Dish Network 2008 Annual Report Download - page 50

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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Continued
40
As discussed below, to address the decline in our subscriber base, we have been focusing on factors generally within
our control. Aggressive offerings by our competitors have required us to respond with stronger promotional
offerings of our own. In February 2009, we introduced a new promotion where qualifying subscribers can receive
certain programming packages for as low as $9.99 per month for up to six months. We strive to attract good quality
subscribers to this promotion via credit requirements and contractual commitments. In support of our recent
promotional offerings, we increased our advertising expenditures throughout 2008.
We have been investing more in advanced technology equipment as part of our subscriber acquisition and retention
efforts. Recent initiatives to transmit certain programming only in MPEG-4 and to activate certain new subscribers
only with MPEG-4 receivers have accelerated our deployment of MPEG-4 receivers. To meet current demand, we
have increased the rate at which we upgrade existing subscribers to HD and DVR receivers. While these efforts
may increase our subscriber acquisition and retention costs, we believe that they will help reduce subscriber churn
and costs over the long run.
We have also been changing equipment for certain subscribers to free up satellite bandwidth in support of HD and
other initiatives. We expect to implement these initiatives at least through the first half of 2009. We believe that the
benefit from the increase in available satellite bandwidth outweighs the short-term cost of these equipment changes.
To combat signal theft and improve the security of our broadcast system, we launched an initiative that will continue
at least through the first half of 2009 to replace our security access devices. To combat other forms of fraud, we
have taken a wide range of actions including terminating more than 60 retailers found to be in violation of DISH
Network’s business rules. While these initiatives may inconvenience our subscribers and disrupt our distribution
channels in the short term, we believe that the long-term benefits will outweigh the costs.
To address our operational inefficiency, we have made and intend to continue to make material investments in
staffing, training, information systems, and other initiatives, primarily in our call center and in-home service
businesses. These investments are intended to help combat inefficiencies introduced by the increasing complexity
of our business, improve customer satisfaction, reduce churn, increase productivity, and allow us to scale better over
the long run. We cannot, however, be certain that our increased spending will ultimately be successful in yielding
such returns. In the meantime, we may continue to incur higher costs as a result of both our operational
inefficiencies and increased spending.
Over the longer run, we will use Slingbox “placeshifting” technology and other technologies to maintain and
enhance our competitiveness. We may also partner with or acquire companies whose lines of business are
complementary to ours should attractive opportunities arise.
The adoption of the above measures have contributed to higher expenses and lower margins. While we believe that
the increased costs will be outweighed by longer-term benefits, there can be no assurance when or if we will realize
these benefits at all. Programming costs represent a large percentage of our subscriber-related expenses. As a
result, our margins may face further downward pressure from price escalations in current contracts and the renewal
of long term programming contracts on less favorable pricing terms.
Our balance of cash and current marketable investment securities was materially lower on December 31, 2008 than
it has been in recent years, mostly due to the redemption of a significant amount of debt towards the end of 2008.
Furthermore, the current lack of stability in the capital markets makes it uncertain that we could raise more cash on
acceptable terms or at all. As a result, we may not have as much flexibility to invest in our business, pursue strategic
investments, prepay debt, or buy back our own stock as we have had in the past.