DIRECTV 2006 Annual Report Download - page 37

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THE DIRECTV GROUP, INC.
competitive offers. Any of the risks described in this Annual Report that could potentially have a
material adverse impact on our cost or service quality or that could result in higher prices for our
subscribers could also, in turn, cause an increase in churn and consequently have a material adverse
effect on our earnings.
Our ability to keep pace with technological developments is uncertain.
In the MVPD industry, changes occur rapidly as new technologies are developed, which could
cause our services and products that deliver our services to become obsolete. We may not be able to
keep pace with technological developments. If the new technologies on which we intend to focus our
investments fail to achieve acceptance in the marketplace or our technology does not work and requires
significant cost to replace or fix, we could suffer a material adverse effect on our future competitive
position, which could cause a reduction in our revenues and earnings. For example, our competitors
could be the first to obtain proprietary technologies that are perceived by the market as being superior.
Further, after incurring substantial costs, one or more of the technologies under development by us or
any of our strategic partners could become obsolete prior to its introduction.
In addition, technological innovation depends, to a significant extent, on the work of technically
skilled employees. Competition for the services of these employees is vigorous. We cannot assure you
that we will be able to continue to attract and retain these employees.
To access technologies and provide products that are necessary for us to remain competitive,
particularly in the area of broadband services, we may make future acquisitions and investments and
may enter into strategic partnerships with other companies. Such investments may require a
commitment of significant capital and human and other resources. The value of such acquisitions,
investments and partnerships and the technology accessed may be highly speculative. Arrangements
with third parties can lead to contractual and other disputes and dependence on the development and
delivery of necessary technology on third parties that we may not be able to control or influence. These
relationships may commit us to technologies that are rendered obsolete by other developments or
preclude the pursuit of other technologies which may prove to be superior.
New technologies could also create new competitors for us. Entities such as RBOCs are
implementing and supporting digital video compression over existing telephone lines and building out
fiber optic lines to enhance their capabilities to deliver programming services. While these entities are
not currently providing MVPD services on a significant basis, many have the capabilities for such
services and some have begun rolling out video services. We may not be able to compete successfully
with new entrants in the market for video services.
Satellite programming signals have been stolen and may be stolen in the future, which could result in
lost revenues and would cause us to incur incremental operating costs that do not result in subscriber
acquisition.
The delivery of subscription programming requires the use of conditional access technology to limit
access to programming to only those who subscribe and are authorized to view it. The conditional
access system uses, among other things, encryption technology to protect the transmitted signal from
unauthorized access. It is illegal to create, sell or otherwise distribute software or devices to circumvent
that conditional access technology. However, theft of cable and satellite programming has been widely
reported, and the access or ‘‘smart’’ cards used in our conditional access system have been
compromised in the past and could be compromised in the future.
We have undertaken various initiatives with respect to our conditional access system to further
enhance the security of the DIRECTV signal. To help combat signal theft, we provide our subscribers
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