Dish Network 2002 Annual Report Download - page 33

31
Cost of sales – DTH equipment. “Cost of sales – DTH equipment” totaled $179 million during the year ended
December 31, 2002, a decrease of $9 million compared to the same period in 2001. “Cost of sales – DTH equipment”
principally includes costs associated with digital set-top boxes and related components sold to international DTH
operators and DBS accessories. “Cost of sales - DTH equipment” represented 62% and 69% of “DTH equipment
sales”, during the years ended December 31, 2002 and 2001, respectively. The decrease, both in aggregate and as a
percentage of revenue, related primarily to reductions in the cost of set-top box equipment and increased sales of higher
margin DBS accessories.
Subscriber Promotions. During the year ended December 31, 2002, our marketing promotions included
our I Like 9, Free Dish, 1-2-3 Great TV, free installation program, Free for All and Digital Home Plan, which are
described below.
I Like 9 – During August 2001, we commenced our I Like 9 promotion. Under this promotion, subscribers
who purchased an EchoStar receiver system for $199 or higher, received free installation and either our America’s Top
100 CD or our DISH Latino Dos programming package for $9 a month for the first year. Subscriber acquisition costs
are materially lower under this plan compared to historical promotions. This promotion expired January 31, 2002.
Free Dish – Our Free Dish promotion, under which subscribers receive a free base-level EchoStar receiver
system, commenced during August 2001. To be eligible, subscribers must provide a valid major credit card and make
a one-year commitment to subscribe to a qualified programming package. Effective July 13, 2002, eligible subscribers
are able to purchase a second receiver for $49.99. Although there can be no assurance as to the ultimate duration of the
Free Dish promotion, we expect it to continue through at least July 31, 2003.
1-2-3 Great TV – During January 2002, we commenced our 1-2-3 Great TV promotion. Under this
promotion, subscribers who purchased one or more receivers, provided a valid major credit card and made a one-year
commitment, received the first three months of qualified programming and installation of up to two receivers for free.
This promotion expired on July 31, 2002.
Free for All – Effective August 1, 2002, we commenced our Free for All promotion. Under this promotion,
subscribers who purchase up to two receivers for $149 or more, depending on the models chosen, and subscribe to a
qualifying programming package, receive free installation, together with credits of $12.50 or $17.00 applied to their
programming bill each month for a year. Although there can be no assurance as to the ultimate duration of the Free For
All promotion, we expect it to continue through at least July 31, 2003.
Digital Home Plan – Our Digital Home Plan promotion offers several choices to consumers, ranging from the
use of one EchoStar receiver system and our America’s Top 50 CD programming package for $29.99 per month, to
providing consumers our America’s Top 150 programming package and two or more EchoStar receiver systems for
$52.99 to $62.99 per month. Each plan includes in-home service, and the consumer must agree to a one-year
commitment, provide a valid major credit card, have an acceptable credit score and incur a one-time set-up fee of
$49.99. From January to July 2002, the promotion also included the first three months of qualified programming free
for qualified Digital Home Plan programming packages and for an additional $99, consumers could also choose to
include a Dish PVR in the Digital Home Plan. Effective August 1, 2002, the one-time set-up fee includes only the first
month’s qualified programming payment and for an additional $50, consumers can also choose to include a Dish PVR
in the Digital Home Plan. Dish PVR receivers include a built-in hard drive that allows viewers to pause and record live
programming without the need for videotape. Since we retain ownership of equipment installed pursuant to the Digital
Home Plan promotion, equipment costs are capitalized and depreciated over a period of approximately four years.
Although there can be no assurance as to the ultimate duration of the Digital Home Plan promotion, we expect it to
continue through at least July 31, 2003.
Free Installation – Under our free installation program all subscribers who purchase an EchoStar receiver
system are eligible to receive free professional installation of up to two receivers. Although there can be no assurance
as to the ultimate duration of the Free Installation promotion, we expect it to continue through at least July 31, 2003.
Subscriber Acquisition Costs. Generally, under most promotions, we subsidize the installation and all or a
portion of the cost of EchoStar receiver systems in order to attract new DISH Network subscribers. There is no clear
industry standard used in the calculation of subscriber acquisition costs. Our subscriber acquisition costs include “Cost