DIRECTV 2003 Annual Report Download - page 38

THE DIRECTV GROUP, INC.
Revenues
Our revenue increases over the last three years have been driven by the growing subscriber base and
increasing ARPU at DIRECTV U.S. DIRECTV U.S. has added more than one million net new owned and
operated subscribers in each of the last three years. DIRECTV U.S. expects to add more than one million net new
owned and operated subscribers in 2004 mostly through the introduction of local channels in additional markets,
continued competitive offers to new customers, the introduction of new services and the expected reduction of
churn to slightly below the level of churn in 2003. DIRECTV U.S.’ ARPU increased 6.9% in 2003 and 1.9% in
2002. DIRECTV U.S. expects ARPU for 2004 to increase slightly above the planned March 2004 price increase
of 3.0%-3.5% per month.
In addition to the revenue growth at DIRECTV U.S., we expect our other business units to have 2004
revenues that are slightly higher or relatively unchanged compared to 2003 revenues.
Operating Costs and Expenses
Over the last three years, operating costs and expenses at DIRECTV U.S. have decreased as a percentage of
revenues from 104% in 2001 to 94% in 2003. DIRECTV U.S. expects operating costs and expenses as a
percentage of revenues to continue to improve in 2004 due to lower general and administrative expenses,
subscriber service expenses and depreciation and amortization expense as a percentage of revenues, partially
offset by an increase in the cost of customer retention and upgrade programs associated with their existing
subscribers. Although DIRECTV U.S. believes subscriber acquisition costs will remain fairly constant as a
percentage of revenues due to its revenue growth, DIRECTV U.S. believes that cost per gross subscriber
addition, or SAC, will be higher in 2004 compared to 2003. The expected increases in SAC and the cost of
customer retention and upgrade programs associated with their existing subscribers are due to an expected
increase in the number of set-top receivers and DVRs per subscriber, partially offset by lower set-top receiver
costs.
In 2004, we expect PanAmSat’s operating profit to remain relatively unchanged from 2003. We expect
HNS’ operating profit to improve mostly from the added efficiencies and gross profit provided by a larger
DIRECWAY subscriber base. We also expect improvement in DLA’s operations, largely as a result of the
renegotiation of its significant programming contracts prior to its emergence from bankruptcy in February 2004
and an expected improvement in the economic conditions in several major countries in the region.
SIGNIFICANT EVENTS AFFECTING THE COMPARABILITY OF THE RESULTS OF OPERATIONS
In addition to the items described above, the following events had a significant effect on the comparability
of our operating results for the three years ended December 31, 2003:
Direct-To-Home Broadcast Segment
On June 4, 2002, DIRECTV U.S. and General Electric Capital Corporation, or GECC, executed an
agreement to settle, for $180 million, a claim arising from a contractual arrangement whereby GECC managed a
credit program for consumers who purchased DIRECTV programming and related hardware. As a result, in
2002, the provision for loss related to this matter was increased by $122.0 million, of which $48.0 million was
recorded as a charge to “Selling, general and administrative expenses” and $74.0 million was recorded as a
charge to “Interest expense” in the Consolidated Statements of Income.
In December 2002, DIRECTV U.S. announced a five-year agreement with the NFL for the exclusive DBS
television rights to the NFL SUNDAY TICKET through 2007 and exclusive multi-channel television rights
through 2005. DIRECTV U.S.’ agreement with the NFL allows it to distribute expanded programming on the
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