Dish Network 1997 Annual Report Download - page 60

ECHOSTAR COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
2. Summary of Significant Accounting Policies – Continued
F–13
Revenue Recognition
Revenue from the provision of DISH Network subscription television services and satellite services is
recognized as revenue in the period such services are provided. Revenue from sales of digital set-top boxes and related
accessories is recognized upon shipment to customers. Revenue from the provision of integration services is
recognized as revenue in the period the services are performed.
Subscriber Promotion Subsidies and Subscriber Acquisition Costs
During 1996, in order to stimulate subscriber growth, EchoStar made a strategic decision to reduce the
price charged to consumers for EchoStar Receiver Systems. Accordingly, beginning in August 1996, EchoStar
began selling its EchoStar Receiver Systems below its manufactured cost (the “ 1996 Promotion” ). The 1996
Promotion lowered the suggested retail price charged by independent retailers for a standard EchoStar Receiver
System to $199 (as compared to the original average retail price prior to August 1996 of approximately $499),
conditioned upon the consumer’s one-year prepaid subscription to the DISH Network’s America’s Top 50 CD
programming package for approximately $300. The excess of EchoStar’s aggregate costs (equipment, programming
and other) over proceeds received pursuant to the 1996 Promotion was expensed (“ subscriber promotion subsidies”)
upon shipment of the equipment. Remaining costs were deferred (“ subscriber acquisition costs” ) and amortized over
the term of the prepaid subscription (normally one year). Excluding expected incremental subscriber revenues, such as
from premium and Pay-Per-View services, this accounting treatment results in revenue recognition over the initial
prepaid period of service equal to the sum of programming costs (which are recognized as service is provided) and
amortization of subscriber acquisition costs. During the period from August 1996 through May 1997, substantially
all new subscriber activations resulted from the 1996 Promotion.
The caption “ DISH Network – Subscription Television Services” in the accompanying statements of
operations includes revenues from the 1996 Promotion equal to the advertised subscription rates for related DISH
Network services. Incremental revenues realized from the 1996 Promotion are included in the caption “ DISH
Network – Other” and amounted to approximately $5 million during 1996 and $40 million during 1997.
During June 1997, EchoStar introduced the “ 1997 Promotion.” The 1997 Promotion maintained the
suggested retail price for a standard EchoStar Receiver System at $199, but eliminated the extended subscription
commitment. Net transaction costs associated with the 1997 Promotion are expensed as incurred (reported as a
component of subscriber promotion subsidies) in the accompanying statements of operations. While some sales
continue to be made under the terms of the 1996 Promotion, the majority of new subscriber activations have resulted
from the 1997 Promotion since its introduction. As a result, beginning in October 1997, net transaction costs
resulting from the sale of EchoStar Receiver Systems pursuant to the 1996 Promotion also are expensed as incurred.
Consequently, no additional subscriber acquisition costs will be deferred. The unamortized balance of such costs
($19 million at December 31, 1997) is expected to be fully amortized by September 1998.
Deferred Debt Issuance Costs and Debt Discount
Costs of completing the 1994 Notes Offering, the 1996 Notes Offering and the 1997 Notes Offering (as
defined, see Note 5) were deferred and are being amortized to interest expense over their respective terms. The original
issue discounts related to the 1994 Notes and the 1996 Notes are being accreted to interest expense so as to reflect a
constant rate of interest on the accreted balance of the 1994 Notes and the 1996 Notes.