to the prior fiscal year. This increase is due primarily to the adoption of
our multi-tiered pricing and bundled sales model in our direct sales channel which has resulted in an increased gross margin loss, both in terms
of absolute dollars and as a percentage of hardware revenue. For the fiscal year ended January 31, 2007 we sold more DVR units into the retail
channel than in the prior fiscal year, largely due to the new TiVo Series2 DT and TiVo Series3 HD DMR models were launched during the
fiscal year. While these new models generated higher revenues, they also had higher per unit costs. "

[bicker]

Thanks for those definitions. Okay, so it does include the subsidy, and we even know that the subsidy has increased. That just underscores how much folks generally underestimate the cost of providing these products and services. We're discussing the TR-50 on AVS Forum, and some folks are trying to assert that it "should" cost in the $200-$300 range, while many of us are projecting closer to $400. With this addition info, I'm even more confident, since the TiVo HD is $250 at best, but that includes the subsidy, which has been increasing. Without a monthly service fee, the TR-50 has no other place to recoup costs.

[atmuscarella]

Originally Posted by bicker
Without a monthly service fee, the TR-50 has no other place to recoup costs.I thought the TR-50 was going to have an Internet connection and access video renting in some form.

Thanks,

[bicker]

Yes, perhaps, but you think that'll make up for not having the approx. $10 per month monthly fee that TiVo charges?

[Phantom Gremlin]

Yes, perhaps, but you think that'll make up for not having the approx. $10 per month monthly fee that TiVo charges?
Maybe Charlie doesn't care if the TR-50 is profitable, as long as it hurts TiVo. An extension of the patent battle?

[bicker]

I cannot imagine that a businessman would be so petty. Remember, he's got investors to answer to -- it's not just his own money.

[Phantom Gremlin]

I cannot imagine that a businessman would be so petty. Remember, he's got investors to answer to -- it's not just his own money.

Echostar has a long history of being vexatious litigants. How is that good for stockholders? It's good for nothing other than Charlie's ego. See, as my first google hit, this appeals court ruling. (http://ca10.washburnlaw.edu/cases/2005/12/04-1465.htm) A choice morsel:

It is evident from the record and the course of litigation that the behavior of EchoStar's attorneys was both "unreasonable and vexatious." The District Court found that, given the narrow standard of review, the arguments presented on behalf of EchoStar were completely meritless and therefore the course of the proceedings was unwarranted. The District Court also found that these attorneys need not have filed lengthy briefs at every stage of the arbitration and court proceedings in order to preserve EchoStar's arguments for appeal. Nothing in the record indicates that the District Court abused its discretion in finding such action sanctionable.
I don't follow EchoStar closely, but I get the impression that the company is run by an egomaniac. Is that another word for businessman? :)

On the other hand, the behavior sanctioned by the appeals court may well be the proper business strategy to pursue, all things considered.

[bicker]

Sounds like a situation ripe for a shareholder lawsuit.

[ZeoTiVo]

Maybe Charlie doesn't care if the TR-50 is profitable, as long as it hurts TiVo. An extension of the patent battle?

I think hurting TiVo subs is just gravy. The real potatoes is in the people who buy this box and then decide to drop cable. The real meat is in the people who are using analog OTA and see they have to do something by next year. Now instead of just getting cable or a silly converter they can get this digital OTA DVR and hook it up.

in short the TR-50 is in part out there to keep people from turning to cable subscriptions andperhaps introduce some more churn for cable.

so if they want to profiut from the box then yes - the 400$ price tag is the one we will see. IF they want market share then the price will be lower, but only if they think that will increase market share.

I bet they go with the classic maximize revenue by starting at 400$ and watching sales as for when to start lowering the price

[atmuscarella]

Originally Posted by ZeoTiVo
so if they want to profiut from the box then yes - the 400$ price tag is the one we will see. IF they want market share then the price will be lower, but only if they think that will increase market share.I am not sure they will actually need $400 to be profitable. They effectively could build a 622/722 without the DBS tuners. This would cut way down on development costs and give them volume pricing for the parts.

Normally Dish "provides" the VIP 722 for "free", but you can buy them; they list for $699 but are available new for around $400 from authorized dealers (less on ebay) so I am guessing the "street" price of the TR-50 will end up being under $400.

Thanks,

[ZeoTiVo]

I am not sure they will actually need $400 to be profitable. They effectively could build a 622/722 without the DBS tuners. This would cut way down on development costs and give them volume pricing for the parts.

Normally Dish "provides" the VIP 722 for "free", but you can buy them; they list for $699 but are available new for around $400 from authorized dealers (less on ebay) so I am guessing the "street" price of the TR-50 will end up being under $400.

Thanks,

the price of the VIP series also assumes you will have an ongoing subscription to DISH network. That of course will not be the case for the TR-50. This nicely points out why Customer Acquisition costs are indeed VERY important in the service being provided or not and at what price

[rodbac]

It is obviously a sliding scale, but the cost of providing me service doesn't change if TiVo suddenly decides to buy every 30 second spot in the super bowl.

This is a key point.

"Marketing" is hugely variable in terms of both cost and effectiveness.

If some company is horribly managed and/or makes terrible decisions about how to push their product, it's unreasonable to think we as customers should be sympathetic because it costs them so much to "provide service" by their definition compared to a well-run (or intelligently-marketed) company.

IOW, a poorly-run company can have higher "acquisition costs" (again, by this definition) simply by virtue of being poorly-run. It's not something for customers to concern themselves with.

[Phantom Gremlin]

in short the TR-50 is in part out there to keep people from turning to cable subscriptions andperhaps introduce some more churn for cable.

And then, for people who like the box, the next logical step is for them to subscribe to Dish Network.

Overall, I like the strategy (from Charlie's POV). If DISH/SATS can pull this off (and can avoid further patent litigation with TiVo), TiVo could have a strong competitor on its hands.