DIRECTV 2003 Annual Report Download - page 44

THE DIRECTV GROUP, INC.
The increase in ARPU of $4.10, or 6.9%, resulted primarily from a March 2003 monthly price increase of
about 3.3% on certain programming packages, higher revenues that resulted from fees collected from an
increased number of subscribers with multiple set-top receivers, higher revenues from subscriber purchases of
local channels and higher revenues from seasonal and live sporting events that resulted primarily from increased
demand and an increased price for the NFL SUNDAY TICKET package. The improvement in average monthly
churn to 1.5% in 2003 was primarily due to continued strong customer service and an increase in the number of
markets with local channels resulting in a higher number of subscribers purchasing local channel programming,
as well as an increase in the number of subscribers with multiple set-top receivers and DVRs.
The increase in operating profit before depreciation and amortization was primarily attributable to the higher
margins from programming revenues discussed above and the loss recorded for the GECC dispute in 2002. These
improvements were partially offset by higher programming costs associated with the increase in subscribers and
annual program supplier rate increases, higher subscriber acquisition costs, and increased costs of customer
retention and upgrade programs associated with our existing subscribers. The increased subscriber acquisition
costs resulted primarily from the higher gross subscriber additions and an increase in SAC per subscriber. The
higher SAC per subscriber was mostly due to an increase in the number of set-top receivers provided to new
subscribers, which rose from an average of about 1.7 set-top receivers per new subscriber in 2002 to about 2.1 in
2003, an increase in the number of subscribers purchasing DVRs, and higher advertising costs. The increase in
customer retention and upgrade costs was driven primarily by increased volume under the movers program and
DVR and local channel upgrade programs. Under these programs, DIRECTV U.S. provides DVRs or additional
equipment, plus installation, to existing subscribers at significantly reduced prices or for free.
The increase in operating profit was due to the improvement in operating profit before depreciation and
amortization, partially offset by a $35.9 million increase in depreciation expense associated with assets placed in
service during 2002 and 2003 and a $55.5 million increase in amortization expense related to certain intangible
assets that resulted from the reinstatement of amortization expense during the fourth quarter of 2002 due to the
issuance of EITF Issue No. 02-17.
Latin America. The decline in revenues of 12.1% resulted from $55 million of revenues generated from
the 2002 FIFA World Cup, a smaller subscriber base in 2003 and the depreciation of certain Latin American
currencies in 2003. These declines were partially offset by an increase in revenues related to the consolidation of
Venezuelan and Puerto Rican LOCs as a result of our adoption of FIN 46 on July 1, 2003. Prior to the adoption
of FIN 46, these investments were accounted for under the equity method of accounting. A summary of DLA’s
subscriber data for the years ended December 31 is as follows:
2003 2002 Change
Total number of subscribers (000’s) ................................ 1,499 1,582 (83)
Net subscriber losses (000’s) ..................................... (83) (28) (55)
ARPU ....................................................... $33.00 $34.90 $(1.90)
The decrease in net subscribers in 2003 was primarily due to the poor economic conditions and political
instability in several of the major countries in the region, as well as the effects from the bankruptcy proceedings.
The decrease in ARPU was primarily related to the 2002 FIFA World Cup revenues and the depreciation of
certain Latin American currencies in 2003, partially offset by the increase in revenues resulting from the
consolidation of the Venezuelan and Puerto Rican LOCs.
The decrease in operating loss before depreciation and amortization was primarily due to the $80.0 million loss
from the 2002 FIFA World Cup, lower foreign currency translation losses in 2003 and lower 2003 expenses
resulting from cost savings initiatives including programming cost reductions from the rejection and/or
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