DIRECTV 2004 Annual Report Download - page 47

Download and view the complete annual report

Please find page 47 of the 2004 DIRECTV annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 137

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137

THE DIRECTV GROUP, INC.
due to a more competitive marketplace and higher involuntary churn mostly related to the substantial increase in gross
subscriber acquisitions over the past year.
Revenues. The $2,068.3 million increase in revenues to $9,763.9 million resulted from DIRECTV U.S.’ new subscribers
added in 2004, including those subscribers added as part of the NRTC and Pegasus transactions, and higher ARPU on the larger
subscriber base. The 4.7% increase in ARPU to $66.95 resulted primarily from March 2003 and 2004 monthly price increases
on certain programming packages, higher mirroring fees from an increase in the average number of set-top receivers per
subscriber and a higher percentage of subscribers purchasing local channels. These increases were partially offset by lower
ARPU of approximately $1.00 related to the acquired NRTC and Pegasus subscribers.
Total Operating Costs and Expenses. The $2,505.2 million increase in total operating costs and expenses to $9,742.0 million
resulted primarily from higher costs for programming, subscriber acquisitions and customer upgrade and retention initiatives.
DIRECTV U.S.’ higher programming costs resulted mostly from $697.1 million of higher license fees for subscription service
programming due to the increased number of subscribers and annual program supplier rate increases.
Higher gross subscriber additions during the year ended December 31, 2004 and the increase in SAC per subscriber primarily
drove the $861.4 million increase in subscriber acquisition costs. 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 2.1 set-top receivers per
new subscriber during 2003 to about 2.5 during 2004, an increase in the number of subscribers purchasing DVRs and the
change in DIRECTV U.S.’ method of accounting for subscriber acquisition, upgrade and retention costs. These increases were
partially offset by a decrease in the costs of set-top receivers and lower marketing costs per subscriber due to the effect of the
higher gross subscriber additions.
Increased volume under DIRECTV U.S.’ DVR, HD, local channel upgrade and movers programs as well as an increased
number of subscribers provided with multiple set-top receivers under other upgrade and retention programs drove most of the
$588.8 million increase in upgrade and retention costs. Under these programs, DIRECTV U.S. provides DVRs or additional
equipment, plus installation, to existing subscribers at significantly reduced prices or for free. Also contributing to the change
was approximately $59.8 million of higher costs in 2004 compared to 2003 due to the change in the method of accounting for
subscriber acquisition, upgrade and retention costs effective January 1, 2004.
DIRECTV U.S.’ higher subscriber service expenses of $116.7 million resulted primarily from increased costs due to DIRECTV
U.S.’ larger subscriber base and higher costs associated with the opening of two new customer call centers in 2004. General and
administrative expenses increased $97.1 million compared to the year ended December 31, 2003 due mostly to higher bad debt
expense resulting from increased activity associated with a larger subscriber base, higher professional service fees and higher
employee compensation costs related to stock options and restricted stock units. The increase of $64.2 million in depreciation
and amortization expense resulted primarily from additional amortization expense in 2004 due to the intangible assets
DIRECTV U.S. recorded as part of the NRTC and Pegasus transactions, partially offset by a decrease of $56.4 million due to
certain fixed assets being fully depreciated since 2003.
38