Dish Network 1999 Annual Report Download - page 32

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Under our bounty programs, current cable, C-band and PrimeStar customers are eligible to receive a free base-
level EchoStar receiver system and free installation. In addition, PrimeStar customers are eligible to receive six months
of our America’s Top 40 programming or our DISH Latino programming (both packages retail for $19.99 per month)
without charge. A subscriber must make a one-year commitment to subscribe to either our America’s Top 40, our
DISH Latino programming package or our America’s Top 100 CD programming package and prove that they are a
current cable, C-band or PrimeStar customer to be eligible for these programs. Under our free installation program all
customers who purchase an EchoStar receiver system through April 30, 2000 are eligible to receive a free professional
installation.
We subsidize the purchase and installation of EchoStar receiver systems in order to attract new DISH
Network subscribers. Consequently, our subscriber acquisition costs are significant. While our average subscriber
acquisition cost was $385 for all of 1999, it was higher during the fourth quarter, averaging approximately $425 per
subscriber. As a result of our free system and free installation promotion which is anticipated to continue through at
least April 30, 2000, we expect our subscriber acquisition costs for 2000 will be highest during the first several months
of the year, but may decline thereafter, and may average as much as $450 or more for the full year. In connection with
our plans to encourage as many new subscribers as possible to be ready for the additional services that will become
available at the 110° WL orbital location, and as a result of continuing competition and our plans to attempt to continue
to drive rapid subscriber growth, we expect that our subscriber acquisition costs during 2000 could increase by as much
as $25 per subscriber or more on average compared to the fourth quarter of 1999.
In connection with the launch of EchoStar V and EchoStar VI, we will utilize the 110° orbital location to
enhance revenue opportunities with new value added services for our current and future subscribers, and maintain our
primary DBS service at the 119° orbital location. Our existing subscribers will need to upgrade their dish and receiver
systems in order to take advantage of all of the services we offer. To encourage existing subscribers to upgrade their
systems and remain subscribers, we are currently subsidizing upgrades by existing subscribers to our DISH 500 system.
The cost of this program could be significant if utilized by a large number of our existing subscribers.
Our subscriber acquisition costs, both in the aggregate and on a per new subscriber activation basis, may
materially increase further to the extent that we continue or expand our bounty programs, our “free system/free
installation” program, or the DISH Network One-Rate Plan, or if we determine that more aggressive promotions are
necessary to respond to competition, or for other reasons.
Further, in November 1999 we entered into an exclusive multi-year agreement with Superstar/Netlink
Group, a subsidiary of TVGuide, to attempt to convert its current and inactive C-band (large dish) subscribers to our
DBS (small dish) services. Under the terms of the agreement, we will incur substantial subscriber acquisition costs,
including payments to Superstar and the retailer, and for equipment and other incentives to the consumer for each
Superstar subscriber who actually converts to and remains a subscriber to our DBS Services. Subscriber acquisition
costs under the terms of this agreement are generally higher than under our marketing promotions. As a result of
this agreement, subscriber acquisition costs may increase to the extent our efforts to convert Superstar’s subscribers
are even more successful than we currently anticipate. If subscriber acquisition costs increase materially, it could
adversely affect our financial condition and results of operations.
General and Administrative Expenses. General and administrative expenses totaled $205 million during
1999, an increase of $108 million as compared to the same period in 1998. The increase in G&A expenses was
principally attributable to increased personnel expenses to support the growth of the DISH Network and non-cash
compensation expense from significant post-grant appreciation of stock options granted to key employees during 1999.
G&A expenses as a percentage of total revenue increased to 13% during the year ended December 31, 1999 compared
to 10% during the same period in 1998. Although we expect G&A expenses as a percentage of total revenue to remain
near the current level or decline modestly in future periods, this expense to revenue ratio could increase.