DIRECTV 2011 Annual Report Download - page 77

DIRECTV
could result in a write-down of goodwill or intangible assets with indefinite lives in advertising, marketing and customer call center expenses associated with the
a future period which could be material to our consolidated financial statements. acquisition of new subscribers. Set-top receivers leased to new subscribers are
capitalized in ‘‘Property and equipment, net’’ in the Consolidated Balance Sheets
ACCOUNTING CHANGES AND NEW ACCOUNTING and depreciated over their useful lives. In certain countries in Latin America, where
PRONOUNCEMENTS our customer agreements provide for the lease of the entire DIRECTV or SKY
System, we also capitalize the costs of the other customer premises equipment and
For a discussion of accounting changes and new accounting pronouncements related installation costs. The amount of set-top receivers capitalized each period for
see Note 3 of the Notes to the Consolidated Financial Statements in Part II, Item 8 subscriber acquisitions is included in ‘‘Cash paid for property and equipment’’ in
of this Annual Report, which we incorporate herein by reference. the Consolidated Statements of Cash Flows.
KEY TERMINOLOGY Upgrade and Retention Costs. Upgrade and retention costs are associated with
upgrade efforts for existing subscribers that we believe will result in higher average
Revenues. We earn revenues mostly from monthly fees we charge subscribers monthly revenue per subscriber, or ARPU, and lower churn. Our upgrade efforts
for subscriptions to basic and premium channel programming, HD programming include subscriber equipment upgrade programs for DVR, HD and HD DVR
and access fees, pay-per-view programming, and seasonal and live sporting events. receivers and local channels, our multiple set-top receiver offers and similar
We also earn revenues from monthly fees that we charge subscribers with multiple initiatives. Retention costs also include the costs of installing and providing
non-leased set-top receivers (which we refer to as mirroring fees), monthly fees we hardware under our movers program for subscribers relocating to a new residence.
charge subscribers for leased set-top receivers, monthly fees we charge subscribers Set-top receivers leased to existing subscribers under upgrade and retention
for DVR service, hardware revenues from subscribers who lease or purchase set-top programs are capitalized in ‘‘Property and equipment, net’’ in the Consolidated
receivers from us, warranty service fees and advertising services. Revenues are Balance Sheets and depreciated over their useful lives. The amount of set-top
reported net of customer credits and discounted promotions. receivers capitalized each period for upgrade and retention programs is included in
Broadcast Programming and Other. These costs primarily include license fees ‘‘Cash paid for property and equipment’’ in the Consolidated Statements of Cash
for subscription service programming, pay-per-view programming, live sports and Flows.
other events. Other costs include continuing service fees paid to third parties for General and Administrative Expenses. General and administrative expenses
active subscribers and warranty service costs. include departmental costs for legal, administrative services, finance, marketing and
Subscriber Service Expenses. Subscriber service expenses include the costs of information technology. These costs also include expenses for bad debt and other
customer call centers, billing, remittance processing and certain home services operating expenses, such as legal settlements, and gains or losses from the sale or
expenses, such as in-home repair costs. disposal of fixed assets.
Broadcast Operations Expenses. These expenses include broadcast center Average Monthly Revenue Per Subscriber. We calculate ARPU by dividing
operating costs, signal transmission expenses (including costs of collecting signals for average monthly revenues for the period (total revenues during the period divided
our local channel offerings), and costs of monitoring, maintaining and insuring our by the number of months in the period) by average subscribers for the period. We
satellites. Also included are engineering expenses associated with deterring theft of calculate average subscribers for the period by adding the number of subscribers as
our signal. 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.
Subscriber Acquisition Costs. These costs include the cost of set-top receivers
and other equipment, commissions we pay to national retailers, independent Average Monthly Subscriber Churn. Average monthly subscriber churn
satellite television retailers, dealers and telcos, and the cost of installation, represents the number of subscribers whose service is disconnected, expressed as a
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