DIRECTV 2008 Annual Report Download - page 37

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THE DIRECTV GROUP, INC.
depend on our ability to continue to obtain desirable programming and deliver it to our subscribers at
competitive prices. Our programming agreements generally have remaining terms ranging from less
than one to up to ten years and contain various renewal and cancellation provisions. We may not be
able to renew these agreements on favorable terms, or at all, or these agreements may be cancelled
prior to expiration of their original terms. If we are unable to renew any of these agreements or the
other parties cancel the agreements, we may not be able to obtain substitute programming, or if we are
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 are long term agreements and contain fixed
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, especially in a difficult economic
environment, cause subscribers to terminate their subscriptions or potential new subscribers to refrain
from subscribing to our service. Furthermore, due to the economy and other factors, 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
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