Dish Network 2004 Annual Report Download - page 50

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Continued
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subscribers. Our “Subscriber acquisition costs,” both in aggregate and on a per new subscriber activation basis, may
further materially increase in the future to the extent that we introduce other more aggressive promotions if we
determine that they are necessary to respond to competition, or for other reasons. See further discussion under
“Liquidity and Capital Resources – Subscriber Retention and Acquisition Costs.”
Equipment capitalized under our lease program for new customers totaled approximately $574.8 million and $108.1
million for the year ended December 31, 2004 and 2003, respectively. Returned equipment related to disconnected
lease program subscribers, which became available for sale rather than being redeployed through the lease program,
together with payments received in connection with equipment not returned to us, totaled approximately $60.8 million
and $30.2 million during the years ended December 31, 2004 and 2003, respectively. If we included in our calculation
of SAC the equipment capitalized less the value of equipment returned and payments received, our Equivalent SAC
would have been approximately $593 during 2004 compared to $480 during 2003. As discussed above, “Subscriber
acquisition costs” during 2003 included a benefit of approximately $77.2 million or $27 per subscriber. Absent this
benefit, our Equivalent SAC, would have been $507 for the year ended December 31, 2003. This increase is primarily
attributable to a greater number of DISH Network subscribers activating multiple receivers, and advanced products,
such as SuperDISH, digital video recorders and high definition receivers.
Subscriber acquisition promotions. As previously discussed, our “Subscriber acquisitions costs” include, among
other things, net costs related to our subscriber acquisition promotions. During the year ended December 31, 2004,
our significant new subscriber promotions were as follows:
Digital Home Advantage – Effective February 1, 2004, our Digital Home Advantage promotion provided new lease
subscribers up to four installed EchoStar receivers, including various premium models, with a qualifying
programming subscription. The subscriber is required to pay a monthly rental fee for each leased receiver, but is not
required to agree to a minimum lease period. The subscriber must provide a valid major credit card, their social
security number, have an acceptable credit score, and pay a one-time set-up fee of $49.99. The subscriber receives a
$49.99 credit on their first month’s bill. Effective October 19, 2004, the promotion was expanded whereby the
consumer may agree to either a one or two year commitment in exchange for receiving the benefits of our Digital
Home Protection Plan, an optional extended warranty program, without charge for one or two years, respectively.
Since we retain ownership of equipment installed pursuant to the Digital Home Advantage promotion, equipment costs
are capitalized and depreciated over a period of up to four years. Although there can be no assurance as to the ultimate
duration of our current equipment lease promotion, we expect it to continue through at least July 31, 2005.
Free Dish – Effective February 1, 2004, our Free DISH promotion provided new subscribers with a choice of up to
three installed EchoStar receivers, including one premium receiver model for $49.99. The subscriber receives a $49.99
credit on their first month’s bill. To be eligible, subscribers must provide a valid major credit card, their social security
number, have an acceptable credit score, and make a one or two year commitment to subscribe to a qualified
programming package, depending on the set-top box models selected by the subscriber. Certain advanced products,
including digital video recorders and high definition receivers, require additional upgrade fees. The Free Dish
promotion ended on January 31, 2005.
Free for All – Effective February 1, 2004, our Free for All promotion provides new subscribers who purchase one or
two installed receiver systems for $149.00 or $199.00, respectively, a monthly credit of $10.00 for 15 or 20 months,
respectively. The subscriber must subscribe to a qualifying programming package and provide their social security
number. Effective February 1, 2005, new subscribers under our Free for All promotion who purchase one or two
receiver systems and subscribe to a qualifying programming package receive a monthly credit of $5.00 for 30 or 40
months, respectively. 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, 2005.
General and administrative expenses. “General and administrative expenses” totaled $397.7 million during the year
ended December 31, 2004, an increase of $65.0 million or 19.5% compared to the same period in 2003. The increase
in “General and administrative expenses” was primarily attributable to increased personnel and infrastructure
expenses to support the growth of the DISH Network. “General and administrative expenses” represented 5.6% and
5.8% of “Total revenue” during the years ended December 31, 2004 and 2003, respectively. The decrease in this
expense to revenue ratio resulted primarily from “Total revenue” increasing at a higher rate than our “General and
administrative expenses.”