DIRECTV 2008 Annual Report Download - page 58

THE DIRECTV GROUP, INC.
digital video recorder, or DVR, service, hardware revenues from subscribers who lease or purchase
set-top receivers from us, our published programming guide, warranty service fees and advertising
services.
Broadcast Programming and Other. These costs primarily include license fees for subscription
service programming, pay-per-view programming, live sports and other events. Other costs include
expenses associated with the publication and distribution of our programming guide, continuing service
fees paid to third parties for active subscribers, warranty service costs and production costs for on-air
advertisements we sell to third parties.
Subscriber Service Expenses. Subscriber service expenses include the costs of customer call centers,
billing, remittance processing and certain home services expenses, such as in-home repair costs.
Broadcast Operations Expenses. These expenses include broadcast center operating costs, signal
transmission expenses (including costs of collecting signals for our local channel offerings), and costs of
monitoring, maintaining and insuring our satellites. Also included are engineering expenses associated
with deterring theft of our signal.
Subscriber Acquisition Costs. These costs include the cost of set-top receivers and other
equipment, commissions we pay to national retailers, independent satellite television retailers, dealers,
telcos, and the cost of installation, advertising, marketing and customer call center expenses associated
with the acquisition of new subscribers. Set-top receivers leased to new subscribers are capitalized in
‘‘Property and equipment, net’’ in the Consolidated Balance Sheets and depreciated over their useful
lives. The amount of set-top receivers capitalized each period for subscriber acquisitions is included in
‘‘Cash paid for property and equipment’’ in the Consolidated Statements of Cash Flows.
Upgrade and Retention Costs. The majority of upgrade and retention costs are associated with
upgrade efforts for existing subscribers that we believe will result in higher average monthly revenue
per subscriber, or ARPU, and lower churn. Our upgrade efforts include subscriber equipment upgrade
programs for DVR, HD and HD DVR receivers and local channels, our multiple set-top receiver offer
and similar initiatives. Retention costs also include the costs of installing and providing hardware under
our movers program for subscribers relocating to a new residence. Set-top receivers leased to existing
subscribers under upgrade and retention programs are capitalized in ‘‘Property and equipment, net’’ in
the Consolidated Balance Sheets and depreciated over their useful lives. The amount of set-top
receivers capitalized each period for upgrade and retention programs is included in ‘‘Cash paid for
property and equipment’’ in the Consolidated Statements of Cash Flows.
General and Administrative Expenses. General and administrative expenses include departmental
costs for legal, administrative services, finance, marketing and information technology. These costs also
include expenses for bad debt and other operating expenses, such as legal settlements, and gains or
losses from the sale or disposal of fixed assets.
Average Monthly Revenue Per Subscriber. We calculate ARPU by dividing average monthly
revenues for the period (total revenues during the period divided by the number of months in the
period) by average subscribers for the period. We calculate average subscribers for the period by adding
the number of subscribers as of the beginning of the period and for each quarter end in the current
year or period and dividing by the sum of the number of quarters in the period plus one.
Average Monthly Subscriber Churn. Average monthly subscriber churn represents the number of
subscribers whose service is disconnected, expressed as a percentage of the average total number of
subscribers. We calculate average monthly subscriber churn by dividing the average monthly number of
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