Dish Network 2011 Annual Report Download - page 62

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Continued
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Voom
If Voom prevails in its breach of contract suit against us, we could be required to pay substantial damages, which
would have a material adverse affect on our financial position and results of operations. In January 2008, Voom HD
Holdings (“Voom”) filed a lawsuit against us in New York Supreme Court, alleging breach of contract and other
claims arising from our termination of the affiliation agreement governing carriage of certain Voom HD channels on
the DISH pay-TV service. At that time, Voom also sought a preliminary injunction to prevent us from terminating
the agreement. The Court denied Voom’s request, finding, among other things, that Voom had not demonstrated
that it was likely to prevail on the merits. In April 2010, we and Voom each filed motions for summary judgment.
Voom later filed two motions seeking discovery sanctions. On November 9, 2010, the Court issued a decision
denying both motions for summary judgment, but granting Voom’s motions for discovery sanctions. The Court’s
decision provides for an adverse inference jury instruction at trial and precludes our damages expert from testifying
at trial. We appealed the grant of Voom’s motion for discovery sanctions to the New York State Supreme Court,
Appellate Division, First Department. On February 15, 2011, the appellate court granted our motion to stay the trial
pending our appeal. On January 31, 2012, the appellate court affirmed the order imposing discovery sanctions and
precluding our damages expert from testifying at trial. We are seeking leave to appeal to New York’s highest state
court, the Court of Appeals. A trial date has not been set. Voom is claiming over $2.5 billion in damages.
EXPLANATION OF KEY METRICS AND OTHER ITEMS
Subscriber-related revenue. “Subscriber-related revenue” consists principally of revenue from basic, premium
movie, local, HD programming, pay-per-view, Latino and international subscription television services, equipment
rental fees and other hardware related fees, including fees for DVRs, equipment upgrade fees and additional outlet
fees from subscribers with receivers with multiple tuners, advertising services, fees earned from our in-home service
operations and other subscriber revenue. Certain of the amounts included in “Subscriber-related revenue” are not
recurring on a monthly basis.
Equipment and merchandise sales, rental and other revenue. “Equipment and merchandise sales, rental and other
revenue” principally includes the non-subsidized sales of DBS accessories to retailers and other third-party distributors
of our equipment domestically and to DISH subscribers. Effective April 26, 2011, revenue from merchandise sold to
customers including movies, video games and other accessories, and revenue from the rental of movies and video
games and the sale of previously rented titles related to our Blockbuster operations are included in this category.
Equipment sales, services and other revenue – EchoStar. “Equipment sales, services and other revenue –
EchoStar” includes revenue related to equipment sales, services, and other agreements with EchoStar.
Subscriber-related expenses. “Subscriber-related expenses” principally include programming expenses, which
represent a substantial majority of these expenses. “Subscriber-related expenses” also include 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 leasing satellite and transponder capacity from EchoStar and 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.
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.
Cost of sales - equipment, merchandise, services, rental and other. “Cost of sales - equipment, merchandise,
services, rental and other” principally includes the cost of non-subsidized sales of DBS accessories to retailers and
other third-party distributors of our equipment domestically and to DISH subscribers. Effective April 26, 2011, the
cost of movies and video games including rental title purchases or revenue sharing to studios, packaging and online
delivery costs and cost of merchandise sold including movies, video games and other accessories related to our
Blockbuster operations are included in this category. In addition, “Cost of sales - equipment, merchandise, services,
rental and other” includes costs related to equipment sales, services, and other agreements with EchoStar.