Dish Network 2010 Annual Report Download - page 57

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Continued
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Subscriber-related expenses. “Subscriber-related expenses” totaled $6.676 billion during the year ended December
31, 2010, an increase of $317 million or 5.0% compared to the same period in 2009. The increase in “Subscriber-
related expenses” was primarily attributable to higher programming costs. The increase in programming costs was
driven by rate increases in certain of our programming contracts, including the renewal of certain contracts at higher
rates and by a larger average subscriber base. This increase was partially offset by reduced costs related to our call
centers, customer retention, and in-home service operations. We continue to address our operational inefficiencies
by streamlining our hardware offerings and making significant investments in staffing, training, information systems
and other initiatives, primarily in our call centers and in-home service operations. “Subscriber-related expenses”
represented 53.2% and 55.1% of “Subscriber-related revenue” during the years ended December 31, 2010 and 2009,
respectively. The improvement in this expense to revenue ratio primarily resulted from an increase in “Subscriber-
related revenue” and the reduced costs discussed above, partially offset by higher programming costs.
In the normal course of business, we enter into contracts to purchase programming content in which our payment
obligations are fully contingent on the number of subscribers to whom we provide the respective content. Our
programming expenses will continue to increase to the extent we are successful in growing our subscriber base. In
addition, our “Subscriber-related expenses” may face further upward pressure from price increases and the renewal of
long-term programming contracts on less favorable pricing terms.
Satellite and transmission expenses – EchoStar. “Satellite and transmission expenses – EchoStar” totaled $418
million during the year ended December 31, 2010, an increase of $99 million or 30.8% compared to the same period in
2009. The increase in “Satellite and transmission expenses – EchoStar” is related to an increase in transponder
capacity leased from EchoStar primarily related to the Nimiq 5 satellite, which was placed into service in October
2009, an increase in monthly lease rates per transponder on certain satellites based on the terms of our amended lease
agreements and the increase in uplink services. The increase in uplink services was primarily attributable to the launch
of additional local channels and increased costs related to additional satellites being placed into service. See Note 17 in
the Notes to the Consolidated Financial Statements in Item 15 of this Annual Report on Form 10-K for further
discussion. “Satellite and transmission expenses – EchoStar” as a percentage of “Subscriber-related revenue”
increased to 3.3% in 2010 from 2.8% in 2009 primarily as a result of the increase in expenses discussed above.
Equipment, services and other cost of sales. “Equipment, services and other cost of sales” totaled $76 million during
the year ended December 31, 2010, a decrease of $45 million or 37.0% compared to the same period in 2009. This
decrease in “Equipment, services and other cost of sales” primarily resulted from a decline in the sales of non-
subsidized DBS receivers and accessories and in sales of digital converter boxes, and lower charges for slow moving
and obsolete inventory in 2010 compared to the same period in 2009.
Subscriber acquisition costs. “Subscriber acquisition costs” totaled $1.653 billion for the year ended December 31,
2010, an increase of $114 million or 7.4% compared to the same period in 2009. This increase was primarily
attributable to higher SAC discussed below, partially offset by the decline in gross new subscriber additions.
SAC. SAC was $776 during the year ended December 31, 2010 compared to $697 during the same period in 2009, an
increase of $79 or 11.3%. This increase was primarily attributable to increased advertising and hardware costs per
activation.
During the years ended December 31, 2010 and 2009, the amount of equipment capitalized under our lease program
for new subscribers totaled $716 million and $634 million, respectively. This increase in capital expenditures under
our lease program for new subscribers resulted primarily from an increase in hardware costs per activation, which was
driven by an increase in the deployment of more advanced set-top boxes, such as HD receivers and HD DVRs, and a
decrease in the redeployment of remanufactured receivers. The increase in the deployment of more advanced set-top
boxes was partially driven by our HD Free for Life promotion, which began during June 2010.