Dish Network 2009 Annual Report Download - page 52

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
DISH Network added approximately 422,000 net new subscribers during the year ended December 31, 2009 as a
result of higher gross subscriber additions and reduced churn. Our increased gross subscriber additions were
primarily a result of our sales and marketing promotions during the last half of 2009. Churn was positively
impacted by, among other things, the completion of our security access device replacement program, an increase in
our new subscriber commitment period and initiatives to retain subscribers. Historically, we have experienced
slightly higher churn in the months following the expiration of commitments for new subscribers. In February 2008,
we extended the required new subscriber commitment from 18 to 24 months. During the last half of 2009, due to
the change in promotional mix, we had fewer expiring new subscriber commitments. We continue to focus on
addressing operational inefficiencies specific to DISH Network which we believe will contribute to long-term
subscriber growth. ARPU has been negatively impacted by promotional discounts on programming offered to new
subscribers and our initiatives to retain subscribers, both of which negatively impacted our subscriber-related
margins. “Subscriber-related expenses” continued to be negatively impacted by increased programming costs and
initiatives to retain subscribers, migrate certain subscribers to make more efficient use of transponder capacity, and
improve customer service.
The current overall economic environment has negatively impacted many industries including ours. In addition, the
overall growth rate in the pay-TV industry has slowed in recent years. Within this maturing industry, competition
has intensified with the rapid growth of fiber-based pay-TV services offered by telecommunications companies.
Furthermore, programming offered over the Internet has become more prevalent as the speed and quality of
broadband networks have improved. Significant changes in consumer behavior with regard to the means by which
they obtain video entertainment and information in response to this emerging digital media competition could
materially adversely affect our business, results of operations and financial condition or otherwise disrupt our
business.
While economic factors have impacted the entire pay-TV industry, our relative performance has been mostly driven
by issues specific to DISH Network. 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
subscribers and similarly aggressive promotions and tactics used to retain existing subscribers. Some competitors
have been especially aggressive and effective in marketing 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
subscriber issues when they arise, answering subscriber calls in an acceptable timeframe, effectively communicating
with our subscriber base, reducing calls driven by the complexity of our business, improving the reliability of certain
systems and subscriber 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 in
prior years, accounting for approximately 17% of our gross subscriber additions for the year ended December 31,
2008. This distribution relationship ended January 31, 2009. Consequently, beginning with the second quarter
2009, AT&T no longer contributed to our gross subscriber additions. In addition, nearly 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