Dish Network 2009 Annual Report Download - page 56

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Continued
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During 2007, this category also included sales of non-DISH Network digital receivers and related components to
international customers and satellite and transmission revenue, which related to the set-top box business and other
assets that were distributed to EchoStar in connection with the Spin-off.
Equipment sales, transitional services and other revenue – EchoStar. “Equipment sales, transitional services and
other revenue – EchoStar” includes revenue related to equipment sales, and transitional services and other agreements
with EchoStar associated with the Spin-off.
Subscriber-related expenses. “Subscriber-related expenses” 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.
Satellite and transmission expenses – EchoStar. “Satellite and transmission expenses – EchoStar” includes the cost
of digital broadcast operations provided to us by EchoStar, including satellite uplinking/downlinking, signal processing,
conditional access management, telemetry, tracking and control and other professional services. In addition, this
category includes the cost of leasing satellite and transponder capacity on satellites that were distributed to EchoStar, in
connection with the Spin-off.
Satellite and transmission expenses – other. “Satellite and transmission expenses – other” includes executory costs
associated with capital leases and costs associated with transponder leases and other related services. Prior to the
Spin-off, “Satellite and transmission expenses – other” included costs associated with the operation of our digital
broadcast centers, including satellite uplinking/downlinking, signal processing, conditional access management,
telemetry, tracking and control, satellite and transponder leases, and other related services, which were previously
performed internally.
Equipment, transitional services and other cost of sales. “Equipment, transitional services and other cost of sales”
principally includes the cost of non-subsidized sales of DBS accessories to retailers and other distributors of our
equipment domestically and to DISH Network subscribers. In addition, this category includes costs related to
equipment sales, transitional services and other agreements with EchoStar associated with the Spin-off.
During 2007, “Equipment, transitional services and other cost of sales” also included costs associated with non-DISH
Network digital receivers and related components sold to international customers and satellite and transmission
expenses, which related to the set-top box business and other assets that were distributed to EchoStar in connection
with the Spin-off.
Subscriber acquisition costs. In addition to leasing receivers, we generally subsidize installation and all or a portion
of the cost of our receiver systems to attract new DISH Network subscribers. Our “Subscriber acquisition costs”
include the cost of our receiver systems sold to retailers and other distributors of our equipment, the cost of receiver
systems sold directly by us to subscribers, net costs related to our promotional incentives, and costs related to
installation and acquisition advertising. We exclude the value of equipment capitalized under our lease program for
new subscribers from “Subscriber acquisition costs.”
SAC. Subscriber acquisition cost measures are commonly used by those evaluating companies in the pay-TV
industry. We are not aware of any uniform standards for calculating the “average subscriber acquisition costs per
new subscriber activation,” or SAC, and we believe presentations of SAC may not be calculated consistently by
different companies in the same or similar businesses. Our SAC is calculated as “Subscriber acquisition costs,” plus
the value of equipment capitalized under our lease program for new subscribers, divided by gross subscriber
additions. We include all the costs of acquiring subscribers (e.g., subsidized and capitalized equipment) as our
management believes it is a more comprehensive measure of how much we are spending to acquire subscribers. We
also include all new DISH Network subscribers in our calculation, including DISH Network subscribers added with
little or no subscriber acquisition costs.