DIRECTV 2007 Annual Report Download - page 76

THE DIRECTV GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(continued)
Revenue Recognition
We recognize subscription and pay-per-view revenues when programming is broadcast to
subscribers. We recognize subscriber fees for multiple set-top receivers, our published programming
guide, warranty services and equipment rental as revenue, as earned. We recognize advertising revenues
when the related services are performed. We defer programming payments received from subscribers in
advance of the broadcast as ‘‘Unearned subscriber revenue and deferred credits’’ in the Consolidated
Balance Sheets until earned.
Broadcast Programming and Other
We recognize the costs of television programming distribution rights when we distribute the related
programming. We recognize the costs of television programming rights to distribute live sporting events
for a season or tournament to expense using the straight-line method over the course of the season or
tournament. However, we recognize the costs for live sporting events with multi-year contracts and
minimum guarantee payments based on the ratio of each period’s revenues to the estimated total
contract revenues to be earned over the contract period. We evaluate estimated total contract revenues
at least annually.
We defer advance payments in the form of cash and equity instruments from programming content
providers for carriage of their signal and recognize them as a reduction of ‘‘Broadcast programming
and other’’ in the Consolidated Statements of Operations on a straight-line basis over the related
contract term. We record equity instruments at fair value based on quoted market prices or values
determined by management. Through the end of 2006, we also recorded the amortization of a provision
for above-market programming contracts that we recorded in connection with the 1999 acquisition of
certain premium subscription programming contracts from United States Satellite Broadcasting
Company, Inc. as a reduction of programming costs.
Subscriber Acquisition Costs
Subscriber acquisition costs consist of costs we incur to acquire new subscribers. We include the
cost of set-top receivers and other equipment, commissions we pay to national retailers, independent
satellite television retailers, dealers, regional Bell operating companies and the cost of installation,
advertising, marketing and customer call center expenses associated with the acquisition of new
subscribers in subscriber acquisition costs. We expense these costs as incurred, or when subscribers
activate the DIRECTV service, as appropriate, except for the cost of set-top receivers leased to new
subscribers which we capitalize in ‘‘Property and equipment, net’’ in the Consolidated Balance Sheets.
Although paid in advance, the retailer or dealer earns substantially all commissions paid for customer
acquisitions over 12 months from the date of subscriber activation. Should the subscriber cancel our
service during the 12 month service period, we are reimbursed for the unearned portion of the
commission by the retailer or dealer and record a decrease to subscriber acquisition costs. DIRECTV
U.S. implemented a lease program on March 1, 2006, after which most set-top receivers provided to
new subscribers are capitalized. We include the amount of our set-top receivers capitalized each period
for subscriber acquisition activities in the Consolidated Statement of Cash Flows under the caption
‘‘Cash paid for property and equipment.’’ See Note 4 below for additional information.
Upgrade and Retention Costs
Upgrade and retention costs consist primarily of costs we incur for loyalty programs offered to
existing subscribers. The costs for loyalty programs include the costs of installing or providing hardware
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