Dish Network 2005 Annual Report Download - page 33

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Additionally, as the size of our subscriber base increases, even if our churn percentage remains constant or declines,
increasing numbers of gross new DISH Network subscribers are required to sustain net subscriber growth.
Increases in theft of our signal, or our competitors’ signals, also could cause subscriber churn to increase in future
periods. There can be no assurance that our existing security measures will not be compromised or that any future
security measures we may implement will be effective in reducing theft of our programming signals.
Increased subscriber acquisition and retention costs could adversely affect our financial performance.
In addition to leasing receivers, we generally subsidize installation and all or a portion of the cost of EchoStar
receiver systems in order to attract new DISH Network subscribers. Our costs to acquire subscribers, and to a lesser
extent our subscriber retention costs, can vary significantly from period to period and can cause material variability
to our net income (loss) and free cash flow.
In addition to new subscriber acquisition costs, we incur costs to retain existing subscribers. In an effort to reduce
subscriber turnover, we offer existing subscribers a variety of options for upgraded and add on equipment. We
generally lease receivers and subsidize installation of EchoStar receiver systems under these subscriber retention
programs. We also upgrade or replace subscriber equipment periodically as technology changes. As a consequence,
our retention and our capital expenditures related to our equipment lease program for existing subscribers will
increase, at least in the short term, to the extent we subsidize the costs of those upgrades and replacements. Our
capital expenditures related to subscriber retention programs could also increase in the future to the extent we
increase penetration of our equipment lease program for existing subscribers, if we introduce other more aggressive
promotions, if we offer existing subscribers more aggressive promotions for HD receivers or EchoStar receivers
with other enhanced technologies, or for other reasons.
Cash necessary to fund retention programs and total subscriber acquisition costs are expected to be satisfied from
existing cash and marketable investment securities balances and cash generated from operations to the extent
available. We may, however, decide to raise additional capital in the future to meet these requirements. There can
be no assurance that additional financing will be available on acceptable terms, or at all, if needed in the future.
In addition, any material increase in subscriber acquisition or retention costs from current levels could have a
material adverse effect on our business, financial condition and results of operations.
Satellite programming signals have been subject to theft, which could cause us to lose subscribers and revenue.
Increases in theft of our signal, or our competitors’ signals, also could cause subscriber churn to increase in future
periods. We use microchips embedded in credit card-sized access cards, called “smart cards,” or in security chips in
our EchoStar receiver systems to control access to authorized programming content. Our signal encryption has been
compromised by theft of service and could be further compromised in the future. We continue to respond to
compromises of our encryption system with security measures intended to make signal theft of our programming
more difficult. During 2005, we completed the replacement of our smart cards. While the smart card replacement
did not fully secure our system, we continue to implement software patches and other security measures to help
protect our service. There can be no assurance that our security measures will be effective in reducing theft of our
programming signals. If we are required to replace existing smart cards, the cost could exceed $100.0 million.
Our local programming strategy faces uncertainty.
SHVIA generally gives satellite companies a statutory copyright license to retransmit local broadcast channels by
satellite back into the market from which they originated, subject to obtaining the retransmission consent of the local
network station. If we fail to reach retransmission consent agreements with broadcasters we cannot carry their
signals. This could have an adverse effect on our strategy to compete with cable and other satellite companies
which provide local signals. While we have been able to reach retransmission consent agreements with most local
network stations in markets where we currently offer local channels by satellite, roll-out of local channels in
additional cities will require that we obtain additional retransmission agreements. We cannot be sure that we will
secure these agreements or that we will secure new agreements upon the expiration of our current retransmission
consent agreements, some of which are short term.