Dish Network 2009 Annual Report Download - page 60

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Continued
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ARPU. “Average monthly revenue per subscriber” was $70.04 during the year ended December 31, 2009 versus
$69.27 during the same period in 2008. The $0.77 or 1.1% increase in ARPU was primarily attributable to price
increases in February 2009 and 2008 on some of our most popular programming packages and changes in the sales
mix toward HD programming packages and advanced hardware offerings. As a result of our current promotions,
which provide an incentive for advanced hardware offerings, we continue to see increased hardware related fees,
which include fees earned from our in-home service operations, rental fees and fees for DVRs. These increases
were partially offset by increases in the amount of promotional discounts on programming offered to our new
subscribers and retention initiatives offered to existing subscribers, and by decreases in premium movie revenue and
pay-per-view buys.
Equipment sales and other revenue. “Equipment sales and other revenue” totaled $98 million during the year ended
December 31, 2009, a decrease of $26 million or 21.2% compared to the same period during 2008. The decrease in
“Equipment sales and other revenue” primarily resulted from a decrease in sales of non-subsidized DBS accessories.
Subscriber-related expenses. “Subscriber-related expenses” totaled $6.359 billion during the year ended December
31, 2009, an increase of $382 million or 6.4% compared to the same period 2008. The increase in “Subscriber-related
expenses” was primarily attributable to higher costs for programming content and call center operations. The increase
in programming content costs was primarily related to price increases in certain of our programming contracts and the
renewal of certain contracts at higher rates. The increases related to call center operations were driven in part by our
investments in staffing, training, information systems, and other initiatives. These investments are intended to help
combat inefficiencies introduced by the increasing complexity of our business and technology, improve customer
satisfaction, reduce churn, increase productivity, and allow us to better scale our business over the long run. We
cannot, however, be certain that our increased spending will ultimately yield these benefits. In the meantime, we may
continue to incur higher costs as a result of both our operational inefficiencies and increased spending. “Subscriber-
related expenses” represented 55.1% and 52.2% of “Subscriber-related revenue” during the years ended December 31,
2009 and 2008, respectively.
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 $320 million
during the year ended December 31, 2009, an increase of $14 million or 4.7% compared to 2008. The increase in
“Satellite and transmission expenses – EchoStar” is primarily related to higher uplink center costs, partially offset by
fewer transponders leased during the year ended December 31, 2009 compared to the same period in 2008. The
higher uplink center costs were primarily associated with an increase in the charges from EchoStar related to
infrastructure costs for new ground equipment to support our new satellites and the routine replacement of existing
uplink equipment. The decline in transponder lease expense primarily relates to a reduction in the number of
transponders leased as a result of the launch of an owned satellite. This decrease was partially offset by the increase in
expense related to the Nimiq 5 satellite, which was placed in service in October 2009. “Satellite and transmission
expenses - EchoStar” as a percentage of “Subscriber-related revenue” increased to 2.8% in 2009 from 2.7% in 2008.
During September 2009, we entered into a ten-year satellite service agreement with EchoStar for capacity on the
Nimiq 5 satellite. Pursuant to this agreement, we will receive service from EchoStar on all 32 of the DBS
transponders covered by our transponder contract with Telesat. We began receiving service on 16 of these DBS
transponders upon service commencement of the satellite on October 10, 2009 and will receive service on the
remaining 16 DBS transponders over a phase-in period that will be completed in 2012. We expect “Satellite and
transmission expenses - EchoStar” to continue to increase in 2010 as a result of our Nimiq 5 agreement and our
other new satellites to be placed in service.
Equipment, transitional services and other cost of sales. “Equipment, transitional services and other cost of sales”
totaled $121 million during the year ended December 31, 2009, a decrease of $49 million or 28.6% compared to the
same period in 2008. This decrease in “Equipment, transitional services and other cost of sales” primarily resulted