DIRECTV 2007 Annual Report Download - page 35

THE DIRECTV GROUP, INC.
able to obtain such substitute programming, it may not be comparable in quality or cost to our existing
programming.
In addition, many of our programming agreements contain annual price increases. When offering
new programming, or upon expiration of existing contracts, programming suppliers have historically
increased the rates they charge us for programming, increasing our costs. We expect this practice to
continue. Increases in programming costs could cause us to increase the rates that we charge our
subscribers, which could in turn cause subscribers to terminate their subscriptions or potential new
subscribers to refrain from subscribing to our service. Furthermore, we may be unable to pass
programming cost increases on to our subscribers, which could have a material adverse effect on our
earnings or cash flow.
The FCC has adopted rules requiring us to negotiate in good faith with broadcast stations seeking
carriage outside of the mandatory carriage regime described elsewhere. The rules for ‘‘retransmission
consent’’ negotiations, which are similar to those that have applied to broadcast stations for years,
require us to comply with certain indicia of good faith negotiation, as well as to demonstrate good faith
under a ‘‘totality of the circumstances’’ test. Failure to comply with these rules could subject us to
administrative sanctions and other penalties.
Our subscriber acquisition costs could materially increase.
We incur costs relating to subscribers acquired by us and subscribers acquired through third
parties. These costs are known as subscriber acquisition costs. For instance, we provide installation
incentives to our retailers to enable them to offer standard professional installation as part of the
subscriber’s purchase or lease of a DIRECTV System. In addition, we pay commissions to retailers for
their efforts in offering a DIRECTV System at a lower cost to consumers. Our subscriber acquisition
costs may materially increase to the extent we continue or expand current sales promotion activities or
introduce other more aggressive promotions, or due to increased competition. Any material increase in
subscriber acquisition costs from current levels would negatively impact our earnings and could
materially adversely affect our financial performance.
Increased subscriber churn or subscriber upgrade and retention costs could materially adversely affect
our financial performance.
Turnover of subscribers in the form of subscriber service cancellations, or churn, has a significant
financial impact on the results of operations of any subscription television provider, including us, as
does the cost of upgrading and retaining subscribers. Any increase in our upgrade and retention costs
for our existing subscribers may adversely affect our financial performance or cause us to increase our
subscription rates, which could increase churn. Churn may also increase due to factors beyond our
control, including churn by subscribers who are unable to pay their monthly subscription fees, a slowing
economy, significant signal theft, consumer fraud, a maturing subscriber base and 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 and
financial performance.
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
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