Dish Network 2001 Annual Report Download - page 80

ECHOSTAR COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
F–15
During August 2001, EchoStar commenced its I Like 9 promotion. Under this promotion, subscribers who
purchased an EchoStar receiver system for $199 or higher, received free installation and either EchoStar’s America’s
Top 100 CD or EchoStar’s DISH Latino Dos programming package for $9 a month for the first year. This promotion
expired January 31, 2002.
EchoStar’s direct sales to consumers pursuant to its DISH Network One-Rate Plan, Bounty Programs, Free
Now promotion and I Like 9 fall under the scope of EITF Issue No. 00-14, “Accounting for Certain Sales Incentives”
(“EITF 00-14”). In accordance with EITF 00-14, EchoStar accounts for the rebate (substantively equivalent to the
return of a customer deposit) under its DISH Network One-Rate Plan by establishing a liability equal to the amount of
the rebate to be paid to the customer upon receipt of the upfront payment from the subscriber and does not recognize
revenue for that amount. The return of the upfront payment received from the customer is charged against such
liability account when such amount is paid back to the customer. EchoStar does not receive any up-front proceeds from
subscribers under Bounty Programs or the Free Now promotion. Programming revenue under the I Like 9 promotion is
recorded at the substantially discounted monthly rate charged to the subscriber. See Subscriber Promotions Subsidies
and Subscriber Acquisition Costs below for discussion regarding the accounting for costs under these promotions.
EchoStar’s dealer sales under its DISH Network One-Rate Plan, the Bounty Programs, Free Now promotion
and I Like 9 fall under the scope of EITF Issue No. 00-25, “Vendor Income Statement Characterization of
Consideration Paid to a Reseller of the Vendor’s Products” (“EITF 00-25”). In accordance with the consensus guidance
for Issue 2 of EITF 00-25, “buydowns” should be characterized as a reduction of revenue. As such, certain
commissions paid to dealers are recorded as a reduction of the net proceeds received by EchoStar from the dealers.
EchoStar also charges the equipment reimbursements paid under the Bounty Programs and the Free Now promotion
against the proceeds from the dealer. The rebate paid under the One Rate Plan is treated similarly as a reduction of
proceeds from the dealer by analogy to lease inducements, which are also generally recognized as a reduction of
revenue. See additional discussion under Subscriber Promotions Subsidies and Subscriber Acquisition Costs below
Digital Home Plan. EchoStar’s Digital Home Plan promotion, introduced during July 2000, offers several
choices to consumers, ranging from the use of one EchoStar receiver system and our America’s Top 100 CD or DISH
Latino Dos programming package for $36.99 per month, to providing consumers two or more EchoStar receiver
systems and our America’s Top 150 programming package for $50.99 to $60.99 per month. With each plan,
consumers receive in-home service, must agree to a one-year commitment and incur a one-time set-up fee of $49.99,
which through December 31, 2001, included the first month’s programming payment. For consumers who choose the
Digital Home Plan with Dish PVR, which includes the use of one or more EchoStar receiver systems, one of which
includes a built-in hard drive that allows viewers to pause and record live programming without the need for videotape,
the consumer will incur a one-time set-up fee of $148.99. Since EchoStar retains ownership of equipment issued
pursuant to the Digital Home Plan promotion, equipment costs are capitalized and depreciated over a period of four
years.
StarBand. Prior to September 27, 2001, EchoStar accounted for the sale of StarBand equipment as a third-
party distributor of the equipment. In accordance with EITF 99-19, EchoStar recorded revenue and cost of sales related
to the sale of StarBand hardware on a gross basis upon shipment to its retailers, as the Company assumed the risk
associated with the inventory if the equipment was not sold to its retailers. EchoStar also recorded revenue and cost of
sales related to StarBand installations performed by the Company on a gross basis upon installation. EchoStar did not
enter into a multiple element arrangement with its independent retailers or the end users of StarBand’s service as
EchoStar was only a distributor of StarBand’s equipment. Once the equipment was purchased from an EchoStar
retailer and installed in the StarBand subscriber’s home, EchoStar was not responsible for actual StarBand subscriber
activations or the provision of Internet services. Additionally, all StarBand subscriber Internet service payments
collected by EchoStar in connection with a bundled billing are remitted directly to StarBand. If such bundled service
revenue for StarBand Internet services is not collected by EchoStar as StarBand’s billing agent, EchoStar has no
remittance obligation to StarBand whatsoever.