Dish Network 2000 Annual Report Download - page 34

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Subscriber-related expenses totaled $970 million during the year ended December 31, 2000, an increase of
$395 million compared to the same period in 1999. Such expenses, which include programming expenses,
copyright royalties, residuals currently payable to retailers and distributors, and billing, lockbox and other variable
subscriber expenses, represented 41% and 43% of subscription television services revenues during the years ended
December 31, 2000 and 1999, respectively. Although we do not currently expect subscriber-related expenses as a
percentage of subscription television services revenue to increase materially in future periods, there can be no assurance
this expense to revenue ratio will not materially increase.
Customer service center and other expenses principally consist of costs incurred in the operation of our DISH
Network customer service centers, such as personnel and telephone expenses, as well as other operating expenses
related to our service and installation business. Customer service center and other expenses totaled $251 million during
the year ended December 31, 2000, an increase of $134 million as compared to the same period in 1999. The increase
in customer service center and other expenses primarily resulted from increased personnel and telephone expenses to
support the growth of the DISH Network and from operating expenses related to the expansion of our installation and
service business. Customer service center and other expenses totaled 11% of subscription television services revenue
during the year ended December 31, 2000, as compared to 9% during the same period in 1999. The increase in this
expense to revenue ratio primarily resulted from the on-going construction and start-up costs of our fifth customer
service center in Virginia, our sixth customer service center in West Virginia, and the continued build-out of our
installation offices nationwide. These expenses in total, and as a percentage of subscription television services revenue,
may continue to increase in future periods as we continue to develop and expand our customer service centers and
installation business to provide additional customer support and help us better accommodate anticipated subscriber
growth, resulting in long term efficiency improvements. We continue to work to automate simple phone responses,
and intend to increase internet based customer assistance in the future, in order to better manage customer service
costs.
Satellite and transmission expenses include expenses associated with the operation of our digital broadcast
center, contracted satellite telemetry, tracking and control services, and satellite in-orbit insurance. Satellite and
transmission expenses totaled $44 million during the year ended December 31, 2000, a $3 million increase compared to
the same period in 1999. This increase resulted from higher satellite and other digital broadcast center operating
expenses due to an increase in the number of operational satellites. Satellite and transmission expenses totaled 2% and
3% of subscription television services revenue during the years ended December 31, 2000 and 1999, respectively. We
expect satellite and transmission expenses to continue to increase in the future as additional satellites or digital
broadcast centers are placed in service, but do not expect these expenses to increase as a percentage of subscription
television services revenue.
Cost of sales – DTH equipment and Integration Services. Cost of sales - DTH equipment and integration
services totaled $195 million during the year ended December 31, 2000, an increase of $47 million compared to the
same period in 1999. Cost of sales - DTH equipment and integration services principally includes costs associated with
digital set-top boxes and related components sold to international DTH operators and DBS accessories. This increase
in cost of sales - DTH equipment and integration services is consistent with the increase in DTH equipment sales and
integration services revenue. Cost of sales - DTH equipment and integration services represented 75% and 81% of
DTH equipment revenue, during the years ended December 31, 2000 and 1999, respectively. The higher margin was
principally attributable to a $16.6 million loss provision recorded during 1999 primarily for component parts and
purchase commitments related to our first generation model 7100 set-top boxes, for which production was suspended in
favor of our second generation model 7200 set-top boxes.
Marketing Expenses. We subsidize the cost and installation of EchoStar receiver systems in order to attract
new DISH Network subscribers. Consequently, our subscriber acquisition costs are significant. Marketing expenses
totaled $1.159 billion during the year ended December 31, 2000, an increase of $432 million compared to the same
period in 1999. The increase in marketing expenses was primarily attributable to an increase in subscriber promotion
subsidies. Subscriber promotion subsidies – promotional DTH equipment includes the cost related to EchoStar
receiver systems distributed to retailers and other distributors of our equipment. Subscriber promotion subsidies - other
includes net costs related to our free installation promotion and other promotional incentives. Advertising and other
expenses totaled $139 million and $65 million during the years ended December 31, 2000 and 1999, respectively.