Dish Network 2008 Annual Report Download - page 55

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Continued
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DISH Network subscribers. As of December 31, 2008, we had approximately 13.678 million DISH Network
subscribers compared to approximately 13.780 million subscribers at December 31, 2007, a decrease of 102,000 or
0.7%. DISH Network added approximately 2.966 million gross new subscribers for the year ended December 31,
2008, compared to approximately 3.434 million gross new subscribers during 2007, a decrease of approximately
468,000 gross new subscribers.
DISH Network lost approximately 102,000 net subscribers for the year ended December 31, 2008, compared to
adding approximately 675,000 net new subscribers during the same period in 2007. This decrease primarily resulted
from lower gross new subscribers discussed above, an increase in our subscriber churn rate, and churn on a larger
average subscriber base for the year. Our average monthly subscriber churn for the year ended December 31, 2008
was 1.86%, compared to 1.70% for the same period in 2007. Given the increasingly competitive nature of our
industry and the current weaker economic conditions, especially the downturn in the financial and consumer
markets, we may not be able to reduce churn without significantly increasing our spending on customer retention
incentives, which would have a negative effect on our results of operations and free cash flow.
We believe our gross and net subscriber additions as well as our subscriber churn have been negatively impacted by
weaker economic conditions, aggressive promotional and retention offerings by our competition, our relative
discipline in our own promotional and retention activities including the amount of discounted programming or
equipment we have offered, the heavy marketing of HD service by our competition, the growth of fiber-based and
Internet-based pay TV providers, signal theft and other forms of fraud, and 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.
Most of these factors have affected both gross new subscriber additions as well as existing subscriber churn. Our
future gross subscriber additions and subscriber churn may continue to be negatively impacted by these factors,
which could in turn adversely affect our revenue growth.
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.
Subscriber-related revenue. DISH Network “Subscriber-related revenue” totaled $11.456 billion for the year ended
December 31, 2008, an increase of $765 million or 7.2% compared to 2007. This increase was primarily related to
the increase in “ARPU” discussed below and a higher average subscriber base in 2008 compared to 2007.
ARPU. Monthly average revenue per subscriber was $69.27 during the year ended December 31, 2008 versus $65.83
during the same period in 2007. The $3.44 or 5.2% increase in ARPU was primarily attributable to (i) price increases
in February 2008 and 2007 on some of our most popular programming packages, (ii) an increase in hardware related
fees, including rental fees and fees for DVRs, (iii) increased penetration of HD programming driven in part by the
availability of HD local channels, (iv) an increase in fees earned from our DishHOME Protection Plan, and (v)
increased advertising revenue. This increase was partially offset by a decrease in revenue from our original
agreement with AT&T.