DIRECTV 2010 Annual Report Download - page 40

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DIRECTV
networks have improved. OVDs and providers such as Hulu, Roku, Netflix, agreements or the other parties cancel the agreements, we may not be able to
Apple TV, Amazon and Google TV are aggressively working to establish themselves obtain substitute programming, or if we are able to obtain such substitute
as an alternative provider of video services. Such services and the growing programming, it may not be comparable in quality or cost to our existing
availability of online content, coupled with an expanding market for connected programming.
devices and internet-connected televisions, poses a potential competitive challenge to If we are unable to obtain rights to programming or are unable to pass
traditional MVPDs, as a number of consumers may decide to drop their traditional additional costs on to subscribers, the potential loss of subscribers and the need to
MVPD subscription package. absorb some or all of the additional costs could have a material adverse effect on
Significant changes in consumer behavior with regard to the means by which our earnings or cash flow.
they obtain video entertainment and information in response to this emerging
digital media competition could materially adversely affect our revenues and A National Football League strike or lockout in 2011 could materially
earnings or otherwise disrupt our business. adversely affect our cash flows.
DIRECTV U.S. has a contract with the National Football League for the
We depend on others to produce programming and programming costs are exclusive rights to distribute the NFL Sunday Ticket Package to DIRECTV U.S.
increasing. subscribers. The NFL’s collective bargaining agreement with its players expires
Almost all of our programming is provided by unaffiliated third parties. before the beginning of the 2011-2012 NFL season. If there is a players’ strike or
Typically our programming agreements are multiple-year agreements and contain an owners’ lockout and no games are played or a reduced schedule is played,
annual price increases. When negotiating to acquire rights to new programming, or DIRECTV U.S. would still be obligated to make certain contractual payments to
for renewal of expiring contracts, programming suppliers have historically increased the NFL for such season. DIRECTV U.S. subscriber revenues would decrease if
the rates they charge us for programming, increasing our costs. Often these NFL games are not played or a full season is lost and cash flows from operating
increases are greater than the rate of inflation for the same period. We expect this activities would decrease from lower revenues as well as our continuing obligation
practice to continue and the negotiations over such increases to become more to make certain contractual payments to the NFL. DIRECTV U.S. will be able to
difficult and potentially disruptive. Increases in programming costs, including partially offset these payments through provisions such as credits in the following
retransmission costs for broadcast programming, could cause us to increase the rates year, reimbursements for games not played and its rights to an extra season if the
that we charge our subscribers, which could in turn, especially in a difficult entire season is cancelled, but in the near term a strike or lockout could have a
economic environment, cause subscribers to terminate their subscriptions or material adverse effect on our cash flows from operating activities primarily due to
potential new subscribers to refrain from subscribing to our service. Furthermore, payments we may have to make to the NFL, including minimum contractual
due to the economy and other factors, we may be unable to pass programming cost obligations, an optional advance payment that may be requested by the NFL and
increases on to our subscribers. Alternatively, in order to attempt to mitigate the the loss of subscriber revenue, as well as possibly resulting in reduced subscriber
effect of proposed programming price increases, we may refuse to carry certain additions and higher churn.
channels, which could adversely affect subscriber growth or result in higher churn.
Increased subscriber churn or subscriber upgrade and retention costs could
In addition, a limited number of cable-affiliated programmers have in the past materially adversely affect our financial performance.
denied us access to their programming. Our ability to compete successfully will
depend on our ability to continue to obtain desirable programming and deliver it Turnover of subscribers in the form of subscriber service cancellations, or
to our subscribers at competitive prices. We may not be able to renew these churn, has a significant financial impact on the results of operations of any
agreements on favorable terms, or at all, or these agreements may be canceled prior subscription television provider, including us, as does the cost of upgrading and
to expiration of their original terms. If we are unable to renew any of these retaining subscribers. Any increase in our upgrade and retention costs for our
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