Dish Network 2013 Annual Report Download - page 70

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Continued
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DISH added approximately 253,000 net Broadband subscribers during the year ended December 31, 2013 compared
to the addition of approximately 78,000 net Broadband subscribers during the same period in 2012. This increase
versus the same period in 2012 primarily resulted from higher gross new Broadband subscriber activations driven by
increased advertising associated with the launch of dishNET branded broadband services on September 27, 2012.
During the year ended December 31, 2013, DISH activated approximately 343,000 gross new Broadband
subscribers compared to the activation of approximately 121,000 gross new Broadband subscribers during the same
period in 2012. This increase was driven by increased advertising associated with the launch of dishNET branded
broadband services on September 27, 2012. Broadband services revenue was $221 million and $95 million for the
years ended December 31, 2013 and 2012, respectively, representing 1.6% and 0.7% of our total “Subscriber-related
revenue,” respectively.
“Net income (loss) attributable to DISH Network” for the years ended December 31, 2013 and 2012 was $807
million and $637 million, respectively. These amounts included net losses from discontinued operations of $47
million and $37 million for 2013 and 2012, respectively. During the year ended December 31, 2013, “Net income
(loss) attributable to DISH Network” increased primarily due to the programming package price increase in
February 2013 and net realized and/or unrealized gains on our marketable investment securities and derivative
financial instruments during 2013 compared to the same period in 2012 and the $102 million reversal of an
uncertain tax position that was resolved during the third quarter 2013. These increases were partially offset by the
impairment of the T2 and D1 satellites of $438 million during the second quarter 2013 and an increase in subscriber-
related expenses, subscriber acquisition costs and interest expense in 2013. In addition, the year ended December 31,
2012 was negatively impacted by $730 million of litigation expense related to the Voom Settlement Agreement. See
Note 16 in the Notes to our Consolidated Financial Statements in Item 15 of this Annual Report on Form 10-K for
further information.
Our ability to compete successfully will depend, among other things, on our ability to continue to obtain desirable
programming and deliver it to our subscribers at competitive prices. Programming costs represent a large percentage of
our “Subscriber-related expenses” and the largest component of our total expense. We expect these costs to continue to
increase, especially for local broadcast channels and sports programming. Going forward, our margins may face
pressure if we are unable to renew our long-term programming contracts on favorable pricing and other economic
terms. In addition, increases in programming costs could cause us to increase the rates that we charge our subscribers,
which could in turn cause our existing Pay-TV subscribers to disconnect our service or cause potential new Pay-TV
subscribers to choose not to subscribe to our service. Additionally, even if our subscribers do not disconnect our
services, they may purchase a certain portion of the services that they would have historically purchased from us
through these online platforms, such as pay per view movies, resulting in less revenue to us. Furthermore, our gross
new Pay-TV subscriber activations and Pay-TV churn rate may be negatively impacted if we are unable to renew our
long-term programming contracts before they expire or if we lose access to programming as a result of disputes with
programming suppliers.
As the pay-TV industry has matured, we and our competitors increasingly must seek to attract a greater proportion
of new subscribers from each other’s existing subscriber bases rather than from first-time purchasers of pay-TV
services. Some of our competitors have been especially aggressive by offering discounted programming and
services for both new and existing subscribers. In addition, 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 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 also been driven by
issues specific to DISH. In the past, our Pay-TV subscriber growth has been adversely affected by signal theft and
other forms of fraud and by operational inefficiencies at DISH. To combat signal theft and improve the security of
our broadcast system, we completed the replacement of our Security Access Devices to re-secure our system during
2009. We expect that additional future replacements of these devices will be necessary to keep our system secure.
To combat other forms of fraud, we continue to expect that our third party distributors and retailers will adhere to
our business rules.