DIRECTV 2004 Annual Report Download - page 41

THE DIRECTV GROUP, INC.
During 2002, we recorded a $95.0 million gain, net of legal costs, as an offset to “General and administrative expenses” in the
Consolidated Statements of Operations as a result of the favorable resolution of a lawsuit we filed against the U. S. government
on March 22, 1991. The lawsuit was based upon NASA’s breach of contract to launch ten satellites on the Space Shuttle.
In addition to the significant operating gains and losses described above, we recognized a number of significant non-operating
gains and losses during the years ended December 31, 2004, 2003 and 2002. These transactions are more fully described in
Note 3: Acquisitions, Divestitures and Other Transactions, Note 7: Investments, and Note 15: Other, Net of the Notes to the
Consolidated Financial Statements in Item 8, Part II.
Reporting Changes
Beginning in the third quarter of 2004, we disaggregated the Direct-To-Home Broadcast segment, which included the
DIRECTV U.S. and DIRECTV Latin America businesses. We now report the DIRECTV U.S. and DIRECTV Latin America
businesses as separate segments as provided by Statement of Financial Accounting Standards, or SFAS, No. 131, “Disclosures
about Segments of an Enterprise and Related Information.”
Also in the third quarter of 2004, we changed the categories of operating costs and expenses included in the Consolidated
Statements of Operations to a presentation that adds clarity and ease of understanding of the results of operations of our DTH
businesses. The new operating cost and expense categories are as follows:
Broadcast Programming and Other Costs of Sale. These costs primarily include license fees for subscription service
programming, pay-per-view programming, live sports and other events. Other costs include expenses associated with the
publication and distribution of DIRECTV-The Guide®, continuing service fees paid to third parties for active DIRECTV
subscribers, warranty service premiums we pay to a third party, production costs for on-air advertisements we sell to third
parties and costs of other service and equipment sales.
Subscriber Service Expenses. Subscriber service expenses include the costs of customer call centers, billing, remittance
processing and certain home services expenses, such as in-home repair costs.
Subscriber Acquisition Costs—Third Party Customer Acquisitions. These costs represent direct costs we incur to acquire
new DIRECTV subscribers through third parties, which include our national retailers as well as independent satellite
television retailers, dealers, RBOCs and others. These costs also consist of third party commissions, print and television
advertising and subsidies we incur for DIRECTV System equipment, if any.
Subscriber Acquisition Costs—Direct Customer Acquisitions. These costs consist primarily of hardware, installation,
advertising, marketing and customer call center expenses associated with new DIRECTV subscribers added through our
direct customer acquisition program.
Upgrade and Retention Costs. The majority of upgrade and retention costs are associated with upgrade efforts for
existing subscribers that we believe will result in higher ARPU and lower churn. Our upgrade efforts include our DVR,
high-definition (HD) and local channel upgrade programs, our multiple set-top receiver offer and similar initiatives.
Retention costs include the costs of installing and/or providing hardware under our movers program for subscribers
relocating to a new residence.
Broadcast Operations Expenses. These expenses include broadcast center operating costs, signal transmission expenses
(including costs of collecting signals for our local channel offerings), and costs of monitoring, maintaining and insuring our
satellites. Also included are engineering expenses associated with deterring theft of the DIRECTV signal.
General and Administrative Expenses. General and administrative expenses include departmental costs for legal,
administrative services, finance, marketing and information technology. These costs also include expenses for bad debt and
other operating expenses, such as legal settlements, and gains or losses from the sale or disposal of fixed assets.
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