Reference no: EM133132654

TiVo sells cable boxes and a digital video recording service. Typically, TiVo customers pay a fee for the box (as little as $30) and a monthly fee ($17 to $20) for their digital interface. Wall Street analysts do not believe that TiVo is profitable.

Suppose you are a TiVo executive, and you are trying to decide whether to keep the company going. Your accountant provides you with the following information (all in millions of dollars per year):

Revenue 1000

Fixed overhead 400

Wages and salaries 500

Materials 300

Questions:

a. Based on this information only, should TiVo stay open or shut down?

b. You are not sure the accountant was #1 in his/her class. You decide to do a little snooping on your own. You find out that $250 million of your revenue does not come from customers. Instead, it comes from a patent settlement with Cisco, Google and Time Warner. The money will come in no matter how many customers TiVo has. How does this revelation affect your decision to keep TiVo open or not?

c. You bought a TiVo box two years ago for $180 and pay $17 per month for the service. You get a call from Spectrum. They offer you a cable box that is just as good as a TiVo for $100 (that you own) and monthly service fees of $10 per month. Evaluate the Time Warner offer.