Dish Network 2008 Annual Report Download - page 97

DISH NETWORK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
F-15
Subscriber-Related Expenses
The cost of television programming distribution rights is generally incurred on a per subscriber basis and
various upfront carriage payments are recognized when the related programming is distributed to
subscribers. The cost of television programming rights to distribute live sporting events for a season or
tournament is charged to expense using the straight-line method over the course of the season or
tournament. “Subscriber-related expenses” in the Consolidated Statements of Operations and
Comprehensive Income (Loss) principally include programming expenses, costs incurred in connection
with our in-home service and call center operations, billing costs, refurbishment and repair costs related to
receiver systems, subscriber retention and other variable subscriber expenses. These costs are recognized
as the services are performed or as incurred.
“Subscriber-related expenses” also include the cost of sales from equipment sales, and expenses related to
installation and other services from our original agreement with AT&T. Cost of sales from equipment sales
to AT&T are deferred and recognized over the estimated average co-branded subscriber life. Expenses
from installation and certain other services performed at the request of AT&T are recognized as the
services are performed. Under the revised AT&T agreement, we include costs from equipment and
installations in “Subscriber acquisition costs” or, for leased equipment, in capital expenditures, rather than
in “Subscriber-related expenses.” We continue to include in “Subscriber-related expenses” the costs
deferred from equipment sales made to AT&T. These costs are amortized over the estimated life of the
subscribers acquired under the original AT&T agreement.
Subscriber Acquisition Costs
Subscriber acquisition costs in our Consolidated Statements of Operations and Comprehensive Income (Loss)
consist of costs incurred to acquire new subscribers through third parties and our direct customer acquisition
distribution channel. Subscriber acquisition costs include the following line items from our Consolidated
Statements of Operations and Comprehensive Income (Loss):
x “Cost of sales – subscriber promotion subsidies” includes the cost of our receiver systems sold to
retailers and other distributors of our equipment and receiver systems sold directly by us to
subscribers.
x “Other subscriber promotion subsidies” includes net costs related to promotional incentives and
costs related to installation.
x “Subscriber acquisition advertising” includes advertising and marketing expenses related to the
acquisition of new DISH Network subscribers. Advertising costs are expensed as incurred.
Accounting for dealer sales under our promotions falls within the scope of EITF 01-9. In accordance with that
guidance, we characterize amounts paid to our independent dealers as consideration for equipment installation
services and for equipment buydowns (commissions and rebates) as a reduction of revenue. We expense
payments for equipment installation services as “Other subscriber promotion subsidies.” Our payments for
equipment buydowns represent a partial or complete return of the dealer’s purchase price and are, therefore,
netted against the proceeds received from the dealer. We report the net cost from our various sales promotions
through our independent dealer network as a component of “Other subscriber promotion subsidies.” No net
proceeds from the sale of subscriber related equipment pursuant to our subscriber acquisition promotions are
recognized as revenue.
Equipment Lease Programs
DISH Network subscribers have the choice of leasing or purchasing the satellite receiver and other equipment
necessary to receive our programming. Most of our new subscribers choose to lease equipment and thus we
retain title to such equipment. Equipment leased to new and existing subscribers is capitalized and depreciated
over their estimated useful lives.