Dish Network 2002 Annual Report Download - page 78

ECHOSTAR COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
F-18
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.
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 EchoStar retains 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.
EchoStar’s promotions which include programming discounts fall under the scope of EITF Issue No. 00-14,
“Accounting for Certain Sales Incentives” (“EITF 00-14”). In accordance with EITF 00-14, programming revenue
under these promotions are recorded at the 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 I like 9, Free Dish, 1-2-3 Great TV, and Free for All 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 and equipment reimbursements paid to dealers
are recorded as a reduction of the net proceeds received by EchoStar from the dealers. See additional discussion under
Subscriber Promotions Subsidies and Subscriber Acquisition Costs below.
StarBand. Effective September 27, 2001, in connection with EchoStar’s increased equity interest in StarBand,
EchoStar began subsidizing the cost of equipment to the subscriber by offering discounted equipment through its
independent dealers. As such, beginning September 27, 2001, EchoStar accounted for the sale of StarBand equipment
similar to the accounting for its dealer sales under the I like 9, 1-2-3 Great TV and Free for All promotions. EchoStar
offered a bundled price of $100.99 for EchoStar’s America’s Top 150 (“AT 150”) programming and the StarBand
Internet service. For StarBand customers who activated for this bundled price, as a retailer of the StarBand service,
EchoStar recognized the entire $100.99 of revenue for the video and Internet service and recorded costs equal to the
monthly payment made by EchoStar to StarBand for providing the service. In the event EchoStar did not collect the
monthly programming and Internet payments from a subscriber, EchoStar was still obligated to remit payment to
StarBand for the cost of providing the Internet service to the customer.
Subscriber Promotion Subsidies and Subscriber Acquisition Costs
“Cost of sales – subscriber promotion subsidies” includes the cost of EchoStar receiver systems distributed to
retailers and other distributors of EchoStar’s equipment and receiver systems sold directly by EchoStar to subscribers.
“Other subscriber promotion subsidies” includes net costs related to various installation promotions and other
promotional incentives. EchoStar makes payments to its independent dealers as consideration for equipment installation
services and for equipment buydowns (commissions and rebates). EchoStar expenses payments for equipment
installation services as “Other subscriber promotion subsidies”. EchoStar’s payments for equipment buydowns
represent a partial or complete return of the dealer’s purchase price and are, therefore, netted against the proceeds
received from the dealer. EchoStar reports the net cost from its various sales promotions through its independent dealer