Dish Network 2008 Annual Report Download - page 49

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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You should read the following discussion and analysis of our financial condition and results of operations together
with the audited consolidated financial statements and notes to the financial statements included elsewhere in this
annual report. This management’s discussion and analysis is intended to help provide an understanding of our
financial condition, changes in financial condition and results of our operations and contains forward-looking
statements that involve risks and uncertainties. The forward-looking statements are not historical facts, but rather
are based on current expectations, estimates, assumptions and projections about our industry, business and future
financial results. Our actual results could differ materially from the results contemplated by these forward-looking
statements due to a number of factors, including those discussed in this report, including under the caption “Item
1A. Risk Factors” in this Annual Report on Form 10-K.
EXECUTIVE SUMMARY
Overview
After achieving significant growth in subscribers over the past twelve years, DISH Network saw its subscriber base
decrease by 102,000 in 2008 with most of the decline taking place in the fourth quarter. Factors common to the pay-
TV industry generally as well as factors that were specific to DISH Network each contributed to this decline.
The current overall economic environment has negatively impacted many industries including ours. The downturn
in the housing market has had a further effect on the pay-TV industry. In addition, the overall growth rate in the
pay-TV industry has slowed in recent years as the penetration of pay-TV households approaches 90%. Within this
maturing industry, competition has intensified with the rapid growth of fiber-based pay-TV services offered by
telecommunications companies. Furthermore, new internet protocol television (“IPTV”) products/services have
begun to impact the pay-TV industry and such products/services will become more viable competition over time as
their quality improves. In spite of these factors that have impacted the entire pay-TV industry, certain of our
competitors have been able to achieve relatively strong results in the current environment.
While economic factors have impacted the entire pay-TV industry, our relative performance has been mostly driven
by issues specific to DISH. In recent years, DISH Network’s position as the low cost provider in the pay-TV
industry has been eroded by increasingly aggressive promotional pricing used by our competitors to attract new
customers and similarly aggressive promotions and tactics used to retain existing customers. Some competitors
have been especially aggressive and effective in marketing the value and quality of their service. Furthermore, our
subscriber growth has been adversely affected by signal theft and other forms of fraud and by operational
inefficiencies at DISH Network. We have not always met our own standards for performing high quality
installations, effectively resolving customer issues when they arise, answering customer calls in an acceptable
timeframe, effectively communicating with our customer base, reducing calls driven by the complexity of our
business, improving the reliability of certain systems and customer equipment, and aligning the interests of certain
third party retailers and installers to provide high quality service.
Our distribution relationship with AT&T was a substantial contributor to our gross and net subscriber additions over
the past several years, accounting for approximately 17% of our gross subscriber additions for the year ended
December 31, 2008 and 19% of our gross subscriber additions in the fourth quarter. This distribution relationship
ended on January 31, 2009. AT&T has entered into a new distribution relationship with DirecTV. It may be
difficult for us to develop alternative distribution channels that will fully replace AT&T and if we are unable to do
so, our gross and net subscriber additions may be further impaired, our subscriber churn may increase, and our
results of operations may be adversely affected. In addition, approximately one million of our current subscribers
were acquired through our distribution relationship with AT&T and subscribers acquired through this channel have
historically churned at a higher rate than our overall subscriber base. Although AT&T is not permitted to target
these subscribers for transition to another pay-TV service and we and AT&T are required to maintain bundled
billing and cooperative customer service for these subscribers, these subscribers may still churn at higher than
historical rates following termination of the AT&T distribution relationship.