Dish Network 2009 Annual Report Download - page 66

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Continued
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“Subscriber-related revenue” during the years ended December 31, 2008 and 2007, respectively. The increase in
this expense to revenue ratio primarily resulted from the increase in “Subscriber-related expenses,” partially offset
by an increase in ARPU.
Satellite and transmission expenses – EchoStar. “Satellite and transmission expenses – EchoStar” totaled $305
million during the year ended December 31, 2008. As previously discussed, “Satellite and transmission expenses –
EchoStar” resulted from costs associated with the services provided to us by EchoStar, including the satellite and
transponder capacity leases on satellites that were distributed to EchoStar in connection with the Spin-off, and digital
broadcast operations previously provided internally at cost.
Satellite and transmission expenses – other. “Satellite and transmission expenses – other” totaled $32 million during
the year ended December 31, 2008, a decrease of $148 million or 82.1% compared to the same period in 2007. As
previously discussed, prior to the Spin-off, “Satellite and transmission expenses – other” included costs associated with
the operation of our digital broadcast centers, including satellite uplinking/downlinking, signal processing, conditional
access management, telemetry, tracking and control, satellite and transponder leases, and other related services.
Following the Spin-off, these digital broadcast operation services have been provided to us by EchoStar and are
included in “Satellite and transmission expenses – EchoStar.”
Equipment, transitional services and other cost of sales. “Equipment, transitional services and other cost of sales”
totaled $170 million during the year ended December 31, 2008, a decrease of $112 million or 39.7% compared to the
same period in 2007. The decrease primarily resulted from the elimination of the cost of sales related to the distribution
of our set-top box business to EchoStar in connection with the Spin-off, partially offset by costs related to our
transitional services and other agreements with EchoStar, charges for obsolete inventory, and an increase in other cost
of sales. During the year ended December 31, 2007, the costs associated with our set-top box business that was
distributed to EchoStar accounted for $163 million of our “Equipment, transitional services and other cost of sales.”
Subscriber acquisition costs. “Subscriber acquisition costs” totaled $1.532 billion for the year ended December 31,
2008, a decrease of $39 million or 2.5% compared to the same period in 2007. This decrease was primarily attributable
to the decline in gross new subscribers, partially offset by an increase in SAC discussed below.
SAC. SAC was $720 during the year ended December 31, 2008 compared to $656 during the same period in 2007,
an increase of $64, or 9.8%. This increase was primarily attributable to an increase in equipment costs, as well as
higher acquisition advertising expense and an increase in promotional incentives paid to our independent retailer
network. Our equipment costs were higher during 2008 as a result of an increase in the number of new DISH Network
subscribers selecting more advanced equipment, such as HD receivers, DVRs and receivers with multiple tuners and as
a result of the Spin-off of our set-top box business to EchoStar. Set-top boxes were historically designed in-house and
procured at our cost. We now acquire this equipment from EchoStar at its cost plus an agreed-upon margin. These
increases were partially offset by the increase in the redeployment benefits of our equipment lease program for new
subscribers.
During the years ended December 31, 2008 and 2007, the amount of equipment capitalized under our lease program
for new subscribers totaled $604 million and $682 million, respectively. This decrease in capital expenditures under
our lease program for new subscribers resulted primarily from lower subscriber growth and an increase in
redeployment of equipment returned by disconnecting lease program subscribers, partially offset by higher equipment
costs resulting from higher priced advanced products and the mark-up on set-top boxes as a result of the Spin-off,
discussed above.
Our SAC calculation does not reflect any benefit from payments we received in connection with equipment not
returned to us from disconnecting lease subscribers and returned equipment that is made available for sale or used in
our existing customer lease program rather than being redeployed through our new lease program. During the years
ended December 31, 2008 and 2007, these amounts totaled $128 million and $87 million, respectively.