Dish Network 1997 Annual Report Download - page 31

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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
All statements contained herein, as well as statements made in press releases and oral statements that may be
made by EchoStar or by officers, directors or employees of EchoStar acting on its behalf, that are not statements of
historical fact constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform
Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that
could cause the actual results of EchoStar to be materially different from historical results or from any future results
expressed or implied by such forward-looking statements. Among the factors that could cause actual results to differ
materially are the following: the unavailability of sufficient capital on satisfactory terms to finance EchoStar’s business
plan; increased competition from cable, DBS, other satellite system operators and other providers of subscription
television services; the introduction of new technologies and competitors into the subscription television business;
increased subscriber acquisition costs and subscriber promotion subsidies; the inability of EchoStar to obtain
necessary shareholder and bondholder approval of any strategic transactions; the inability of EchoStar to obtain and
retain necessary authorizations from the FCC, the outcome of any litigation in which EchoStar may be involved;
general business and economic conditions; and other risk factors described from time to time in EchoStar’s reports
filed with the SEC. In addition to statements that explicitly describe such risks and uncertainties, readers are urged to
consider statements that include the terms “believes,” “belief,” “expects,” “plans,” “anticipates,” “intends” or the
like to be uncertain and forward-looking. All cautionary statements made herein should be read as being applicable to
all forward-looking statements wherever they appear. In this connection, investors should consider the risks described
herein.
Overview
The operations of EchoStar include three interrelated business units: (i) the DISH Network;
(ii) Technology; and (iii) Satellite Services. EchoStar’s principal business strategy is to continue developing its
subscription television service in the U.S. to provide consumers with a fully viable alternative to cable television
service.
Key Operating and Financial Statistics. As of December 31, 1997, EchoStar had approximately 1,040,000
DISH Network subscribers, compared to approximately 350,000 subscribers at December 31, 1996. During 1997,
subscriber churn (which represents the number of subscriber disconnects during the period divided by the weighted-
average number of subscribers during the period) approximated 1% per month. EchoStar’s subscriber acquisition costs
(deferred subscriber acquisition costs, subscriber promotion subsidies and acquisition marketing expenses)
approximated $252 million in 1997.
Marketing Promotions. During 1996, in order to stimulate subscriber growth, EchoStar made a strategic
decision to reduce the price charged to consumers for EchoStar Receiver Systems. Accordingly, beginning in
August 1996, EchoStar began selling its EchoStar Receiver Systems below its manufactured cost (the “ 1996,
Promotion”). The 1996 Promotion lowered the suggested retail price charged by independent retailers for a standard
EchoStar Receiver System to $199 (as compared to the original average retail price prior to August 1996 of
approximately $499), conditioned upon the consumer’s prepaid one-year subscription to the DISH Network’s
America’s Top 50 CD programming package for approximately $300. Total transaction proceeds to EchoStar,
which were less than its aggregate costs (equipment, programming and other) for the initial prepaid subscription
period, were initially deferred and recognized as revenue over the related prepaid subscription period (normally one
year). During the period from August 1996 through May 1997, substantially all new subscriber activations resulted
from the 1996 Promotion.
During June 1997, EchoStar introduced the “ 1997 Promotion.” The 1997 Promotion maintained the
suggested retail price for a standard EchoStar Receiver System at $199, but eliminated the requirement for the
coincident purchase of an extended subscription commitment. Net transaction costs associated with the 1997
Promotion are expensed as incurred (reported as a component of subscriber promotion subsidies) in the
accompanying statements of operations. The majority of new subscriber activations have resulted from the 1997
Promotion since its introduction.