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`10-K 1 a13-26242_110k.htm 10-K
`Table of Contents
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`UNITED STATES
`SECURITIES AND EXCHANGE COMMISSION
`Washington, D.C. 20549
`Form 10-K
`
`(Mark One)
`
`(cid:95) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
`EXCHANGE ACT OF 1934
`FOR THE FISCAL YEAR ENDED DECEMBER 31, 2013
`OR
`(cid:134) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
`EXCHANGE ACT OF 1934
`FOR THE TRANSITION PERIOD FROM TO .
`Commission file number: 0-26176
`DISH Network Corporation
`(Exact name of registrant as specified in its charter)
`
`88-0336997
`(I.R.S. Employer Identification No.)
`
`Nevada
`(State or other jurisdiction of incorporation or organization)
`9601 South Meridian Boulevard
`80112
`Englewood, Colorado
`(Address of principal executive offices)
`(Zip Code)
`Registrant’s telephone number, including area code: (303) 723-1000
`Securities registered pursuant to Section 12(b) of the Act:
`Title of each class
`Name of each exchange on which registered
`Class A common stock, $0.01 par value
`The Nasdaq Stock Market L.L.C.
`Securities registered pursuant to Section 12(g) of the Act: None
`Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:95)
`No (cid:134)
`Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
`(cid:134) No (cid:95)
`Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
`Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to
`file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (cid:95) No (cid:134)
`Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
`Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
`during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
`(cid:95) No (cid:134)
`Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is
`not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information
`statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (cid:134)
`Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a
`smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting
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`company” in Rule 12b-2 of the Exchange Act.
`Large accelerated filer (cid:95)
`Accelerated filer (cid:134)
`
`Smaller reporting
`company (cid:134)
`
`Non-accelerated filer (cid:134)
`(Do not check if a smaller reporting
`company)
`Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes (cid:134) No (cid:95)
`As of June 30, 2013, the aggregate market value of Class A common stock held by non-affiliates of the registrant was $9.0
`billion based upon the closing price of the Class A common stock as reported on the Nasdaq Global Select Market as of the
`close of business on the last trading day of the month.
`As of February 14, 2014, the registrant’s outstanding common stock consisted of 219,907,827 shares of Class A common
`stock and 238,435,208 shares of Class B common stock, each $0.01 par value.
`DOCUMENTS INCORPORATED BY REFERENCE
`The following documents are incorporated into this Form 10-K by reference:
`Portions of the registrant’s definitive Proxy Statement to be filed in connection with its 2014 Annual Meeting of Shareholders
`are incorporated by reference in Part III.
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`Table of Contents
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`TABLE OF CONTENTS
`
`PART I
`
`Disclosure Regarding Forward-Looking Statements
`Item 1.
`Business
`Item 1A. Risk Factors
`Item 1B. Unresolved Staff Comments
`Properties
`Item 2.
`Legal Proceedings
`Item 3.
`Item 4. Mine Safety Disclosures
`
`PART II
`
`Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
`Securities
`Selected Financial Data
`Item 6.
`Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
`Item 7A. Quantitative and Qualitative Disclosures About Market Risk
`Item 8.
`Financial Statements and Supplementary Data
`Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
`Item 9.
`Item 9A. Controls and Procedures
`Item 9B. Other Information
`
`PART III
`
`Item 10. Directors, Executive Officers and Corporate Governance
`Item 11.
`Executive Compensation
`Item 12.
`Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
`Item 13. Certain Relationships and Related Transactions, and Director Independence
`Item 14.
`Principal Accounting Fees and Services
`
`Item 15.
`
`Exhibits, Financial Statement Schedules
`
`Signatures
`Index to Consolidated Financial Statements
`
`PART IV
`
`i
`1
`22
`42
`42
`42
`53
`
`53
`55
`59
`87
`88
`88
`89
`89
`
`91
`91
`91
`91
`91
`
`91
`
`99
`F-1
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`DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
`
`We make “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995
`throughout this report. Whenever you read a statement that is not simply a statement of historical fact (such as when we
`describe what we “believe,” “intend,” “plan,” “estimate,” “expect” or “anticipate” will occur and other similar statements), you
`must remember that our expectations may not be achieved, even though we believe they are reasonable. We do not guarantee
`that any future transactions or events described herein will happen as described or that they will happen at all. You should
`read this report completely and with the understanding that actual future results may be materially different from what we
`expect. Whether actual events or results will conform with our expectations and predictions is subject to a number of risks and
`uncertainties. For further discussion see “Item 1A. Risk Factors.” The risks and uncertainties include, but are not limited to,
`the following:
`
`Competition and Economic Risks Affecting our Business
`
`(cid:120) We face intense and increasing competition from satellite television providers, cable companies and
`telecommunications companies, especially as the pay-TV industry has matured, which may require us to increase
`subscriber acquisition and retention spending or accept lower subscriber activations and higher subscriber churn.
`
`(cid:120)
`
`(cid:120)
`
`Competition from digital media companies that provide or facilitate the delivery of video content via the Internet may
`reduce our gross new subscriber activations and may cause our subscribers to purchase fewer services from us or to
`cancel our services altogether, resulting in less revenue to us.
`
`Sustained economic weakness, including continued high unemployment and reduced consumer spending, may
`adversely affect our ability to grow or maintain our business.
`
`(cid:120) Our competitors may be able to leverage their relationships with programmers to reduce their programming costs and
`offer exclusive content that will place them at a competitive advantage to us.
`
`(cid:120) We face increasing competition from other distributors of unique programming services such as foreign language and
`sports programming that may limit our ability to maintain subscribers that desire these unique programming services.
`
`Operational and Service Delivery Risks Affecting our Business
`
`(cid:120)
`
`(cid:120)
`
`(cid:120)
`
`If we do not continue improving our operational performance and customer satisfaction, our gross new subscriber
`activations may decrease and our subscriber churn may increase.
`
`If our gross new subscriber activations decrease, or if our subscriber churn, subscriber acquisition costs or retention
`costs increase, our financial performance will be adversely affected.
`
`Programming expenses are increasing and could adversely affect our future financial condition and results of
`operations.
`
`(cid:120) We depend on others to provide the programming that we offer to our subscribers and, if we lose access to this
`programming, our gross new subscriber activations may decline and our subscriber churn may increase.
`
`(cid:120) We may not be able to obtain necessary retransmission consent agreements at acceptable rates, or at all, from local
`network stations.
`
`(cid:120) We may be required to make substantial additional investments to maintain competitive programming offerings.
`
`(cid:120) Any failure or inadequacy of our information technology infrastructure could disrupt or harm our business.
`
`(cid:120) We currently depend on EchoStar Corporation and its subsidiaries, or EchoStar, to design, develop and manufacture
`all of our new set-top boxes and certain related components, to provide a majority of our transponder capacity, and to
`provide digital broadcast operations and other services to us. Our business would be adversely affected if EchoStar
`ceases to provide these products and services to us and we are unable to obtain suitable replacement products and
`services from third parties.
`
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`(cid:120) We operate in an extremely competitive environment and our success may depend in part on our timely introduction
`and implementation of, and effective investment in, new competitive products and services, the failure of which could
`negatively impact our business.
`
`(cid:120)
`
`Technology in our industry changes rapidly and our inability to offer new subscribers and upgrade existing
`subscribers with more advanced equipment could cause our products and services to become obsolete.
`
`(cid:120) We rely on a single vendor or a limited number of vendors to provide certain key products or services to us such as
`information technology support, billing systems, and security access devices, and the inability of these key vendors to
`meet our needs could have a material adverse effect on our business.
`
`(cid:120) Our sole supplier of new set-top boxes, EchoStar, relies on a few suppliers and in some cases a single supplier, for
`many components of our new set-top boxes, and any reduction or interruption in supplies or significant increase in the
`price of supplies could have a negative impact on our business.
`
`(cid:120) Our programming signals are subject to theft, and we are vulnerable to other forms of fraud that could require us to
`make significant expenditures to remedy.
`
`(cid:120) We depend on third parties to solicit orders for our services that represent a significant percentage of our total gross
`new subscriber activations.
`
`(cid:120) We have limited satellite capacity and failures or reduced capacity could adversely affect our business.
`
`(cid:120) Our satellites are subject to construction, launch, operational and environmental risks that could limit our ability to
`utilize these satellites.
`
`(cid:120) We generally do not carry commercial insurance for any of the in-orbit satellites that we use, other than certain
`satellites leased from third parties, and could face significant impairment charges if one of our satellites fails.
`
`(cid:120) We may have potential conflicts of interest with EchoStar due to our common ownership and management.
`
`(cid:120) We rely on key personnel and the loss of their services may negatively affect our businesses.
`
`Acquisition and Capital Structure Risks Affecting our Business
`
`(cid:120) We made a substantial investment to acquire certain AWS-4 wireless spectrum licenses and other assets from DBSD
`North America Inc. (“DBSD North America”) and TerreStar Networks, Inc. (“TerreStar”) and to acquire certain 700
`MHz wireless spectrum licenses. We will need to make significant additional investments or partner with others to
`commercialize these licenses and assets.
`
`(cid:120)
`
`To the extent we commercialize our wireless spectrum licenses, we will face certain risks entering and competing in
`the wireless services industry and operating a wireless services business.
`
`(cid:120) We may pursue acquisitions and other strategic transactions to complement or expand our businesses that may not be
`successful and we may lose up to the entire value of our investment in these acquisitions and transactions.
`
`(cid:120) We may need additional capital, which may not be available on acceptable terms or at all, to continue investing in our
`businesses and to finance acquisitions and other strategic transactions.
`
`(cid:120) A portion of our investment portfolio is invested in securities that have experienced limited or no liquidity and may
`not be immediately accessible to support our financing needs, including investments in public companies that are
`highly speculative and have experienced and continue to experience volatility.
`
`(cid:120) We have substantial debt outstanding and may incur additional debt.
`
`(cid:120)
`
`It may be difficult for a third party to acquire us, even if doing so may be beneficial to our shareholders, because of
`our ownership structure.
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`(cid:120) We are controlled by one principal stockholder who is also our Chairman.
`
`ii
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`Legal and Regulatory Risks Affecting our Business
`
`(cid:120) Our business depends on certain intellectual property rights and on not infringing the intellectual property rights of
`others.
`
`(cid:120) We are party to various lawsuits which, if adversely decided, could have a significant adverse impact on our business,
`particularly lawsuits regarding intellectual property.
`
`(cid:120) Our ability to distribute video content via the Internet involves regulatory risk.
`
`(cid:120)
`
`(cid:120)
`
`Changes in the Cable Act of 1992 (“Cable Act”), and/or the rules of the Federal Communications Commission
`(“FCC”) that implement the Cable Act, may limit our ability to access programming from cable-affiliated
`programmers at non-discriminatory rates.
`
`The injunction against our retransmission of distant networks, which is currently waived, may be reinstated.
`
`(cid:120) We are subject to significant regulatory oversight, and changes in applicable regulatory requirements, including any
`adoption or modification of laws or regulations relating to the Internet, could adversely affect our business.
`
`(cid:120) Our business depends on FCC licenses that can expire or be revoked or modified and applications for FCC licenses
`that may not be granted.
`
`(cid:120) We are subject to digital high-definition (“HD”) “carry-one, carry-all” requirements that cause capacity constraints.
`
`(cid:120)
`
`There can be no assurance that there will not be deficiencies leading to material weaknesses in our internal control
`over financial reporting.
`
`(cid:120) We may face other risks described from time to time in periodic and current reports we file with the Securities and
`Exchange Commission, or SEC.
`
`All cautionary statements made herein should be read as being applicable to all forward-looking statements wherever they
`appear. Investors should consider the risks described herein and should not place undue reliance on any forward-looking
`statements. We assume no responsibility for updating forward-looking information contained or incorporated by reference
`herein or in other reports we file with the SEC.
`
`Unless otherwise required by the context, in this report, the words “DISH Network,” the “Company,” “we,” “our” and “us”
`refer to DISH Network Corporation and its subsidiaries, “EchoStar” refers to EchoStar Corporation and its subsidiaries, and
`“DISH DBS” refers to DISH DBS Corporation and its subsidiaries, a wholly-owned, indirect subsidiary of DISH Network.
`
`iii
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`Item 1.
`
`BUSINESS
`
`OVERVIEW
`
`PART I
`
`DISH Network Corporation was organized in 1995 as a corporation under the laws of the State of Nevada. We started offering
`the DISH branded pay-TV service in March 1996 and are the nation’s third largest pay-TV provider. Our common stock is
`®
`publicly traded on the Nasdaq Global Select Market under the symbol “DISH.” Our principal executive offices are located at
`9601 South Meridian Boulevard, Englewood, Colorado 80112 and our telephone number is (303) 723-1000.
`
`DISH Network Corporation is a holding company. Its subsidiaries (which together with DISH Network Corporation are
`referred to as “DISH Network,” the “Company,” “we,” “us” and/or “our,” unless otherwise required by the context) operate
`two primary business segments.
`
`(cid:120) DISH. The DISH branded pay-TV service (“DISH”) had 14.057 million subscribers in the United States as of
`December 31, 2013. The DISH branded pay-TV service consists of Federal Communications Commission (“FCC”)
`licenses authorizing us to use direct broadcast satellite (“DBS”) and Fixed Satellite Service (“FSS”) spectrum, our
`satellites, receiver systems, third-party broadcast operations, customer service facilities, a leased fiber network, in-
`home service and call center operations, and certain other assets utilized in our operations. In addition, we market
`broadband services under the dishNET™ brand.
`
`(cid:120) Wireless. In 2008, we paid $712 million to acquire certain 700 MHz wireless spectrum licenses, which were granted
`to us by the FCC in February 2009 subject to certain interim and final build-out requirements. On March 9, 2012, we
`completed the acquisitions of 100% of the equity of reorganized DBSD North America, Inc. (“DBSD North
`America”) and substantially all of the assets of TerreStar Networks, Inc. (“TerreStar”), pursuant to which we
`acquired, among other things, 40 MHz of AWS-4 wireless spectrum licenses held by DBSD North America (the
`“DBSD Transaction”) and TerreStar (the “TerreStar Transaction”). The financial results of DBSD North America
`and TerreStar are included in our financial results beginning March 9, 2012. The total consideration to acquire the
`DBSD North America and TerreStar assets was approximately $2.860 billion. The FCC issued an order, which
`became effective on March 7, 2013, modifying our AWS-4 licenses to expand our terrestrial operating authority.
`That order imposed certain limitations on the use of a portion of the spectrum and also mandated certain interim and
`final build-out requirements for the licenses. As we review our options for the commercialization of this wireless
`spectrum, we may incur significant additional expenses and may have to make significant investments related to,
`among other things, research and development, wireless testing and wireless network infrastructure. See Note 16 in
`the Notes to our Consolidated Financial Statements in Item 15 of this Annual Report on Form 10-K for further
`discussion.
`
`Discontinued Operations — Blockbuster. On April 26, 2011, we completed the acquisition of most of the assets of
`Blockbuster, Inc. (the “Blockbuster Acquisition”). Blockbuster primarily offered movies and video games for sale and rental
`through multiple distribution channels such as retail stores, by-mail, digital devices, the blockbuster.com website and the
`BLOCKBUSTER On Demand service. Since the Blockbuster Acquisition, we continually evaluated the impact of certain
`®
`factors, including, among other things, competitive pressures, the ability of significantly fewer company-owned domestic retail
`stores to continue to support corporate administrative costs, and other issues impacting the store-level financial performance of
`our company-owned domestic retail stores. These factors, among others, previously led us to close a significant number of
`company-owned domestic retail stores during 2012 and 2013. On November 6, 2013, we announced that Blockbuster would
`close all of its remaining company-owned domestic retail stores and discontinue the Blockbuster by-mail DVD service. As of
`December 31, 2013, Blockbuster had ceased all material operations. See Note 10 in the Notes to our Consolidated Financial
`Statements in Item 15 of this Annual Report on Form 10-K for further discussion.
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`Business Strategy
`
`Our business strategy is to be the best provider of video services in the United States by providing high-quality products,
`outstanding customer service, and great value. We promote DISH branded programming packages as providing our
`subscribers with a better “price-to-value” relationship than those available from other subscription television providers. We
`believe that there continues to be unsatisfied demand for high-quality, reasonably priced television programming services.
`
`(cid:120) High-Quality Products. We offer a wide selection of local and national programming, featuring more national and
`local high-definition (“HD”) channels than most pay-TV providers. We have been a technology leader in our
`industry, introducing award-winning DVRs, dual tuner receivers, 1080p video on demand, and external hard drives.
`To maintain and enhance our competitiveness over the long term, we introduced the Hopper® set-top box during the
`first quarter 2012, which a consumer can use, at his or her option, to view recorded programming in HD in multiple
`rooms. During the first quarter 2013, we introduced the Hopper set-top box with Sling, which promotes a suite of
`integrated features and functionality designed to maximize the convenience and ease of watching TV anytime and
`anywhere, which we refer to as DISH Anywhere,™ that includes, among other things, online access and Slingbox
`“placeshifting” technology. In addition, the Hopper with Sling has several innovative features that a consumer can
`use, at his or her option, to watch and record television programming through certain tablet computers and combines
`program-discovery tools, social media engagement and remote-control capabilities through the use of certain tablet
`computers and smart phones. We recently introduced the Super Joey receiver. A consumer can use, at his or her
`TM
`option, the Super Joey combined with the Hopper to record up to eight shows at the same time.
`
`(cid:120) Outstanding Customer Service. We strive to provide outstanding customer service by improving the quality of the
`initial installation of subscriber equipment, improving the reliability of our equipment, better educating our customers
`about our products and services, and resolving customer problems promptly and effectively when they arise.
`
`(cid:120) Great Value. We have historically been viewed as the low-cost provider in the pay-TV industry in the U.S. because
`we seek to offer the lowest everyday prices available to consumers after introductory promotions expire.
`
`Programming. We provide programming that includes more than: (i) 280 basic video channels, including, but not limited to,
`25 regional sports channels and 70 channels of pay-per-view content, (ii) 70 Sirius Satellite Radio music channels, (iii) 30
`premium movie channels, (iv) 10 specialty sports channels, (v) 3,100 standard definition and HD local channels, and (vi) 300
`Latino and international channels. Although we distribute over 3,100 local channels, a subscriber typically may only receive
`the local channels available in the subscriber’s home market. As of December 31, 2013, we provided local channels in
`standard definition in all 210 TV markets in the U.S. and local channels in HD in more than 190 markets in the U.S.
`
`Receiver Systems. Our subscribers receive programming via equipment that includes a small satellite dish, digital set-top
`receivers, and remote controls. Some of our advanced receiver models feature DVRs, HD capability, multiple tuners (for
`independent viewing on separate televisions) and Internet-protocol compatibility (to view movies and other content on
`televisions via the Internet and a broadband connection). We rely on EchoStar to design and manufacture all of our new
`receivers and certain related components. See “Item 1A — Risk Factors.”
`
`Blockbuster@Home. Blockbuster@Home
`gives DISH subscribers streaming access to more than 10,000 movies and TV
`TM
`shows via their TV and online access to more than 25,000 movies and TV shows via their computer.
`
`dishNET. On September 27, 2012, we began marketing our satellite broadband service under the dishNET brand. This
`service leverages advanced technology and high-powered satellites launched by Hughes Communications, Inc (“Hughes”) and
`ViaSat, Inc. (“ViaSat”) to provide broadband coverage nationwide. This service primarily targets approximately 15 million
`rural residents that are underserved, or unserved, by wireline broadband, and provides download speeds of up to 10 megabits
`of data per second (“Mbps”). We lease the customer premise equipment to
`
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`subscribers and generally pay Hughes and ViaSat a wholesale rate per subscriber on a monthly basis. Currently, we generally
`utilize our existing DISH distribution channels under similar incentive arrangements as our pay-TV business to acquire new
`broadband subscribers.
`
`In addition to the dishNET branded satellite broadband service, we also offer wireline voice and broadband services under the
`dishNET brand as a competitive local exchange carrier to consumers living in a 14-state region (Arizona,
`Colorado, Idaho, Iowa, Minnesota, Montana, Nebraska, New Mexico, North Dakota, Oregon, South Dakota, Utah,
`Washington and Wyoming). Our dishNET branded wireline broadband service provides download speeds of up to 20 Mbps.
`
`We primarily bundle our dishNET branded services with our DISH branded pay-TV service, to offer customers a single bill,
`payment and customer service option, which includes a discount for bundled services. In addition, we market and sell our
`dishNET branded services on a stand-alone basis.
`
`DISH Anywhere. A consumer can use DISH Anywhere, at his or her option, to remotely control certain features of their
`DVRs as well as view live TV and DVR recordings (with required compatible hardware) using the DISH Anywhere
`application on compatible devices such as smartphones and tablets, or on laptops and home computers by accessing
`dishanywhere.com. Dishanywhere.com offers more than 85,000 movies, television shows, clips and trailers.
`
`Content Delivery
`
`Digital Broadcast Operations Centers. The principal digital broadcast operations facilities we use are EchoStar’s facilities
`located in Cheyenne, Wyoming and Gilbert, Arizona. We also use six regional digital broadcast operations facilities owned
`and operated by EchoStar that allow us to maximize the use of the spot beam capabilities of certain satellites. Programming
`content is delivered to these facilities by fiber or satellite and processed, compressed, encrypted and then uplinked to satellites
`for delivery to consumers. EchoStar provides certain broadcast services to us, including teleport services such as transmission
`and downlinking, channel origination services, and channel management services pursuant to a broadcast agreement ending on
`December 31, 2016. See Note 20 in the Notes to our Consolidated Financial Statements in Item 15 of this Annual Report on
`Form 10-K for further discussion of our Related Party Transactions with EchoStar.
`
`Satellites. Our DISH branded programming is primarily delivered to customers using satellites that operate in the “Ku” band
`portion of the microwave radio spectrum. The Ku-band is divided into two spectrum segments. The portion of the Ku-band
`that allows the use of higher power satellites – 12.2 to 12.7 GHz over the United States – is known as the Broadcast Satellite
`Service band, which is also referred to as the DBS band. The portion of the Ku-band that utilizes lower power satellites – 11.7
`to 12.2 GHz over the United States – is known as the FSS band.
`
`Most of our programming is currently delivered using DBS satellites. To accommodate more bandwidth-intensive HD
`programming and other needs, we continue to explore opportunities to expand our satellite capacity through the acquisition of
`new spectrum, the launching of more technologically advanced satellites, and the more efficient use of existing spectrum via,
`among other things, better modulation and compression technologies.
`
`We own or lease capacity on 14 DBS satellites in geostationary orbit approximately 22,300 miles above the equator. For
`further information concerning these satellites and satellite anomalies, please see the table and discussion under “Satellites”
`below.
`
`Conditional Access System. Our conditional access system secures our programming content using encryption so that only
`authorized customers can access our programming. We use microchips embedded in credit card-sized access cards, called
`“smart cards,” or security chips in our receiver systems to control access to authorized programming content (“Security Access
`Devices”).
`
`Our signal encryption has been compromised in the past and may be compromised in the future even though we continue to
`respond with significant investment in security measures, such as Security Access Device replacement programs and updates
`in security software, that are intended to make signal theft more difficult. It has been our prior experience that security
`measures may only be effective for short periods of time or not at all and that we
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`3
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`http://www.sec.gov/Archives/edgar/data/1001082/000110465914012023/a13-26242_11...
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`29 Dec 2014
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`Table of Contents
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`remain susceptible to additional signal theft. During 2009, we completed the replacement of our Security Access Devices and
`re-secured our system. We expect additional future replacements of these devices will be necessary to keep our system
`secure. We cannot ensure that we will be successful in reducing or controlling theft of our programming content and we may
`incur additional costs in the future if our system’s security is compromised.
`
`Distribution Channels
`
`While we offer receiver systems and programming through direct sales channels, a majority of our gross new subscriber
`activations are generated through independent third parties such as small satellite retailers, direct marketing groups, local and
`regional consumer electronics stores, nationwide retailers, and telecommunications companies. In general, we pay these
`independent third parties a mix of upfront and monthly incentives to solicit orders for our services and provide customer
`service. In addition, we partner with certain telecommunications companies to bundle DISH branded programming with
`broadband and/or voice services on a single bill.
`
`Competition
`
`As of December 31, 2013, our 14.057 million subscribers represent approximately 14% of pay-TV subscribers in the United
`States. We face substantial competition from established pay-TV providers and increasing competition from companies
`providing/facilitating the delivery of video content via the Internet to computers, televisions, and mobile devices. As of
`September 30, 2013, roughly 100 million U.S. households subscribe to a pay-TV service.
`
`(cid:120) Other Direct Broadcast Satellite Operators. We compete directly with the DirecTV, the largest satellite TV provider
`in the U.S. which had 20.2 million subscribers as of September 30, 2013, representing approximately 20% of pay-TV
`subscribers.
`
`(cid:120)
`
`(cid:120)
`
`(cid:120)
`
`Cable Television Companies. We encounter substantial competition in the pay-TV industry from numerous cable
`television compani