# So what does it cost to make an HR20



## Tom Robertson (Nov 15, 2005)

So what does it cost to make an HR20? This thread is a split off from the OTA thread.

Some ground rules: Neither Earl nor I will ask DIRECTV. They won't tell us anyway. 
You will be asked to prove your position. 
Comments that go too far a field into generalized statements about the stock market without truly supporting an argument will be deleted. PM a moderator if you aren't happy with that.

Good luck,
Tom


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## Doug Brott (Jul 12, 2006)

jtn said:


> Doug it already is free with HR units for OTA, so why eliminate that to make it cost customers and increase their bills and risk churn? Even with the new satellites and most markets being able to get locals via satellite, there will be some markets left behind that need it. Why change less expensive technology, to make it costlier?


Ah, I think you are missing something here. Right now DIRECTV is losing money on each and every receiver it leases out at $299. Many are leased at a much lower rate than that. The 2-year commitment is designed, of to recoup that, but I don't know if it is making up the full difference or not. Either way, the "today" cost to DIRECTV is higher than the $299. Even after the cost reduction of the HR21s, the "today" cost to DIRECTV is still higher than $299, but not as high as it used to be.

So DIRECTV is subsidizing less than they were, but they are still subsidizing the cost of the box. Will people be leaving (churn) because they can't get OTA today even though they could get it yesterday? Unless their box breaks AND there is no mutually agreed to remedy then I don't see why someone would use this as a reason to leave.

This solution MIGHT have an affect of reducing the number of folks that switch from another provider because the costs are now higher, but I don't see how it would make so many people leave that it would even show up in their churn numbers.

If you've got an HR20 today that is giving you great OTA channels .. that same HR20 will give you great OTA channels tomorrow as well. Nothing has changed.


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## jtn (Oct 18, 2007)

Doug Brott said:


> Ah, I think you are missing something here. Right now DIRECTV is losing money on each and every receiver it leases out at $299. Many are leased at a much lower rate than that. The 2-year commitment is designed, of to recoup that, but I don't know if it is making up the full difference or not. Either way, the "today" cost to DIRECTV is higher than the $299. Even after the cost reduction of the HR21s, the "today" cost to DIRECTV is still higher than $299, but not as high as it used to be.
> 
> So DIRECTV is subsidizing less than they were, but they are still subsidizing the cost of the box. Will people be leaving (churn) because they can't get OTA today even though they could get it yesterday? Unless their box breaks AND there is no mutually agreed to remedy then I don't see why someone would use this as a reason to leave.
> 
> ...


The HR20-700 doesn't cost DirecTV $299 to produce. They are made in Mexico. Sorry but I disagree with your analysis on this issue. I bet DirecTV pays less than $50 per HR20-700S, and as time passes it is reduced for their cost of production per device. So I'm not a fool. I think you know this, lets be realistic. Don't change what works to add to the costs for DirecTV and the customer. The reason DirecTV manufactures equipment outside or outsources this is to make costs very small. If they were made in China, they would cost $20 per unit to make.


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## mhayes70 (Mar 21, 2006)

jtn said:


> The HR20-700 doesn't cost DirecTV $299 to produce. They are made in Mexico. Sorry but I disagree with your analysis on this issue. I bet DirecTV pays less than $50 per HR20-700S, and as time passes it is reduced for their cost of production per device. So I'm not a fool. I think you know this, lets be realistic. Don't change what works to add to the costs for DirecTV and the customer.


I wouldn't think it cost less than $50 to make. If it did then Directv wouldn't cut the OTA tuner out of the HR21. It would of been left in. I would guess and this is only a guess in the range of $200-$275.


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## Tom Robertson (Nov 15, 2005)

jtn said:


> The HR20-700 doesn't cost DirecTV $299 to produce. They are made in Mexico. Sorry but I disagree with your analysis on this issue. I bet DirecTV pays less than $50 per HR20-700S, and as time passes it is reduced for their cost of production per device. So I'm not a fool. I think you know this, lets be realistic. Don't change what works to add to the costs for DirecTV and the customer.


You would lose that bet. In their announcements to the investors DIRECTV has stated that they are paying more than $400 per unit, hoping to get below that point this year.

Cheers,
Tom


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## Ken S (Feb 13, 2007)

Guys,

DirecTV has already stated at several shareholder meetings and quarterly conference calls that the HR20 costs about $400 and will be dropping to about $300 by the end of the year. If Chase Carey could say at those meetings he was getting the unit for $50 believe me he would. He's under constant pressure from Wall Street to lower the cost of customer acquisition and upgrades.
Think about it...a 320GB drive alone costs more than $50. Dell makes their computers in China as well...do you think they cost $50?


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## jtn (Oct 18, 2007)

Tom Robertson said:


> You would lose that bet. In their announcements to the investors DIRECTV has stated that they are paying more than $400 per unit, hoping to get below that point this year.
> 
> Cheers,
> Tom


I doubt outsourced production costs them that much, there is something not ringing true about this. This is why they outsource. If the units were made in the USA they may cost that much to make, but they are not.


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## Doug Brott (Jul 12, 2006)

jtn said:


> The HR20-700 doesn't cost DirecTV $299 to produce. They are made in Mexico. Sorry but I disagree with your analysis on this issue. I bet DirecTV pays less than $50 per HR20-700S, and as time passes it is reduced for their cost of production per device. So I'm not a fool. I think you know this, lets be realistic. Don't change what works to add to the costs for DirecTV and the customer. The reason DirecTV manufactures equipment outside or outsources this is to make costs very small. If they were made in China, they would cost $20 per unit to make.


Ah, it's nice to think that, but it's simply not true. As Tom stated, they pay over $400 per unit today and want to reduce that cost.


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## jtn (Oct 18, 2007)

Doug Brott said:


> Ah, it's nice to think that, but it's simply not true. As Tom stated, they pay over $400 per unit today and want to reduce that cost.


I don't believe they cost $400 to produce, that is not the case. That's what they want the public to think perhaps, but I doubt it. Electronics are produced at low cost, and thats why they produce these devices in countries like Mexico, China etc. Heck America can produce them at $400 each or $300, why not give Americans those jobs? If your right. I doubt the info is correct.


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## Doug Brott (Jul 12, 2006)

jtn said:


> I don't believe they cost $400 to produce, that is not the case. That's what they want the public to think perhaps, but I doubt it. Electronics are produced at low cost, and thats why they produce these devices in countries like Mexico, China etc. Heck America can produce them at $400 each or $300, why not give Americans those jobs? If your right. I doubt the info is correct.


So you are saying that Chase Carey is lying?


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## Tom Robertson (Nov 15, 2005)

The SEC frowns on blatant lies to investors...


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## mhayes70 (Mar 21, 2006)

I seriously think he wouldn't be lying to investors about this.


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## Ken S (Feb 13, 2007)

It would be a stupid lie. Investors want to hear him say they cost as little as possible because they're an expense. One of the biggest drags on DirecTV's financials and stock price is the very high price of customer acquisition.

But then again...believe what you want even if it makes no sense.


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## jtn (Oct 18, 2007)

Doug Brott said:


> So you are saying that Chase Carey is lying?


I would need to see this documentation and the receivables myself to call anyone a liar, Pace doesn't charge that much to produce this equipment, and they are the largest producer of these devices. Companies exaggerate. The number of companies that manipulate facts has been discovered. If Murdochs other satellite operations don't pay that much for Pace DVR's for his other satellite companies, why he wouldn't he get the same for DirecTV.

Point me to the URL that Chase Carey said the units cost this much.


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## mhayes70 (Mar 21, 2006)

How do you know Pace doesn't charge that much to produce these? Where are you getting your facts?


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## Tom Robertson (Nov 15, 2005)

jtn said:


> I would need to see this documentation and the receivables myself to call anyone a liar, Pace doesn't charge that much to produce this equipment, and they are the largest producer of these devices. Companies exaggerate. The number of companies that manipulate facts has been discovered. If Murdochs other satellite operations don't pay that much for Pace DVR's for his other satellite companies, why he wouldn't he get the same for DirecTV.
> 
> Point me to the URL that Chase Carey said the units cost this much.


First one I have found is well said by Ken S:


Ken S said:


> DirecTV has made statements regarding the cost of the DVRs during their financial conference calls. IIRC the cost has actually dropped below $400 and should be close $300 by year's end. That doesn't include dish, cabling, etc.
> 
> Here's a piece of the transcript from their Q2 2007 Conference Call
> 
> ...


Now in fairness, jtn, I'd like to you show your price information from Pace for a similar system.

Edit: Bolded the portion of the quote that applies to this part of the topic. It was not in Ken S's original post.

Cheers,
Tom


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## jtn (Oct 18, 2007)

Tom Robertson said:


> First one I have found is well said by Ken S:
> 
> Now in fairness, jtn, I'd like to you show your price information from Pace for a similar system.
> 
> ...


Tom, that mentions nothing about cost of HD DVR, and is not an official release from DirecTV or Chase Carey.


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## lman (Dec 21, 2006)

leww37334 said:


> If the cost of ATSC is as high as has been suggested, then shouldn't Directv have dropped the cost of the HR-21 when it came out, is it just coincidence that they charge the same for both units?
> 
> This would not be the first time Directv has dropped capability without dropping price and then charged to add the capability back in (HD extra pack).


Earl advised that the objective of DTV is to increase their profits. So I assume they will gouge their customers any way they can.


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## jtn (Oct 18, 2007)

lman said:


> Earl advised that the objective of DTV is to increase their profits. So I assume they will gouge their customers any way they can.


That I agree with.  Greed will cost them when competitors offer the same in HD content, they will get churn. The contract DirecTV has will be moot if it breaks any laws from deception by individual state consumer protection laws or Federal laws. They are hoping customers are not aware they can change carriers if they make it unreasonable.

I'm glad I'm not locked into any contract to stay, I own my equipment, and have shut down service, at this time they have the best HD, so I will stay, but when that changes I will cancel, and move to the next provider.


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## Tom Robertson (Nov 15, 2005)

jtn said:


> Tom, that mentions nothing about cost of HD DVR, and is not an official release from DirecTV or Chase Carey.


I'm sorry you don't understand. That quoted post contains an excerpt of a transcript of Chase Carey Earnings Call, a very official release from DIRECTV. I suggest you follow the link.

Cheers,
Tom


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## jtn (Oct 18, 2007)

Tom Robertson said:


> I'm sorry you don't understand. That quoted post contains an excerpt of a transcript of Chase Carey Earnings Call, a very official release from DIRECTV. I suggest you follow the link.
> 
> Cheers,
> Tom


I have read the article, and unless it's an official document from DirecTV It's moot to me, nothing is mentioned about production costs for the HR20/21.


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## dbmaven (May 29, 2004)

mhayes70 said:


> How do you know Pace doesn't charge that much to produce these? Where are you getting your facts?


Why confuse the issue with facts ??

Forget the actual human production costs - which is probably about $10.
You've got what is in essence is a custom computer.
The motherboard is going to cost something on the order of $50
The hard drive, even buying in bulk from WD or Seagate is going to run you $50
ATSC/NTSC/QAM tuner - anywhere from $40 - 60 in bulk
2 x HD satellite tuners - proprietary design, I would presume - figure $50 each = $100
Power supply - $20
Case - again, proprietary/custom design - in bulk - figure $20
There's $300 give or take - and I haven't considered the HD scaling chip, Dolby Audio processor, ethernet ports/processor, and fees associated with licensing some of those products.....

Seems like $400 would be about right....


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## jtn (Oct 18, 2007)

dbmaven said:


> Why confuse the issue with facts ??
> 
> Forget the actual human production costs - which is probably about $10.
> You've got what is in essence is a custom computer.
> ...


That might be what it costs you to make it in America (Those prices are accurate in American stores if you go to CompUSA and build a custom PC). But not oversees, Mexico is much less expensive and they own those facilities, they get bulk discounts because Murdoch owns other satellite companies and has all his satellite IRD/STB's made in Mexico and other facilities outsourced. Murdoch is a hard nosed guy and doesn't take guff from any company, he gets his way, trust me he takes no bull from anyone and that includes production.


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## Doug Brott (Jul 12, 2006)

jtn,

Clearly you are living in your own world. You keep saying things are cheap in Mexico and China .. well, show us the money .. you haven't even cited a source other than yourself. At least Tom pulled an excerpt .. you just chose to call it moot (even though those are the facts).


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## Tom Robertson (Nov 15, 2005)

jtn said:


> I have read the article, and unless it's an official document from DirecTV It's moot to me, nothing is mentioned about production costs for the HR20/21.


 Sorry, this thread is not the place to educate you about Investor Relations, Earnings Calls, and their transcripts. I suggest you start with DIRECTV's Investor Relations page. The information is there and is how we found it.

I still await your proof regarding Pace and costs for a similarly freatured system, btw. 

Regards,
Tom


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## Jaysv (Nov 15, 2005)

Listen to Q2 Webcast from the here http://phx.corporate-ir.net/phoenix.zhtml?c=127160&p=irol-earnings @ about the 35:50 mark and you can hear it right from the horses mouth.


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## Stuart Sweet (Jun 19, 2006)

lman said:


> Earl advised that the objective of DTV is to increase their profits. So I assume they will gouge their customers any way they can.


Increasing profits is not gouging. In a capitalist society, companies are free to set prices and consumers are free to choose whether or pay them.



dbmaven said:


> Why confuse the issue with facts ??
> 
> (...)
> 
> Seems like $400 would be about right....


Add to that warehousing, shipping, storage, installation costs (every HR20 sent by DIRECTV is installed by someone) and that's a lot more than the $20 that some people paid for their HR20s.



jtn said:


> That might be what it costs you to make it in America (Those prices are accurate in American stores if you go to CompUSA and build a custom PC).


I know that manufacturing and assembly costs are lower in other companies, remember a lot of the components come from US companies. Broadcom is a US company, and I daresay a lot of the cost of an HR20 is the CPU and decoders.


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## jtn (Oct 18, 2007)

Doug Brott said:


> jtn,
> 
> Clearly you are living in your own world. You keep saying things are cheap in Mexico and China .. well, show us the money .. you haven't even cited a source other than yourself. At least Tom pulled an excerpt .. you just chose to call it moot (even though those are the facts).


Doug you have produced nothing to demonstrate your theory. Internet sites that are not official are not trustworthy.

Electronic production continues to go down, not up that is common knowledge. There are threads on this site that say so.

Selective amnesia.

Why do electronics we buy in stores (although America is the most expensive) continually go down in costs? It's due to volume and demand.


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## jtn (Oct 18, 2007)

Stuart Sweet said:


> Increasing profits is not gouging. In a capitalist society, companies are free to set prices and consumers are free to choose whether or pay them.
> 
> Add to that warehousing, shipping, storage, installation costs (every HR20 sent by DIRECTV is installed by someone) and that's a lot more than the $20 that some people paid for their HR20s.
> 
> I know that manufacturing and assembly costs are lower in other companies, remember a lot of the components come from US companies. Broadcom is a US company, and I daresay a lot of the cost of an HR20 is the CPU and decoders.


Good points, and it's true that they pay alot less than they want to admit to production to make a better profit. That I agree with, it's going to blow up in DirecTV face if they get to greedy, and think customers are not savvy.


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## Earl Bonovich (Nov 15, 2005)

jtn said:


> I have read the article, and unless it's an official document from DirecTV It's moot to me, nothing is mentioned about production costs for the HR20/21.


Well then go to this link:
http://phx.corporate-ir.net/phoenix.zhtml?c=127160&p=irol-calendar

You can then access the webcast from the Q2 earnings report.
And hear Chase himself state the words of the transcript.

You can then also access Q1 which is where he references the cost of the HD DVR IIRC(instead of Q2 when he just referenced a decrease).

And even though this is not a PRESS RELEASE from DirecTV... this is the CEO speaking to the investor community... so if you don't think it carries the same wait as a formal posted document in the eyes of the investores and the feds.... ............


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## Earl Bonovich (Nov 15, 2005)

jtn said:


> Selective amnesia.


Right next to: selective reading


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## mhayes70 (Mar 21, 2006)

jtn said:


> Doug you have produced nothing to demonstrate your theory. Internet sites that are not official are not trustworthy.


Hey bud, neither have you. Where is your proof to your theory?

All the parts that goes into these machines cost about the same no matter where. It's the labor that is cheap in Mexico or China. Correct?


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## dbmaven (May 29, 2004)

jtn said:


> That might be what it costs you to make it in America (Those prices are accurate in American stores if you go to CompUSA and build a custom PC). But not oversees, Mexico is much less expensive and they own those facilities, they get bulk discounts because Murdoch owns other satellite companies and has all his satellite IRD/STB's made in Mexico and other facilities outsourced. Murdoch is a hard nosed guy and doesn't take guff from any company, he gets his way, trust me he takes no bull from anyone and that includes production.


If you go to CompUSA you're going to pay a TON more than what I spec'd. A ton.
Those prices were taking 25-50% off the lowest prices I could find on the web with a quick search. You know, places like Newegg. Go look for yourself.

Mexico/China/Malone/NewsCorp do not build Western Digital drives, Broadcom chips, or any of the other major components. The 'benefit' of overseas production is NOT in the components themselves - it's the cheap labor.

Unless you have 'inside' information, or can produce specific links, your claims are not only baseless, but I daresay they exist purely in the realm of fantasy.

Bottom line - if you want to believe, as it appears you do, that D* is lying (look out for the SEC !!) about their cost of the HR2x, then so be it. Nothing so far has convinced you otherwise, which makes me wonder why I'm talking to a brick wall.....


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## jtn (Oct 18, 2007)

Earl Bonovich said:


> Right next to: selective reading


All reading must be scrutinized, and I don't mean that in a disrespectful way. I feel these devices are very inexpensive for these multinational companies. I feel changing the engineering of the device that already is less expensive to make it more expensive is silly. I would not do that if I were an owner of a big company like DirecTV, which continues to make great profits, they are not hurting at all.


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## mhayes70 (Mar 21, 2006)

Racer88 said:


> Is it anywhere within the realm of possibility that the future OTA solution could be a self contained module, not entirely unlike a SWM or other multiswitch, whose output could be transposed onto the normal data stream of the coax running to the sat port(s) and properly interpreted and displayed by the IRD for what it is?
> 
> Possibly using the flex port technology?
> 
> ...


That might be a good thought. I wonder if that would work?


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## spartanstew (Nov 16, 2005)

ggergm said:


> At least air is still free at gas stations...for now.


Where do you live? I used to be a regional manager for a gas company in the mid-west. We started charging for air about 15 years ago. I've been in Texas for 8 years now and have yet to see a gas station that has free air access.



PennHORN said:


> I am sorry this entire sorry episode pisses me off and frankly I am disappointed in Earl's comments.
> 
> The HR-20 has ATSC integration. I just got an antenna installed and I love it. It works great. With no warning, D* tries to foist the ATSC-less HR-21s on people. Mind you, everything we heard from the insiders previous to this was that the HR-21 was just giving D* more options and that there were no plans on D*'s part to do away with OTA integration.
> 
> ...


ZOOOMMM



jtn said:


> Doug you have produced nothing to demonstrate your theory. Internet sites that are not official are not trustworthy.
> 
> Electronic production continues to go down, not up that is common knowledge. There are threads on this site that say so.
> 
> ...


Of course electronic production costs go down. That's why the box that used to cost $400 might cost $300 (or less) by years end. If you have facts as to why it costs less than what EVERYONE else agrees it costs, post YOUR links.

Seriously dude, you've been here 2 weeks and it seems like all you've done is post obtuse derogatory comments about D* and their practices since you arrived (to the tune of 40 posts per day). What's the agenda?


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## Doug Brott (Jul 12, 2006)

jtn said:


> Doug you have produced nothing to demonstrate your theory. Internet sites that are not official are not trustworthy.


You're right, I haven't. I assumed that the other two folks who did was sufficient.


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## jtn (Oct 18, 2007)

dbmaven said:


> If you go to CompUSA you're going to pay a TON more than what I spec'd. A ton.
> Those prices were taking 25-50% off the lowest prices I could find on the web with a quick search. You know, places like Newegg. Go look for yourself.
> 
> Mexico/China/Malone/NewsCorp do not build Western Digital drives, Broadcom chips, or any of the other major components. The 'benefit' of overseas production is NOT in the components themselves - it's the cheap labor.
> ...


It's fine to scrutinize reading, I don't believe as you don't everything I read, and I certainly will not steer you to an opinion of another website that is not authorized of affiliated with DirecTV. Have you personally read the so called SEC report? I don't think so. Multinational companies get big discounts on products they obtain by volume of that they procure.

Remember there is a sale going on here they want to bump up the value of the company to make it worth while for investors/shareholders and for Mr. Murdoch and Liberty.

DirecTV is doing just fine, making record earnings.


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## Tom Robertson (Nov 15, 2005)

jtn said:


> It's fine to scrutinize reading, I don't believe as you don't everything I read, and I certainly will not steer you to an opinion of another website that is not authorized of affiliated with DirecTV. Have you personally read the so called SEC report? I don't think so. Multinational companies get big discounts on products they obtain by volume of that they procure.
> 
> Remember there is a sale going on here they want to bump up the value of the company to make it worth while for investors/shareholders and for Mr. Murdoch and Liberty.
> 
> DirecTV is doing just fine, making record earnings.


I have read some of their SEC statements. Care to post one that applies to your original argument about the HR20 cost?

Yes, DIRECTV is doing very well with their earnings which has what to do with the specifics as to the cost of an HR20?

This crowd is way, way, way too astute to let someone get away with changing your side of an argument. 

Cheers,
Tom


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## dbmaven (May 29, 2004)

jtn said:


> Have you personally read the so called SEC report? I don't think so.


It's very, very dangerous to assume....



jtn said:


> Multinational companies get big discounts on products they obtain by volume of that they procure.


Precisely why I discounted the best price I could find by 25-50% - guess you missed that part.


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## jtn (Oct 18, 2007)

Tom Robertson said:


> I have read some of their SEC statements. Care to post one that applies to your original argument about the HR20 cost?
> 
> Yes, DIRECTV is doing very well with their earnings which has what to do with the specifics as to the cost of an HR20?
> 
> ...


Your right DirecTV doesn't think we are astute, and it's pointless to convince you, since you made up your mind long before this thread, which is fine. It's a waste of time to argue, we would only worry if the company is hurting, they are not. The customer is always right.

The Sec says the stock market works on the "greater fool theory" that's all the proof I need. I don't trust the stock market, I have always lost money. It's engineered a select majority to make money and steal from others.


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## Doug Brott (Jul 12, 2006)

jtn said:


> Your right DirecTV doesn't think we are astute, and it's pointless to convince you, since you made up your mind long before this thread, which is fine. It's a waste of time to argue, we would only worry if the company is hurting, they are not. The customer is always right.
> 
> The Sec says the stock market works on the "greater fool theory" that's all the proof I need. I don't trust the stock market, I have always lost money. It's engineered a select majority to make money and steal from others.


Wait a minute .. I thought the argument (which should probably be moved to a separate thread at this point) was about the cost of the HR20 .. when did it change to stock market theory? Still wondering about your source on that Pace equipment ..


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## Sharkie_Fan (Sep 26, 2006)

jtn said:


> Remember there is a sale going on here they want to bump up the value of the company to make it worth while for investors/shareholders and for Mr. Murdoch and Liberty.


There's an argument that makes a whole lot of sense.

They want to bump the value of the company, so they grossly exaggerate their costs, thereby diminishing their profits?

Your arguments don't hold water. If they wanted to lie about the cost, they'd tell their investors what a fabulous deal they're getting and how cheap these things are! But we're selling them for $300 a pop. We're making money hand over fist!


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## Tom Robertson (Nov 15, 2005)

jtn said:


> Your right DirecTV doesn't think we are astute, and it's pointless to convince you, since you made up your mind long before this thread, which is fine. It's a waste of time to argue, we would only worry if the company is hurting, they are not. The customer is always right.
> 
> The Sec says the stock market works on the "greater fool theory" that's all the proof I need. I don't trust the stock market, I have always lost money. It's engineered a select majority to make money and steal from others.


  Another dodge of your argument? No proof of your statements regarding the HR20 cost to DIRECTV? Just more (and farther) off topic discussion?

I guess we'll go with the DIRECTV published numbers for the cost, was over $400, on it's way down to below $300 (they hoped) by year end.

BTW, I didn't know the cost until Chase Carey told us. First in May, IIRC, (I'll leave it up to others to find that link) and then again in August. I did not make up my mind prior to May. 

Cheers,
Tom


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## Ken S (Feb 13, 2007)

jtn said:


> It's fine to scrutinize reading, I don't believe as you don't everything I read, and I certainly will not steer you to an opinion of another website that is not authorized of affiliated with DirecTV. Have you personally read the so called SEC report? I don't think so. Multinational companies get big discounts on products they obtain by volume of that they procure.
> 
> Remember there is a sale going on here they want to bump up the value of the company to make it worth while for investors/shareholders and for Mr. Murdoch and Liberty.
> 
> DirecTV is doing just fine, making record earnings.


I have read their quarterly and year-end financial reports. They don't discuss the price of the HR20. They do discuss Subscriber Acquisition Costs in broad terms. The place where items like that are brought up is the Conference call held within 48 hours of when the financials are released. That conference call is very much a public statement by the corporation and any fraudulent statement would be a violation of the Exchange Act of 1934 (Sections 10 (b) and 10 b-5 to be specific).

Then again you shouldn't believe me...read it for yourself...Securities Act of 1934 from the www.sec.gov

If you believe fraud has been committed you should contact [email protected] immediately and send them your information. If you came by this information because you work for DirecTV or one of their suppliers you'll be protected under the Whistleblower's Act.


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## flipptyfloppity (Aug 20, 2007)

dbmaven said:


> Why confuse the issue with facts ??
> 
> Forget the actual human production costs - which is probably about $10.
> You've got what is in essence is a custom computer.
> ...


You got off track after the HDD.

The main CPU itself costs probably about $25. The tuner chips? $5 maybe, the analog components in a tuner can add up faster than the chips themselves.
Power supply more like $10-$12.
The case is a lot cheaper than you say too.

License fees probably cost quite a bit (to Dolby, etc.).

Don't forget the cost of 128M of RAM or so, that's probably $12. The remote? Another $10.

I can't really figure why this thing costs so much. DTV will charge you around $800 for it if you want to buy it.


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## jtn (Oct 18, 2007)

Sharkie_Fan said:


> There's an argument that makes a whole lot of sense.
> 
> They want to bump the value of the company, so they grossly exaggerate their costs, thereby diminishing their profits?
> 
> Your arguments don't hold water. If they wanted to lie about the cost, they'd tell their investors what a fabulous deal they're getting and how cheap these things are! But we're selling them for $300 a pop. We're making money hand over fist!


The costs stated give the company more value, again the greater fool theory, do a google if you trust it.


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## jtn (Oct 18, 2007)

Sharkie_Fan said:


> More value to whom? The investors want PROFITS. They don't want to hear that you're spending $400 on a product and selling it for $300. That's BAD.
> 
> I know what the greater fool theory is, but I fail to see the conneciton you're trying to make. The theory is that no matter how bad a deal you make when buying a stock there's always a "greater fool" who will buy it from you at a greater cost. I fail to see what that has to do with your claim that Chase Carey is lying to all of us in order to somehow make the company look better by paying too much money for their product and then selling it at a loss....
> 
> According to the theory, that would make Chase Carey the greater fool... selling at a loss.


I agree with the following:



flipptyfloppity said:


> You got off track after the HDD.
> 
> The main CPU itself costs probably about $25. The tuner chips? $5 maybe, the analog components in a tuner can add up faster than the chips themselves.
> Power supply more like $10-$12.
> ...


The bigger the multinational the less they spend on these parts for the devices, they are buying bulk volume.


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## Tom Robertson (Nov 15, 2005)

jtn said:


> The bigger the multinational the less they spend on these parts for the devices, they are buying bulk volume.


Actually size matters. Not of the multinational doing the buying, but the size of the order(s).

DIRECTV gets both a break and an extra cost by outsourcing. They get to buy components at Pace's pricing--then have to pay for Pace's margin/overhead/development, etc.

Cheers,
Tom


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## jdvzwia (Sep 14, 2007)

Good point...if the thing does cost $400 then why the hell do i have to pay $750 to buy it? And why does a cable card hdTivo only cost $300. Oh yeah thats right...they are losing money too. I'm with jtn and the conspiracy therory. Also...if your are trying to build company value then of course you are going to say they cost $400.


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## Tom Robertson (Nov 15, 2005)

You pay $750 because: 1) it is only now down to $400, was much higher; 2) DIRECTV deserves to make some profit; 3) the cost per unit quoted does not include cost to sell, install, and support.

Every electronics manufacturer has to add at least 50% of the cost of the hardware to cover the whole cradle to grave costs of the equipment.

Cheers,
Tom


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## spartanstew (Nov 16, 2005)

jdvzwia said:


> Good point...if the thing does cost $400 then why the hell do i have to pay $750 to buy it?


For the same reason that you pay $10 for a pizza that costs $2 to make. I don't understand why business decisions are so hard for so many people to grasp. They're not a non-profit company. If it does cost $400 to make, what do you want them to sell it for? Don't forget labor costs, rent/leases, utilities, etc, etc., etc.


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## Ken S (Feb 13, 2007)

Can someone please explain to me why saying the HR20 costs more than it does creates more value for the company?

I can explain how it would cause them to be in violation of IRS and SEC rules, but I don't see how they could claim more value.

Are you thinking they have huge stockpiles of them in inventory and they want to say that has higher value? Everyone knows high inventory levels in the electronics business is a good thing...right? I heard Dell was scrapping their JIT system to go to the build and hold model.

So...what's the deal...I'm old and going senile explain it to me...please?


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## Sharkie_Fan (Sep 26, 2006)

spartanstew said:


> For the same reason that you pay $10 for a pizza that costs $2 to make. I don't understand why business decisions are so hard for so many people to grasp. They're not a non-profit company. If it does cost $400 to make, what do you want them to sell it for? Don't forget labor costs, rent/leases, utilities, etc, etc., etc.


Absloutely Right. Remember that "free" installation you got? Not really free - it's covered in the cost of the equipment.

Every business in america covers their overhead with charges above and beyond the cost of manufacturing. Add to that profit, and you have Economics 101 - why a $400 piece of equipment sells for $750.


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## jdvzwia (Sep 14, 2007)

spartanstew said:


> For the same reason that you pay $10 for a pizza that costs $2 to make. I don't understand why business decisions are so hard for so many people to grasp. They're not a non-profit company. If it does cost $400 to make, what do you want them to sell it for? Don't forget labor costs, rent/leases, utilities, etc, etc., etc.


Oh yeah, i forgot....i'm a complete idiot who understands nothing. :grin:


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## Sharkie_Fan (Sep 26, 2006)

Ken S said:


> Can someone please explain to me why saying the HR20 costs more than it does creates more value for the company?
> 
> I can explain how it would cause them to be in violation of IRS and SEC rules, but I don't see how they could claim more value.
> 
> ...


I'm neither old nor senile (well, OK, the latter is debatable).. but I don't understand it either. As an investor, I want profits. Revenues. I don't want to hear that you have a boatload of equipment that costs a whole lot of money, and for which you are charging less than you paid.... but that's just me, I guess.

I think the assumption is that the current lease model would make each HR20 an asset, so stating it's cost at a higher value would increase the value of the company.

It's either that or the idea that married men have to get approval from their wives to spend money. And women, in general, like the "bad boys". So if Chase Carey were to flip the bird at both the IRS and the SEC by lying about their financials, that would make DirecTV, by extension, the "bad boys", and wives would be more likely to allow their husbands to buy DirecTV products.


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## spartanstew (Nov 16, 2005)

jdvzwia said:


> Oh yeah, i forgot....i'm a complete idiot who understands nothing. :grin:


Always here to help. :lol:


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## Ken S (Feb 13, 2007)

Sharkie_Fan said:


> I'm neither old nor senile (well, OK, the latter is debatable).. but I don't understand it either. As an investor, I want profits. Revenues. I don't want to hear that you have a boatload of equipment that costs a whole lot of money, and for which you are charging less than you paid.... but that's just me, I guess.
> 
> I think the assumption is that the current lease model would make each HR20 an asset, so stating it's cost at a higher value would increase the value of the company.
> 
> It's either that or the idea that married men have to get approval from their wives to spend money. And women, in general, like the "bad boys". So if Chase Carey were to flip the bird at both the IRS and the SEC by lying about their financials, that would make DirecTV, by extension, the "bad boys", and wives would be more likely to allow their husbands to buy DirecTV products.


Ahh, so I guess a little lie is cheaper than a Harley and a leather jacket. Thanks!


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## jdvzwia (Sep 14, 2007)

I have no horse in this race anyway. I guess i could care less the cost just as long as it works. Now if you wanted to know how much it cost to produce a welded engine frame for a John Deere 4wd loader, that i could answer.


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## CT_Wiebe (Oct 7, 2007)

IMHO, dbmaven's estimates (post #22) are pretty close (although a little on the high side). My new H20-700 was "Made in China", so it's labor costs are quite low (less than ones made in Mexico). However, the specialty items like the hard drive, HD tuners and scalers, Dolby Audio processor chip, etc. and the respective licensing fees are going to be the most significant expenses. Since production volume reduces the per unit hardware costs, the margins will improve with higher volume sales.

My Panasonic DMR-EH75V (80 GB hard drive, DL DVD drive & VCR deck) and has one NTSC tuner and an upscaling processor. It cost me $250 two years ago (on sale). Today, the 250 GB HDDs retail for about $100 and the retail cost of an 80 GB HDDs two years ago was around $70. With all of the stuff in the HR20s, a real world cost out the factory door of $300 is not unreasonable. This implies that DirecTV is making zero hardware profit and still has to pay for the shipping and warehousing costs (at USA prices).

With the number of problems reported, it sounds like they've "saved" on reduced Quality Control costs (which they wind up paying for at USA labor rates too - a short-sighted step IMHO). With my HR20, they've already paid for 2 hours of 800 number & CSR/tech support time and they will also have to pay for a service call, another hour or two). Iguess that's where our "lease fees" go.


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## gio12 (Jul 31, 2006)

Doug Brott said:


> Ah, I think you are missing something here. Right now DIRECTV is losing money on each and every receiver it leases out at $299. Many are leased at a much lower rate than that. The 2-year commitment is designed, of to recoup that, but I don't know if it is making up the full difference or not. Either way, the "today" cost to DIRECTV is higher than the $299. Even after the cost reduction of the HR21s, the "today" cost to DIRECTV is still higher than $299, but not as high as it used to be.
> 
> So DIRECTV is subsidizing less than they were, but they are still subsidizing the cost of the box. Will people be leaving (churn) because they can't get OTA today even though they could get it yesterday? Unless their box breaks AND there is no mutually agreed to remedy then I don't see why someone would use this as a reason to leave.
> 
> ...


I DOUBT that box cost D* more than $100.


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## gio12 (Jul 31, 2006)

Tom Robertson said:


> You would lose that bet. In their announcements to the investors DIRECTV has stated that they are paying more than $400 per unit, hoping to get below that point this year.
> 
> Cheers,
> Tom


Then D* needs new management. NOW WAY that thing is cost more than $100.

Somone is getting rich and it's not D* then!


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## bhelton71 (Mar 8, 2007)

For what its worth - the firm iSuppli performs teardown analysis on various devices for the market. They have not done a teardown on the HR20, or a Tahoe ( I believe this is Paces cable box design that came just before HR20 - so they should have a lot in common ). These are straight analysis of just the hardware BOM - no software, R & D recoup, salaries, and advertising figured in.

They do however have the D11, and the Dishpro301, and the Toshiba HD-A1.

http://www.electronicproducts.com/whatsinside/viewteardown.asp?filename=Toshiba%5FHD%2DA1%5Fweb%2Ehtml

Now while the HD-A1 is a very different animal from a DVR - the list shows there is more to practical exercise of analysing a box design than focusing on the HDD, powersupply and tuners. Also, I think the Toshiba HD-A1 is a good one to pay attention to, because it shares many components including the BCM7411.

The analysis revealed Toshiba was eating $200 in cost on their first generation player.

http://www.eetimes.com/news/latest/showArticle.jhtml?articleID=189600999



> According to iSuppli's teardown analysis, bill-of-materials (BOM) costs for Toshiba's HD-A1 HD DVD total an estimated $674, far exceeding the unit's $499 U.S. retail price. The estimated BOM figure excludes costs for manufacturing, testing, cables, remote control and packaging-costs that could easily push the total cost of each unit to more than $700, iSuppli (El Segundo, Calif.) said.


My opinion is that one could make the argument $400 would be a bargain for Directv - they would have to have pretty good run sizes with high quality to get that price point. And this is Directv's first generation HD DVR - over time the design will be cost-reduced - by all indications the HR21 probably represents that second gen effort. They have to get to a point where the box is commoditized.


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## MIJBFAN (May 27, 2007)

I don't care what it costs the either. If I couldn't afford it I WOULD NOT HAVE IT.
But by some of the thinking here I should be getting gas for my car at about $1.69 a gallon with a barrel being some where around $93.17 ( I think that was where it ended yesterday) Why am I paying $3.09?
We all need to remember. Companies are created to MAKE MONEY!
I know what our company pays for some of our product and I know what we charge and it ain't NOWHERE near what we pay for it.


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## Stuart Sweet (Jun 19, 2006)

bhelton71 said:


> For what its worth - the firm iSuppli performs teardown analysis on various devices for the market. They have not done a teardown on the HR20, or a Tahoe ( I believe this is Paces cable box design that came just before HR20 - so they should have a lot in common ). These are straight analysis of just the hardware BOM - no software, R & D recoup, salaries, and advertising figured in.
> 
> (...)
> 
> My opinion is that one could make the argument $400 would be a bargain for Directv - they would have to have pretty good run sizes with high quality to get that price point. And this is Directv's first generation HD DVR - over time the design will be cost-reduced - by all indications the HR21 probably represents that second gen effort. They have to get to a point where the box is commoditized.


This is an excellent post! Very informative. I think your points are well made.


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## Ken S (Feb 13, 2007)

bhelton71 said:


> For what its worth - the firm iSuppli performs teardown analysis on various devices for the market. They have not done a teardown on the HR20, or a Tahoe ( I believe this is Paces cable box design that came just before HR20 - so they should have a lot in common ). These are straight analysis of just the hardware BOM - no software, R & D recoup, salaries, and advertising figured in.
> 
> They do however have the D11, and the Dishpro301, and the Toshiba HD-A1.
> 
> ...


To give you an idea of run sizes...DirecTV has an agreement with Thomson where they get a rebate of $51 million dollars if they purchase $4 billion in equipment by the year 2010 (IIRC). DirecTV is reporting that they will hit that rebate and is including it in their financial reports. Thomson, of course, is only one of their suppliers.

So, with that kind of volume I have no reason to disbelief Carey when he says the unit is now approaching $300 cost.


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## Ken S (Feb 13, 2007)

MIJBFAN said:


> I don't care what it costs the either. If I couldn't afford it I WOULD NOT HAVE IT.
> But by some of the thinking here I should be getting gas for my car at about $1.69 a gallon with a barrel being some where around $93.17 ( I think that was where it ended yesterday) Why am I paying $3.09?
> We all need to remember. Companies are created to MAKE MONEY!
> I know what our company pays for some of our product and I know what we charge and it ain't NOWHERE near what we pay for it.


The question is why are we paying $3 a gallon for gas when the price of a barrel of oil is $93 when we were paying $3 a gallon for gas when the price of a barrel of oil was $60. Whole different marketplace.


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## bhelton71 (Mar 8, 2007)

Ken S said:


> To give you an idea of run sizes...DirecTV has an agreement with Thomson where they get a rebate of $51 million dollars if they purchase $4 billion in equipment by the year 2010 (IIRC). DirecTV is reporting that they will hit that rebate and is including it in their financial reports. Thomson, of course, is only one of their suppliers.
> 
> So, with that kind of volume I have no reason to disbelief Carey when he says the unit is now approaching $300 cost.


Wow I am spoiled by Fry's rebates - if my math is right thats less than a 2% rebate. But it does hint to an HR21-100 within a quarter or two ?


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## donshan (Jun 18, 2007)

D* has released a lot of info about their costs, which IMHO is more detailed than what most corporations release.These plans and specific $$$ figures were discussed Sept 17 at the Merrill Lynch Conference by Mike Palkovic.

One of Mike's slides from this presentation shows HD receiver costs as part of SAC ( Subscriber Acquisition Costs) which average about $650 per sub.

http://www.dbstalk.com/attachment.php?attachmentid=10717&stc=1&d=1193160650

http://www.dbstalk.com/attachment.php?attachmentid=10830&stc=1&d=1193753324

Mike specifically discussed how they have reduced the cost of the HD-DVR by $100 and the HD receiver by $50. The slides show receiver box costs are expected to continue to drop. IIRC he said they plan to migrate all HD services to MPEG-4 over time and the MPEG-4 costs are related to upgrading all MPEG-2 HD receivers.

BTW be sure to note that those total upgrade/retention costs are over 1 Billion dollars


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## PoitNarf (Aug 19, 2006)

Finally, a page in this thread that actually contains relevant guesstimates and info. :lol: 

First 2 pages really gave me a headache btw...


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## Sharkie_Fan (Sep 26, 2006)

Ken S said:


> Ahh, so I guess a little lie is cheaper than a Harley and a leather jacket. Thanks!


Yup. ANd you know how dangerous thos Harleys' can be... Much safer to anger the SEC.. 

As I was thinking about this last night... Another problem with the "alleged" overstating of the value of the HR20: Assets depreciate. And a piece of equipment like an HR20... They're going to depreciate it in a hurry. This isn't going to lose it's value over 5 or 10 years. You're looking at a year, maybe two.

Which means it doesn't really inflate your value all that much. As soon as it's created it starts losing money and by the end of a year it's value is going to be (on paper, anyway), nothing.

Cash, on the other hand, doesn't depreciate.

And, on top of that. More cash, more profits, means bigger bonuses for the people in charge. I just have trouble grasping any scenario where they would overstate costs at the expense of profits.


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## Ken S (Feb 13, 2007)

bhelton71 said:


> Wow I am spoiled by Fry's rebates - if my math is right thats less than a 2% rebate. But it does hint to an HR21-100 within a quarter or two ?


Hardware margins are notoriously tight...2% is a pretty decent sized number. Dell, which has always been one of the kings of margin in the computer industry (JIT and great vendor pricing) averages about 18% (and that's retail sales).


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## ccr1958 (Aug 29, 2007)

i am in the boat that if i pay for something i expect
it to work out of the box....so i have no problem paying
whatever the price as long as i am satisfied...no one
is forcing me to buy it....anyway i ahve a question...it may have
already been brought up but i didn't see it...

the 3rd parties are charging 299.99 for hr20-100's so to me
it seems the cost must be more like 199.99 for D*....
how exactly does this circle start....where & how do
3rd parties get the boxes??


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## Ken S (Feb 13, 2007)

Sharkie_Fan said:


> Yup. ANd you know how dangerous thos Harleys' can be... Much safer to anger the SEC..
> 
> As I was thinking about this last night... Another problem with the "alleged" overstating of the value of the HR20: Assets depreciate. And a piece of equipment like an HR20... They're going to depreciate it in a hurry. This isn't going to lose it's value over 5 or 10 years. You're looking at a year, maybe two.
> 
> ...


And if you overstate the value of an item and then depreciate based on that overstated value you get three hots and a cot. There's no way that overstating costs makes sense unless you're trying to hide profits...not something high on the list of most public companies.


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## mikek (May 18, 2007)

They are probably losing $100-$200 per box. They make up the revenue with subscriptions and PPV.

It's like video games. Microsoft and Sony loses money on each machine they sell and they try to make up the difference in video game sales.

-mk


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## harsh (Jun 15, 2003)

All this talk of much lower than $400 costs likely ignores the costs of transportation, distribution and warehousing.

If the SAC is $700, you can bet that a big chunk of it is receivers.

There's a substantial difference in costs between what the assembly company sells something for and the "landed cost".


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## Sirshagg (Dec 30, 2006)

flipptyfloppity said:


> You got off track after the HDD.
> 
> The main CPU itself costs probably about $25. The tuner chips? $5 maybe, the analog components in a tuner can add up faster than the chips themselves.
> Power supply more like $10-$12.
> ...


Lets not forget about the R&D - that has to be in there too.

I must say that I find $400 a little bit steep and would guess somewhere around $300. defenitely not $50. However since they have publicly stated over $400 I will have to believe that as it is plausable and I have no information with whihc to contradict it.


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## harsh (Jun 15, 2003)

Sirshagg said:


> Lets not forget about the R&D - that has to be in there too.


R&D on "commodity" items is typically a different ledger account.


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## jjohns (Sep 15, 2007)

There's something eerily suspicious about multi-mega-trillion-dollar companies trying to wear the "poor us victim" hat. Not to mention those fitting it for them. Oh well, we are getting close to Halloween.


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## txtommy (Dec 30, 2006)

There is no way anyone here can be certain what it costs them but I don't believe that is even relevant. The computer I'm typing on cost about $400 and is more electronically advanced than any receiver D* makes. It was obsolete and out of production a few months after it was introduced but I bet Dell made money on it. It probably doesn't (or shouldn't) cost D* any more to manufacture an HR20 which has a longer sales lifespan than my computer. But there is a huge difference. Dell sold me the computer. I don't have to send them another cent, ever.

D* charged me $300 just to get the HR20 (already had the dish, multiswithch, wiring, etc.) and then they charge me every month for as long as I have the receiver. If I send the receiver back after two years, they will then charge someone else to hook it up and charge them every month. If two users have the unit over a 4 year span then D* will receive nearly $900 just for the receiver. They will also make a bundle for the program package that is necessary to make the receiver of any value. Since we are talking about an HD receiver, that package is significantly higher in cost than that to make use of their $99 receivers.

It isn't about the cost of the receiver, its about having a monopoly. If you want to receive their programming on an HD tv, you will pay whatever they charge for the receiver. Living in the country as I do, there is no other option except E* and I don't see that as much of an option.

I have chosen to pay for D*s outrageous charge because I want HD programming for my TV.


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## jtn (Oct 18, 2007)

txtommy said:


> There is no way anyone here can be certain what it costs them but I don't believe that is even relevant. The computer I'm typing on cost about $400 and is more electronically advanced than any receiver D* makes. It was obsolete and out of production a few months after it was introduced but I bet Dell made money on it. It probably doesn't (or shouldn't) cost D* any more to manufacture an HR20 which has a longer sales lifespan than my computer. But there is a huge difference. Dell sold me the computer. I don't have to send them another cent, ever.
> 
> D* charged me $300 just to get the HR20 (already had the dish, multiswithch, wiring, etc.) and then they charge me every month for as long as I have the receiver. If I send the receiver back after two years, they will then charge someone else to hook it up and charge them every month. If two users have the unit over a 4 year span then D* will receive nearly $900 just for the receiver. They will also make a bundle for the program package that is necessary to make the receiver of any value. Since we are talking about an HD receiver, that package is significantly higher in cost than that to make use of their $99 receivers.
> 
> ...


Very well said, I agree, thanks for speaking your mind.


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## donshan (Jun 18, 2007)

mikek said:


> They are probably losing $100-$200 per box. They make up the revenue with subscriptions and PPV.
> 
> It's like video games. Microsoft and Sony loses money on each machine they sell and they try to make up the difference in video game sales.
> 
> -mk


Sure, D* expects to recover their up front investment. That is why there is a two year commitment on paying subscription fees.

This not a new business model. It is a widely used strategy that most customers like because it lowers up front costs. Look at the price of a printer for your PC and then look at ink prices! It started many decades ago when Gillette priced razors extremely low, but made their money on blades, and Kodak did the same with cameras and film. Today you can get free cell phones, but with a subscription time commitment.


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## sr6376 (Sep 18, 2007)

txtommy said:


> There is no way anyone here can be certain what it costs them but I don't believe that is even relevant. The computer I'm typing on cost about $400 and is more electronically advanced than any receiver D* makes. It was obsolete and out of production a few months after it was introduced but I bet Dell made money on it. It probably doesn't (or shouldn't) cost D* any more to manufacture an HR20 which has a longer sales lifespan than my computer. But there is a huge difference. Dell sold me the computer. I don't have to send them another cent, ever.
> 
> D* charged me $300 just to get the HR20 (already had the dish, multiswithch, wiring, etc.) and then they charge me every month for as long as I have the receiver. If I send the receiver back after two years, they will then charge someone else to hook it up and charge them every month. If two users have the unit over a 4 year span then D* will receive nearly $900 just for the receiver. They will also make a bundle for the program package that is necessary to make the receiver of any value. Since we are talking about an HD receiver, that package is significantly higher in cost than that to make use of their $99 receivers.
> 
> ...


This is specifically my feeling (though without the living in the country without another option!). I have other options, however I do like D*'s programming and overall programming pricing. I do not, however, like the fact that they are requiring their customers to pay a charge which basically equates to a "right to lease" charge! If I was paying $299 and I owned the equipment, I would have no problem. I do however, have a huge problem, paying $299 and then a monthly lease fee for that equipment. It should be one or the other, not both, atleast IMO.



donshan said:


> Sure, D* expects to recover their up front investment. That is why there is a two year commitment on paying subscription fees.
> 
> This not a new business model. It is a widely used strategy that most customers like because it lowers up front costs. Look at the price of a printer for your PC and then look at ink prices! It started many decades ago when Gillette priced razors extremely low, but made their money on blades, and Kodak did the same with cameras and film. *Today you can get free cell phones, but with a subscription time commitment*.


Yes, you are correct, however when I pay $49 to T-Mobile to get a Razr phone, I am not charged a monthly lease fee for that phone for the life of my commitment/service, etc. I have the option of going out an buying the phone without a commitment for $130 or so and then turning on my T-Mobile service on that phone, or I can go to T and pay them $49 and pick-up the 2 year commitment. See the difference?

Now believe me, I don't want to come off as anti-D*, I am not. I wanted it years ago but the house I was in had absolutely no line of site to the sat's. I moved to a new home last year and picked-up D* shortly there after. My father had it for years prior to his death, going back to some point in the early to mid 90's. They do offer a great service, but IMO their upfront charge is bogus, atleast with their current "lease" model. :nono:


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## Griff (Sep 24, 2006)

I bet D*'s cost of doing business is astronomical, what with launching satellites and operating them and all. I guess they have to recoup that somehow, by padding the costs of services and equipment. Besides, I don't think you can compare the costs of producing, say a DVD player or PC, with an HD DVR. They might make millions of DVD players but, what, a couple hundred thousand HD DVRs? Spreading the costs over fewer units is my point. I am not smart about this stuff (wouldn't know what to do with the stock market with a Dummy's Guide in front of me), so I should butt out. Besides, all three of my (not-owned) HR20s have been free of charge including install of AT9 dish. I am not about to complain. Just don't tell the stockholders. IMHO.

Gene


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## Doug Brott (Jul 12, 2006)

sr6376 said:


> This is specifically my feeling (though without the living in the country without another option!). I have other options, however I do like D*'s programming and overall programming pricing. I do not, however, like the fact that they are requiring their customers to pay a charge which basically equates to a "right to lease" charge! If I was paying $299 and I owned the equipment, I would have no problem. I do however, have a huge problem, paying $299 and then a monthly lease fee for that equipment. It should be one or the other, not both, atleast IMO.


I understand your point, but if you weren't paying the lease fee, you'd be paying a mirroring fee for the receiver, so the charges are essentially a wash. In some states, you have to pay sales tax on a lease fee, but not on a mirror fee (I do in California), so the charges are not identical, but they are close. I pay I think $0.25 for each leased receiver that I have per month.


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## ChiWavDave (Jul 13, 2007)

I come at this discussion from the Comdex Channel of IT. I have worked with Dell and HP at the component level sourcing for thier desktop PC's both companies certainly sell more of each than D* could dream of selling HR20's. Both companies manufacturer in china or mexico as well. And both companies hardware margins are public stated for all to see (and in the single digit or loss for desktop PC hardware). That $400 Dell PC that was mentioned above, probably cost them over $400 to mfg, and they made it up on accessories and shipping, and warranty uplifts etc. and if not with you, then with a certain % of their clients. And I know for a fact that those Harddrives sold in lots of 10K pieces are between $38--$40 a peice. So I think the $300+ cost is probably pretty accurate.


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## Carl Spock (Sep 3, 2004)

In this thread when people are talking about the selling or leased price of a HR20, many of them are making a basic assumption that can't be backed up by reality. They assume the cost to construct the box has anything to do with the price that it sells for. That is not the case.

If it did, I know enough audio electronics manufacturers to know that the successful ones at least double their cost of goods in selling the equipment. Often they triple it or more. That always bugged the crap out of me. As a retailer I had to live on a manufacturer's suggested list price that was 40 points, selling often for a lot less, and they were making 50 points, minimum.

Clearly, given the figures for the components inside a HR20, that's not the case. DirecTV isn't doubling their money.

Beyond that, in Economics 101, the first day they teach you the price of product equals its marginal cost, in other words the cost to make one more. A good teacher will then tell you this is not the way it works in the real world. The market sets the price.

The National Sales Manager for Yamaha Electronics Corp, which is the consumer electronics side of Yamaha, was a buddy of mine. One time we talked price. That was one of his major jobs, to set the price something sold for in the United States. He would look at what the market would bear and set his prices accordingly. Denon, Kenwood and Sony ES set his prices, not his cost of goods. He knew where he had to be in relationship to the other consumer electronics companies to sell Yamaha electronics and he made sure he was there. Yes, his cost of goods from Japan was part of the equation, but if he could make $300 more on this box to cover $75 less on these other ones, he'd always do it. If he could only make 20 points on an entry level receiver but could make 65 points on an upper end model, he was happy, assuming he sold enough of the expensive ones. Historically, Yamaha has. At periods of time, they have owned the over $1,000 receiver business.

In DirecTV's case, as has been pointed out it's the revenue stream that makes them money. The box is just part of the equation. Its cost of goods is almost irrelevant to the issue although this has been a fascinating thread. Thanks for starting it, Tom.


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## dbmaven (May 29, 2004)

A couple of comments:

If you tried to outright buy an HR20, the price D* will charge is something on the order of $750 or 800. So, in effect, they are 'doubling' the cost to get to the price.

What it costs to make an HR20 came into question by virtue of people challenging the assertion from D*'s CFO, at several Investor Conferences, that the HR2x receivers cost them $400.

Given that D* switched to a 'leased' instead of 'sold' model, the cost is important - because they carry that cost on their books, and probably depreciate it over a period of from 3 to 5 years (hopefully not longer). The tax advantages are almost certainly one of the reasons they switched to this model, along with other factors (like other video suppliers doing it - e.g. DISH). It also lowers the entry price for consumers - instead of paying $800 for an HD DVR, you can get in on it for $400 or much less. I hope that people have stopped to think, and realized that one of the reasons "top customers" get free DVRs and other "perks" is because the monthly revenue is more than offsetting the depreciation cost of the hardware ! Otherwise, D* couldn't afford to be doing these giveaways....

Your comments about retail pricing of electronic equipment is right on - but since D* really doesn't operate in the retail sector, it's difficult to draw parallels.


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## Sharkie_Fan (Sep 26, 2006)

dbmaven said:


> Given that D* switched to a 'leased' instead of 'sold' model, the cost is important - because they carry that cost on their books, and probably depreciate it over a period of from 3 to 5 years (hopefully not longer). The tax advantages are almost certainly one of the reasons they switched to this model, along with other factors (like other video suppliers doing it - e.g. DISH). It also lowers the entry price for consumers - instead of paying $800 for an HD DVR, you can get in on it for $400 or much less. I hope that people have stopped to think, and realized that one of the reasons "top customers" get free DVRs and other "perks" is because the monthly revenue is more than offsetting the depreciation cost of the hardware ! Otherwise, D* couldn't afford to be doing these giveaways....


Since you seem to have a grasp on the accounting side of things - and I'm trying to recall a handfull of accounting classes that are 10 years in the past... I'll pose this question to you.

The discussion came up as users accused Chase Carey of grossly overstating his cost in order to add value to the business...

As you noted, each HR20 is an asset, now carried on the books.

But if they are claiming the cost @$400, aren't they also saddled with a $400 liability on the books for each of those? With a $400 asset and $400 liability, your net worth remains equal, does it not?

If one were to "fib" about the cost of manufacturing, would it not be better to show a low cost of manufacturing, coupled with the high "lease upgrade fees", resulting in a net profit and higher earnings, thereby increasing the value of your company?

This seems to be the way I would want to go if I were out to hoodwink my investors, but I'm not 100% sure I have all my accounting principles correct after all this time!


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## Sirshagg (Dec 30, 2006)

The question is "*What does it cost to make an HR20?*"

The following are all irrelavent to the topic:

How much does it sell for.
How much can it sell for.
How much you will pay for it.
Is D* making money on them.
Did someone lie to the sharholders or investors.
etc, etc.
Can we please get :backtotop


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## 40yearfan (Aug 8, 2007)

Question: If DirecTV is paying $400 for these units, why are retailers selling them for less than $300?

http://www.crutchfield.com/S-RHBpVXflg3T/App/Product/Item/Main.aspx?g=11500&tab=detailed_info&i=637HR20

http://www.solidsignal.com/prod_display.asp?prod=HR20

Here's a guy with 350 of them available for $259.99 and free shipping:

http://item.express.ebay.com/NEW-DIRECTV-HR20-700-HDTV-MPEG4-DVR-w-HDMI-Cable-incld_W0QQitemZ270181898071QQihZ017QQcmdZExpressItem

I would assume that these retailers are making money on these units, so there must be some place these units are available for much less than $400.


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## Sharkie_Fan (Sep 26, 2006)

Sirshagg said:


> The question is "*What does it cost to make an HR20?*"
> 
> The following are all irrelavent to the topic:
> 
> ...


I have to disagree with you there. The only FACTS we have on the matter is that DirecTV says they cost around $400 to produce and by year end they'll cost $300 to produce. We also know that the standard lease upgrade fee is $299, though not everyone is required to pay the full $299.

Everything else we have is conjecture.

However, we can make educated guesses based on the information in your list. Is D* making money on them? If they are, they can't possibly cost $400 to produce, because they aren't charging $400.

Further, the argument is out there that "DirecTV is lying, they cost less than $400". So, we can investigate whether it would make sense for DirecTV to inflate the cost of the HR20 - for any reason. If we can make a determination that there is no reason why DirecTV should lie about the cost to manufacture the product, then we can deduce that the unit must cost $400 to produce, with cost of manufacturing on pace to come down to the $300 range by year's end.


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## dbmaven (May 29, 2004)

40yearfan said:


> Question: If DirecTV is paying $400 for these units, why are retailers selling them for less than $300?


How about: "Because they're still 'leased units' ? :scratchin


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## Milominderbinder2 (Oct 8, 2006)

40yearfan said:


> Question: If DirecTV is paying $400 for these units, why are retailers selling them for less than $300?


 Because they make it up in volume!

Seriously, in the HD DVR FAQ, you will find a wealth of info on this:

DIRECTV Conference Calls and Announcements

In particular, check these out:

DIRECTV Official Investor Relations Website

Merrill Lynch Presentation 09/17/2007

DIRECTV Q2 2007 Earnings Conference Call Transcript
_• ... Between now and year end, the HD DVR box cost will decrease about $100 per box. _
_• ... SAC [Subscriber Acquisition Cost] will still be in our $650 to $700 band _

As others have noted hardware is only one part of SAC (Subscriber Acquisition Cost).

Yes, DIRECTV loses money on every HD DVR install.

But look at the SEC Q2 filing:

The DIRECTV Group Announces Second Quarter 2007 Results

They do make it up on volume.

Look at the ARPU (Average Revenue Per User).

_Subscriber (ARPU) Growth of 6.8% to $76.43_

We also know that HD customers pay $10 more than SD, and DVR customer pay $6 more so there is a spread of at least $16 between SD basic and HD DVR on the same package. We also know that a smaller percentage of customer are HD DVR so far. So we can extrapolate that HD DVR customer's APRU is more like $90+.

They will make over $2100 over the 24 month HD DVR contract.

ARPU and SAC are important to investors but actually just as important to us as users. Those two acronyms drive every decision DIRECTV makes.

So in answer to the question, it is the SAC that matters and one component of that is the unit price.

- Craig


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## davidord (Aug 16, 2006)

My guess is around $300 for manufacturing costs. 

Like many others have said, programming is where the money is made. For me, I spend about $100 a month. So, $2400 over two years is worth a DirecTV up-front subsidy on the box. I ended up paying about $ 175 up-front fees on my first HR20 and no up-front fees on my second box. 

With that said, if DirecTV could get $1,000 up-front fees for a lease, I say go for it. The market will play itself out. Of course, If that were the case, I would be reading a Dish Forum right now talking about the VIP-722.


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## raw121 (Jul 18, 2007)

> Originally Posted by Ken S View Post
> DirecTV has made statements regarding the cost of the DVRs during their financial conference calls. IIRC the cost has actually dropped below $400 and should be close $300 by year's end. That doesn't include dish, cabling, etc.
> 
> Here's a piece of the transcript from their Q2 2007 Conference Call
> ...


Two questions.

1) Why does this thread exist if the information is in the above quote?

2) Most importantly, how does someone with these speaking skills get to where he is? I don't think I could pass speech comm 101 with this.


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## Doug Brott (Jul 12, 2006)

raw121 said:


> Two questions.
> 
> 1) Why does this thread exist if the information is in the above quote?
> 
> 2) Most importantly, how does someone with these speaking skills get to where he is? I don't think I could pass speech comm 101 with this.


This thread was actually spawned off from another thread and it's grown on it's own. Yes, the cost is known but at the outset of the thread the answer wasn't as apparent.

There's nothing wrong with letting a discussion continue. I suspect that a number of people are finding out some interesting things in this particular thread. I know I am.


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## ccr1958 (Aug 29, 2007)

Edit: (Tom Robertson) Removed two quoted posts that were OT and had been removed from this thread.

i ordered a 2nd hr20-100 via online for 299.99
free shipping & plan on showing it as owned...this 
is in the event i want to add a bigger HDD sometime


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## spartanstew (Nov 16, 2005)

ccr1958 said:


> **************************
> 
> i ordered a 2nd hr20-100 via online for 299.99
> free shipping & plan on showing it as owned...this
> is in the event i want to add a bigger HDD sometime


You can plan on showing it as owned all you want, but it won't be. It will be leased.


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## Sirshagg (Dec 30, 2006)

spartanstew said:


> You can plan on showing it as owned all you want, but it won't be. It will be leased.


:rotfl:


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## ccr1958 (Aug 29, 2007)

spartanstew said:


> You can plan on showing it as owned all you want, but it won't be. It will be leased.


well i am going to try anyway...we shall see 

Can I purchase / own the HR20 DIRECTV Plus HD DVR, or will any order from weaKnees be considered a lease?
Background: On March 1, 2006, DIRECTV instituted a program under which receivers are leased by default. This change had no impact on customers' bills, and in fact there were many advantages for customers: DIRECTV will provide a dish and installation for customers with new leased receivers. They will also provide support, after the warranty period, at reduced prices vs. the cost of acquiring a new unit. On the other hand, leased receivers cannot be re-sold and DIRECTV will replace them with refurbished units if they require service.

If you order an upgraded HR20 from weaKnees, you may be able to have DIRECTV characterize the unit as being owned. To do that, you must call 800-DIRECTV and ask for the access card department. Tell them that you ordered an HR20, give them the price and tell them that you want it to be characterized as being owned. In some cases, the price alone will be enough to have DIRECTV characterize the unit as purchased. IMPORTANT NOTE: If you have a unit characterized as owned, you will NOT be able to get the unit (or a dish) installed for free or at a discounted price. In addition, you will NOT be entitled to any discounted replacement equipment should the unit fail. See below for additional information.


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## spartanstew (Nov 16, 2005)

If you paid over $700 for it, you have a chance. If you paid less, then it was subsidized by D* and it's a lease.


Why didn't you just go through D* to get it? I called last month and got it for free (plus other stuff).


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## ccr1958 (Aug 29, 2007)

you guys are prolly right...but i have been
saving up some ammo to fire back to D*...
if it don't work then no biggie....i have had
many a plan fail....


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## ccr1958 (Aug 29, 2007)

i tried about a month or so ago to willingly
trade in my owned hr10-250 for a hr20 & i could not
get anyone to budge off the 299.99(was not expecting the hr20 for free..but reduced)
....i as well as many paid close to 800$ for the tivo unit & only get 2 years
out of it then it is pretty much obsolete if one wants
HD...they skinned me on that deal...i feel anyway....
plus i have had premier for years & sunday ticket since
day one....if they don't want to meet me at some point
then i will come up with another plan down the road


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## dhines (Aug 16, 2006)

jtn said:


> blah, blah, blah . . .


if i could just make this one point, i myself live part-time in mexico and many of my friends are the managers / owners of the mexican companies that 'produce' the goods that are shipped back into the US. bottom line is this, the only cost savings in mexico is related to less regulation and lower labor costs. i find it illogical that you insist that it is ligit to say $400 is the cost of a HD DVR if made in the USA, and at the same time say it cost $50 to make it in mexico. there is no way you can tell me that the $350 cost difference (per item) is due to labor and regulations.

i challenge you to back up one singal statement with facts. i am sorry, but haven't thought through your point and just don't want to recognize you are wrong.


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## Doug Brott (Jul 12, 2006)

dhines,

I do believe that most people here agreed with your assessment. The equipment parts are, for the most part, a fixed cost in this equation. As has been noted, the HDD alone is at a minimum $30 and perhaps as high as $50 per unit .. that doesn't even take into account any other components that are necessary.


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## RobertE (Jun 10, 2006)

Guess I'm going to have to haggle with the neighbor kids down the street the next time they set up their kool-aid/lemonade stand. Afterall, there is just no way that little glass of kool-aid costs $0.25. What nerve.  I don't even get to keep the glass.


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## Ken S (Feb 13, 2007)

So...has anyone here bought a razor lately?

Think about it.


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## rirwin1983 (Dec 11, 2005)

jtn said:


> I would need to see this documentation and the receivables myself to call anyone a liar, Pace doesn't charge that much to produce this equipment, and they are the largest producer of these devices. Companies exaggerate. The number of companies that manipulate facts has been discovered. If Murdochs other satellite operations don't pay that much for Pace DVR's for his other satellite companies, why he wouldn't he get the same for DirecTV.
> 
> Point me to the URL that Chase Carey said the units cost this much.


I think Chase is stating both the Manufacturing and Software Development costs, it may cost D* 100 to make the physical device, but another 200-300 in labor to programmers to write the software for the device


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## Doug Brott (Jul 12, 2006)

rirwin1983 said:


> I think Chase is stating both the Manufacturing and Software Development costs, it may cost D* 100 to make the physical device, but another 200-300 in labor to programmers to write the software for the device


I sure wish I got $200-300 per device for programming. Nope, the manufacturing costs are what they are. We'd like them to be cheaper, but unfortunately, they are not.


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## Tom Robertson (Nov 15, 2005)

rirwin1983 said:


> I think Chase is stating both the Manufacturing and Software Development costs, it may cost D* 100 to make the physical device, but another 200-300 in labor to programmers to write the software for the device


The number quoted is the approximate average cost paid to Pace and Thompson (perhaps with shipping?) per unit. Since DIRECTV does their own software, I doubt that is included.

That said, there might be some licensing fees for Pace software, NDS software, NDS access cards, etc. in that $400 coming down to $300. Who knows? 

Cheers,
Tom


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## 40yearfan (Aug 8, 2007)

dbmaven said:


> How about: "Because they're still 'leased units' ? :scratchin


So you are saying that DirecTV is selling these units to these retailers at a cheaper rate than what the units cost them? If they are leased units, don't they have to come from DTV?

Why would DTV sell to these retailers? Wouldn't they do better just keeping them for themselves and leasing them without having to pay an outside retailer to sell these units?


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## 40yearfan (Aug 8, 2007)

Milominderbinder2 said:


> Because they make it up in volume!
> 
> Seriously, in the HD DVR FAQ, you will find a wealth of info on this:
> 
> ...


Craig, I'm not arguing with you as you certainly have more knowledge about this subject than I do. I just think it is poor business practice on DTV's part to allow other retailers to sell these units and make a profit on them that could be going into DTV's pocket.

If you have the only widget on the market, why wholesale it to competitors who will undercut your pricing?


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## say-what (Dec 14, 2006)

40yearfan said:


> Craig, I'm not arguing with you as you certainly have more knowledge about this subject than I do. I just think it is poor business practice on DTV's part to allow other retailers to sell these units and make a profit on them that could be going into DTV's pocket.
> 
> If you have the only widget on the market, why wholesale it to competitors who will undercut your pricing?


Well, why does any manufacturer allow 3rd party sales? Under your scenario, it only makes sense for products to be sold directly to the consumer by the manufacturer. What DirecTV is doing is broadening the distribution chain. DirecTV isn't making money on the initial "sale" of the set top boxes, only offsetting some costs, they make their money on the various fees charged once an account is activated. It's in DirecTV's best interest to have these boxes readily available through as many sources as possible to get the receivers in the consumers' hands as quickly as possible.


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## txtommy (Dec 30, 2006)

BB or CC can sell you a unit for less since they do not install them. When you pay them $299 for the HR20, you have to take it home, take it out of the box, hook it up and activate it yourself. When you buy from D* they bring it to you, install whatever wiring or components are needed to get a signal, hook it up and activate it for you. I am sure that service is part of the cost that you pay.
Having had a couple bad experiences with installation, I prefer to do it myself and do it properly to my satisfaction.


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## Earl Bonovich (Nov 15, 2005)

Ken S said:


> So...has anyone here bought a razor lately?
> 
> Think about it.


I usually by a new razor every month or so...
As it is cheaper to buy the razor, with two refils.... then it is to buy the refill pack for the razor.


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## Sharkie_Fan (Sep 26, 2006)

40yearfan said:


> Craig, I'm not arguing with you as you certainly have more knowledge about this subject than I do. I just think it is poor business practice on DTV's part to allow other retailers to sell these units and make a profit on them that could be going into DTV's pocket.
> 
> If you have the only widget on the market, why wholesale it to competitors who will undercut your pricing?


If you pay $299 from a retailer, you have not bought anything. You've leased an HR20 just like the rest of us who ordered from D*.

If you paid $800 from a retailer, then you own your HR20.

D* has "the only widget on the market", and they allow you to lease it for an upfront fee of $299. Don't like that, go to a retailer and you can lease it for an up front fee of $299... or $269 if you go to Costco.

The point being, for whatever the reasons, D* has decided that $299 is the amount they want to recoup when giving out an HR20, whether you lease from them or from a retailer. It doesn't cover all their costs, but, as has been pointed out several times, the equipment is not the big money maker for D* - the programming is... So, whatever amount they're losing by leasing for $299 (at this point, roughly $100), they know they're going to recover over the course of your contract....


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## Earl Bonovich (Nov 15, 2005)

BestBuy and Circuit City are certainly different "retailers" then say... SolidSignal.

BestBuy and Circuit City, want to have the DirecTV equipment on the shelf, so they get customers into the stores and see the other products that they sell.. (like the TV's, and the $100 cables to go along with that box, remotes, ect)

So I think in the cases of BB and CC, the "cost" between DirecTV and CC is a wash... and probably isn't anything like we think.

In cases like SolidSignal (and other eVendors)... the old model was they got a kickback from the activation (Simlar to how we customers can get $50 for a referal)... I am not sure what it is today, but wouldn't be surprised if the boxes are not "sold" in the same manner.

They only have to pay for what they "sell", which woudl be at a fixed cost... and then they can manipulate the price they charge, based on how much the want to gain out of each sale.


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## Tom Robertson (Nov 15, 2005)

40yearfan said:


> So you are saying that DirecTV is selling these units to these retailers at a cheaper rate than what the units cost them? If they are leased units, don't they have to come from DTV?
> 
> Why would DTV sell to these retailers? Wouldn't they do better just keeping them for themselves and leasing them without having to pay an outside retailer to sell these units?


Leasing and selling thru various sales channels gives DIRECTV an economy of scale and points of presence that DIRECTV could not possibly afford on their own. DIRECTV can't make any money today if they ran as many brick and mortar stores as Bestbuy, CircuitCity, Costco, Walmart, etc.

DIRECTVs goal is to get as many units out there as possible to support as many eyes watching DIRECTV supplied programming as possible without losing the farm along the way. 

Cheers,
Tom


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## Ken S (Feb 13, 2007)

Earl Bonovich said:


> I usually by a new razor every month or so...
> As it is cheaper to buy the razor, with two refils.... then it is to buy the refill pack for the razor.


That's cause you think like an engineer. 

They used to give the razors away.
AOL gave their software away. (Now they've gone retarded and give everything away...but that's a long discussion)
Cell phone providers give phones away.

Cause their's nothing quite as nice as that regularly appearing payment.


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## Ken S (Feb 13, 2007)

Earl Bonovich said:


> BestBuy and Circuit City are certainly different "retailers" then say... SolidSignal.
> 
> BestBuy and Circuit City, want to have the DirecTV equipment on the shelf, so they get customers into the stores and see the other products that they sell.. (like the TV's, and the $100 cables to go along with that box, remotes, ect)
> 
> ...


DirecTV wants to be at retail as well...it's a big form of advertising. You don't think they put all that stuff on the box so the installers will look at it...do you? DirecTV also pays for shelf space and in-store marketing as well as sponsoring print co-branded print and media campaigns.


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## TigerDriver (Jul 27, 2007)

Tom Robertson said:


> So what does it cost to make an HR20? This thread is a split off from the OTA thread.
> 
> Some ground rules: Neither Earl nor I will ask DIRECTV. They won't tell us anyway.
> You will be asked to prove your position.
> ...


This food-fight is predicated on the term "cost to make" which I take to mean direct manufacturing costs and which I'd guess to be in the $70/80 range.

When the CEO talks about this, he's referring to Cost-of-Goods-Sold which is the total cost: R&D, engineering, documentation, marketing, and a prorated proportional cost of the entire corporate infrastructure. A CGS of $400 is not outrageous.


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## Doug Brott (Jul 12, 2006)

TigerDriver said:


> This food-fight is predicated on the term "cost to make" which I take to mean direct manufacturing costs and which I'd guess to be in the $70/80 range.
> 
> When the CEO talks about this, he's referring to Cost-of-Goods-Sold which is the total cost: R&D, engineering, documentation, marketing, and a prorated proportional cost of the entire corporate infrastructure. A CGS of $400 is not outrageous.


Hmmm .. So with a $30/unit cost for the HDD alone you expect the remaining components (case, Power Supply, Tuners, chipset, motherboard, fans, etc.) to only add up to $40 - $50 per unit? In any event, the Chase is talking about the cost of the box to DIRECTV. Since the development team is in-house, it is unlikely that those charges are part of the equation - that would be under normal R&D costs. Also, it's not clear why he would lump everything into the cost of the box either when trying to explain the finances. Under your scenario, the following would be true and look quite odd:

Receiver - $400/unit
R&D - $0
Marketing - $0
Etc. - $0

Doesn't seem likely to me.


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## cbearnm (Sep 6, 2006)

jtn said:


> The Sec says the stock market works on the "greater fool theory" that's all the proof I need. I don't trust the stock market, I have always lost money. It's engineered a select majority to make money and steal from others.


If you have always lost money in the market, you have much greater things to worry about than the cost of an HR20. Unless you consider yourself a 'day-trader' and try to time the market, it is very tough to lose money on the market* in the long run*.

I just checked my 401k account and over the last 10 years, it has maintained a return of over 10% year after year. 2001 was the only exception and even with the fallout from 9/11, it still grew by just under 8%.

The 'Greater Fool' statment is a reflection of the fact that to make money in a stock market, you have to have someone that will pay more for the same item (stock) you bought. If you buy a soda for $1.00 (that cost Coke around $0.05 to make) and somebody offers you a $1.25 for it, youwould consider them a greater fool. But suppose they knew someone that was willing to spend $2.00 for it, that 'greater fool' passes on. But then the guy that was going to buy it for $2.00 finds out he can get it for $1.00 at 7-11, suddenly that guy that bought it from you is willing to sell it back to you at $0.75 because he is diabetic. It's just a complex form of trading baseball cards. Hardly a conspiracy.

But back on topic, taking your assumption that the market is a conspiracy, the SEC is VERY interested in companies that allow their representative to make statements that are in fact not truthful. Even though we can not view the actual numbers, the SEC can (and sometimes does) review the accounting records of companies that are publicly traded.

The very first post in the thread says that if you post, have some way to back them up. I am just starting to read this thread, and at the point that you made this post, you have provided nothing but your opinion. Some of it accurate, much of it unsupported. It's like a many digging at the floor of a pit. You aren't making any headway toward getting out, just throwing dirt. Almost every reply from you is, 'No it's not'. My 8 year old niece has more coherent arguments for why there is a stain of grape juice on the floor and how it's not her fault.

By the way, from your quote above, what is a 'select majority' ?


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## dms1 (Oct 26, 2007)

jtn said:


> That might be what it costs you to make it in America (Those prices are accurate in American stores if you go to CompUSA and build a custom PC). But not oversees, Mexico is much less expensive and they own those facilities, they get bulk discounts because Murdoch owns other satellite companies and has all his satellite IRD/STB's made in Mexico and other facilities outsourced. Murdoch is a hard nosed guy and doesn't take guff from any company, he gets his way, trust me he takes no bull from anyone and that includes production.


The component cost will be the same regardless of where you make it because any large organization has global sourcing operations to ensure that they get the best price for parts. The difference between manufacturing in the US and in the far east is the labor cost. I would guess (based on related experience) that the assembly cost for an HR20 would be about $50 in the US and around $10 in the far east.


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## christo76 (Sep 12, 2006)

TigerDriver said:


> This food-fight is predicated on the term "cost to make" which I take to mean direct manufacturing costs and which I'd guess to be in the $70/80 range.
> 
> When the CEO talks about this, he's referring to Cost-of-Goods-Sold which is the total cost: R&D, engineering, documentation, marketing, and a prorated proportional cost of the entire corporate infrastructure. A CGS of $400 is not outrageous.


DirecTV doesn't manufacture them, so that doesn't totally apply. Pace manufactures them and sells them to D. As mentioned earlier, R&D would be on a different ledger from Manufacturing, but that would only matter for within D. Pace is most certainly going to figure in the cost of R&D, not too mention any costs needed to get production up to an appropriate level.

Basically, even if all the components only cost $100. You still have to recoup the cost of new manufacturing facilities (unless you have a similar line that you are discontinuing that happened to have the capability to output the same rate of product.) and ongoing maintenance costs. And as stated earlier, the only thing cheaper about manufacturing in another country is labor.

Also, it is not like a computer that is made with parts used by several other manufacturers. Many of the parts will be unique, meaning they would cost more to produce then a similar computer part. As an example, look at specialized HTPC cases, such as Silverstone. They are much lower production runs then standard cases, thus cost more to recoup design/manufacturing costs.

And once it gets to D, I strongly think that they do figure in their own labor costs into the HR20 costs.

And as more are produced, and pace is able to improve production rates, the additional costs/unit get lower. Switching to the HR21 started out with a much lower initial cost then the HR20, because they are built, presumably, on a nearly identical line to the HR20, taking out alot of the upfront cost.

I have no problem imagining the costs being around $600-700 to start, and now being around $300-400, nor them being down to $250 in the near future. I don't seem them ever dropping much below the $150 range though.


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## Thaedron (Jun 29, 2007)

Let me state that I agree with the majority that the cost is definitely in the $200-$400 range to produce the hardware and get it delivered to the customer.

I, like others wish that jtn had some references or links to back up his claims. All of those statements include "I think", or "I believe". 

One thing that I keep thinking about is to play this forward 12-24 months... In theory, we're all subsidizing D*s acquisition of these receivers and DVRs. Yes, they may have costs exceeding that to acquire us, but over time, lease fees should pay for them in total. And what happens over time as units are returned? Does Joe-Subscriber's returned and refurbed unit get sent out to Suzy-NewCustomer at no cost eventually, or does Suzy pay $299 for the priviledge of getting her HD-DVR which in reality, Joe also paid $299 for?


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## OldRick (Oct 8, 2007)

IMHO, DBRaven had it about right, although I believe his prices are high at the OEM level. This is indeed a custom computer running some custom devices - my guess, from having a look inside, would be about $250-300 cost to DTV (which includes manufacturer profit margin).

These days, with a complete new laptop selling at retail for $399, it's hard to imagine that DTV is paying over $300 in the volumes they buy, unless those tuners and other hardware are awfully costly.


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## TigerDriver (Jul 27, 2007)

Doug Brott said:


> Hmmm .. So with a $30/unit cost for the HDD alone you expect the remaining components (case, Power Supply, Tuners, chipset, motherboard, fans, etc.) to only add up to $40 - $50 per unit? In any event, the Chase is talking about the cost of the box to DIRECTV. Since the development team is in-house, it is unlikely that those charges are part of the equation - that would be under normal R&D costs. Also, it's not clear why he would lump everything into the cost of the box either when trying to explain the finances. Under your scenario, the following would be true and look quite odd:
> 
> Receiver - $400/unit
> R&D - $0
> ...


1. Nowhere in the phone interview Carey refer explicityly to the manufacturing cost of the DVR.

2. I just got off the phone an ex-colleague in Palo Alto who is currently director of desktop manufacturing operations for [large computer company traded on NYSE]. I asked what the manufacturing cost his multi-media desktop machine (specs below) that retails for $1600. His answer: "Cost per 25,000 units on the dock in Long Beach or Oakland: "less than $200."

_________________________________________________________
* Intel Pentium D 925 Dual Core processor (3GHz)
* Genuine Windows XP Media Center
* 2GB DDR2 SDRAM
* 300GB 7200 rpm hard drive
* Double-layer SuperMulti DVD±R/RW drive with LightScribe, progressive scan DVD playback
* NVIDIA GeForce 7600 GS graphics
* Intel High Definition Audio
* 9-in-1 digital media card reader
* Personal video recorder with dual NTSC TV tuners, over-the-air ATSC high-definition TV tuner
* IR Remote control
* Media drive bay
* Wireless keyboard with built-in trackball, multimedia keys
* USBx6, Firewirex2, Ethernet (RJ-45) x 2
* HDMI , DVI, VGA, and component video


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## Doug Brott (Jul 12, 2006)

TigerDriver said:


> 2. I just got off the phone an ex-colleague in Palo Alto who is currently director of desktop manufacturing operations for [large computer company traded on NYSE]. I asked what the manufacturing cost his multi-media desktop machine (specs below) that retails for $1600. His answer: "Cost per 25,000 units on the dock in Long Beach or Oakland: "less than $200."


Does that include R&D, engineering, documentation, marketing, and a prorated proportional cost of the entire corporate infrastructure?


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## Tom Robertson (Nov 15, 2005)

TigerDriver said:


> 1. Nowhere in the phone interview Carey refer explicityly to the manufacturing cost of the DVR.
> 
> 2. I just got off the phone an ex-colleague in Palo Alto who is currently director of desktop manufacturing operations for [large computer company traded on NYSE]. I asked what the manufacturing cost his multi-media desktop machine (specs below) that retails for $1600. His answer: "Cost per 25,000 units on the dock in Long Beach or Oakland: "less than $200."
> 
> ...


1) DIRECTV doesn't pay manufacturing cost, they pay cost delivered to their door. Chase reports that cost. That is the real topic here.

2) Not a single satellite tuner (much less 3) in that BOM. Does have some ATSC. Is that dual ATSC or just dual NTSC?

And note, his units are sold a 8x landed cost. (And still doesn't say anything about R&D or engineering costs, I don't believe.)

Cheers,
Tom


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## TigerDriver (Jul 27, 2007)

dbmaven said:


> Why confuse the issue with facts ??
> 
> and I haven't considered the HD scaling chip, Dolby Audio processor, ethernet ports/processor, and fees associated with licensing some of those products.....


There is no Dolby Audio Processor in an HR20-x.


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## Ken S (Feb 13, 2007)

To those folks that doubt the $300+ cost of the HR20 please explain why DirecTV would make false statements? Give some valid reasons for them to make themselves look worse to investors and potential investors?


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## TigerDriver (Jul 27, 2007)

Doug Brott said:


> Does that include R&D, engineering, documentation, marketing, and a prorated proportional cost of the entire corporate infrastructure?


Of course not. My friend wouldn't tell me the CGS--but based upon my 25 years in engineering management--it's around $700. That gives them 100% gross margin.

Which is my point. The CEO is not talking about raw manufacturing costs; in fact I'd be surprised if he even knows it. Besides, analysts don't care about manufacturing costs, they care only about two things: the bottom-line cost of getting the thing out the door and what they're selling it for.


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## Doug Brott (Jul 12, 2006)

TigerDriver said:


> Which is my point. The CEO is not talking about raw manufacturing costs; in fact I'd be surprised if he even knows it. Besides, analysts don't care about manufacturing costs, they care only about two things: the bottom-line cost of getting the thing out the door and what they're selling it for.


Yes, but since DIRECTV outsources the production of the box, DIRECTV likely just considers the cost to get the HR20 in their door. Pace and Thomson get to deal with all of the things you are considering.


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## drjjr (Jan 31, 2007)

TigerDriver said:


> 2. I just got off the phone an ex-colleague in Palo Alto who is currently director of desktop manufacturing operations for [large computer company traded on NYSE]. I asked what the manufacturing cost his multi-media desktop machine (specs below) that retails for $1600. His answer: "Cost per 25,000 units on the dock in Long Beach or Oakland: "less than $200."
> 
> _________________________________________________________
> * Intel Pentium D 925 Dual Core processor (3GHz)
> ...


Really? $200 delivered cost for those specs? 
The license for XP MC alone will eat up a big chunk of that $200. 
The processor and chipset should just about eat up 1/2.
And we still haven't added in the 300GB HDD, 2GB of DDR2 SDRAM, graphics, or transport costs. 
And I'm going to want to invest in this company that can get that kind of margin on a media PC 

Actually, with their volumes, I have no trouble believing that it costs Directv $300-$400 to get HR20s.


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## christo76 (Sep 12, 2006)

TigerDriver said:


> 1. Nowhere in the phone interview Carey refer explicityly to the manufacturing cost of the DVR.
> 
> 2. I just got off the phone an ex-colleague in Palo Alto who is currently director of desktop manufacturing operations for [large computer company traded on NYSE]. I asked what the manufacturing cost his multi-media desktop machine (specs below) that retails for $1600. His answer: "Cost per 25,000 units on the dock in Long Beach or Oakland: "less than $200."
> 
> ...


Alright.. their manufacturing costs are less then $200, for a product built completely with items that have been around for multiple years, that just needed to be put together functionally. All of those parts are also made in the millions per year. Not too mention likely using the same production facility and assembly methods as most previous lines. The HR20 is designed with many proprietary components produced at around 1 million per year, if that.

Now, So lets say that bumps the cost of parts just to $225. Factor in Pace's R&D and other overhead, and then add in mark-up... That then becomes Directv's purchase price to which you add Directvs RD and overhead, and that puts it easily in the 300-400 range.

Ask you contact/friend, how long they have been making that model, and how much it cost when it they first began producing it.

DirecTV takes a loss, for right now, on the hardware, but they make it back in spades on programming fees. Why is that so hard to believe? It happens with nearly all game systems (Wii being the exception), with cell phones... pretty much anything with a monthly fee (and better yet, a multi-year contract) has a very strong potential to be run like this.


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## Doug Brott (Jul 12, 2006)

drjjr said:


> Really? $200 delivered cost for those specs?
> The license for XP MC alone will eat up a big chunk of that $200.
> The processor and chipset should just about eat up 1/2.
> And we still haven't added in the 300GB HDD, 2GB of DDR2 SDRAM, graphics, or transport costs.
> And I'm going to want to invest in this company that can get that kind of margin on a media PC


well, he was talking about 25,000 units out of what is likely a much larger order (over time).


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## jwd45244 (Aug 18, 2006)

There are some that object to paying $299 up front and then $5 / month DVR fee for a leased item. Has anyone leased a car lately? That is the exact same model. some X amount due at signing and some Y amount per month.

Also, please let's all drop the discussion about greed and conspiracy theory. If you have facts on your side please state them.


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## TigerDriver (Jul 27, 2007)

Doug Brott said:


> well, he was talking about 25,000 units out of what is likely a much larger order (over time).


This thread is starting to remind me of the Monty Python sketch, "The Argument Store."

The thread is entitled, "So what does it cost to make an HR20?" Make, as in to fabricate, construct, build.

Yet there are really two issues being discussed: the cost to build an HR20, and the cost to place an HR20 in the hands of a customer. The answer to both can not possibly be $400. I'm confident that the CEO was referring to the latter, because that's the only number that's relevant to D*.

<unsubscribe>


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## Doug Brott (Jul 12, 2006)

TigerDriver said:


> The thread is entitled, "So what does it cost to make an HR20?" Make, as in to fabricate, construct, build.
> 
> Yet there are really two issues being discussed: the cost to build an HR20, and the cost to place an HR20 in the hands of a customer. The answer to both can not possibly be $400. I'm confident that the CEO was referring to the latter, because that's the only number that's relevant to D*.


Ah .. I think I see the disconnect. The thread may be titled incorrectly then as that is not what it was originally about. It was more about what it costs for DIRECTV to get the HR20 so we are talking about apples and oranges here.

Is the $400 cost to hand over to consumer? perhaps. It's not clear where the installation/transportation costs are embedded in the equation.


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## bhelton71 (Mar 8, 2007)

I think I found 2 prices - $55.00 in 2 chips

price #1

The BCM7401 appears to have cost $30.00 when it was announced. Since the HR20 was released 1 year after this was published I assume the order was placed for the processors at about that price. It should be safe to assume with time - the price has come down on both chips.

"The BCM7401 and BCM7402 are currently available in sample quantities to early access partners. Each of the chips is packaged in a 676-pin BGA. The BCM7401 and BCM7402 and are priced at $30 and $27, respectively, in quantities of 10,000."

Source:
http://www.investors.com/breakingnews.asp?journalid=30951640

And price #2

The BCM4501

The BCM4501 DVB-S2 satellite receiver chip is available today and is priced at $25 in quantities of 1,000 units or more. The BCM4501 is packaged in a 208-pin MQFP.

Source:
http://www.managingautomation.com/m...ver_suits_satellite_broadcast_equipment_14618


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## 40yearfan (Aug 8, 2007)

TigerDriver said:


> Of course not. My friend wouldn't tell me the CGS--but based upon my 25 years in engineering management--it's around $700. That gives them 100% gross margin.
> 
> Which is my point. The CEO is not talking about raw manufacturing costs; in fact I'd be surprised if he even knows it. Besides, analysts don't care about manufacturing costs, they care only about two things: the bottom-line cost of getting the thing out the door and what they're selling it for.


Now this makes sense. I believe you have got the correct answer. The cost is the total cost to DTV and that's what the CEO was referring to.


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## 40yearfan (Aug 8, 2007)

Ken S said:


> To those folks that doubt the $300+ cost of the HR20 please explain why DirecTV would make false statements? Give some valid reasons for them to make themselves look worse to investors and potential investors?


I don't think anyone is saying DTV is lying. Maybe it costs DTV $400 or $500 a unit to get these units and have them installed. That includes the manufacturing cost, but isn't only the manufacturing cost. So the question becomes, what are we talking about?

I was referring strictly to manufacturing costs as I'm sure others on here where also doing. I just have a hard time believing DTV is paying $400 each for units it is buying in the hundreds of thousands or maybe even millions.


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## 40yearfan (Aug 8, 2007)

bhelton71 said:


> I think I found 2 prices - $55.00 in 2 chips
> 
> price #1
> 
> ...


You are quoting quantities of 1,000 and 10,000. I'd be willing to bet you get a better price break than that if you buy 100,000.

Truthfully, unless we get someone from upper management of DTV to answer this question, all any of us can do is speculate and we don't have enough information to make more than an informed guess.


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## Tom Robertson (Nov 15, 2005)

40yearfan said:


> You are quoting quantities of 1,000 and 10,000. I'd be willing to bet you get a better price break than that if you buy 100,000.
> 
> Truthfully, unless we get someone from upper management of DTV to answer this question, all any of us can do is speculate and we don't have enough information to make more than an informed guess.


Chase Carey is about as upper management as it gets...


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## 40yearfan (Aug 8, 2007)

say-what said:


> Well, why does any manufacturer allow 3rd party sales? Under your scenario, it only makes sense for products to be sold directly to the consumer by the manufacturer. What DirecTV is doing is broadening the distribution chain. DirecTV isn't making money on the initial "sale" of the set top boxes, only offsetting some costs, they make their money on the various fees charged once an account is activated. It's in DirecTV's best interest to have these boxes readily available through as many sources as possible to get the receivers in the consumers' hands as quickly as possible.


Manufacturers don't do retail sales. Retailers do that. DTV isn't the manufacturer of this unit. They are the end user.

Broading the distribution chain makes sense if you haven't got the were-with-all to get the units out to the public as fast as you'd like to.

Everyone keeps referring to DTV losing money and making it up on the fees. That certainly is possible, but if you look at their profit margins, not as likely as some may think. There should be a large expenditure up front showing loses until they start to recoup their cash outlay with service fees.

http://money.cnn.com/quote/quote.html?symb=DTV

According to this DTV made $1.4 Billion on sales of $14.8 Billion. That's amazing considering some of the costs of launching those satellites and getting them operational had to have happened this year. Of course they will spread those costs over a number of years by depreciating the asset.


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## 40yearfan (Aug 8, 2007)

Tom Robertson said:


> Chase Carey is about as upper management as it gets...


Yes, but is he talking manufacturing costs only or the total cost to DTV?


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## 40yearfan (Aug 8, 2007)

Check out this web-site:

http://money.cnn.com/quote/snapshot/snapshot.html?symb=DTV

This is one very healthy company. Wish I had been smart enough to buy stock in them several years ago.


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## bhelton71 (Mar 8, 2007)

40yearfan said:


> You are quoting quantities of 1,000 and 10,000. I'd be willing to bet you get a better price break than that if you buy 100,000.
> 
> Truthfully, unless we get someone from upper management of DTV to answer this question, all any of us can do is speculate and we don't have enough information to make more than an informed guess.


Just something to do while waiting on MRV :lol:


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## 40yearfan (Aug 8, 2007)

Another web-site showing their stock prices since 2004.

http://money.cnn.com/quote/quote.html?symb=DTV&time=5yr

Prior to that time, they were owned by GM and were part of their earnings reports. If you will note, they started out at around $16 a share and are currently going for over $26.


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## 40yearfan (Aug 8, 2007)

bhelton71 said:


> Just something to do while waiting on MRV :lol:


 :goodjob:


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## jwd45244 (Aug 18, 2006)

Part of the problem with this thread is that we are trying to say that an HR20's costs are the sum of the component parts and the labor it takes to assemble it. 

That is just the tip of the iceberg. Software to run the box is going to be the largest cost of the box. This is true regardless of if you do the software in-house (have to pay those salaries) or you out-source that work.

Without the software, it is just a paperweight. Software changes as requirements change. So when the HR20 was first delivered it was built with OTA hardware inside. That software was not added till much later (and is still being worked on). The HR20 has the hardware to support SWM, but that software was added later. The HR20 has had the hardware to do OnDemand, software much later.

Once you have a have a hardware and software solution like OnDemand, you costs go up with all of the infrastructure for that.

So, given all of this I am not sure how to figure out what an HR20 costs but it is certainly more than "the sum of the component parts and the labor it takes to assemble it"

And of course we are not counting all of the taxes and tariffs associated with these boxes.


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## 40yearfan (Aug 8, 2007)

jwd45244 said:


> Part of the problem with this thread is that we are trying to say that an HR20's costs are the sum of the component parts and the labor it takes to assemble it.
> 
> That is just the tip of the iceberg. Software to run the box is going to be the largest cost of the box. This is true regardless of if you do the software in-house (have to pay those salaries) or you out-source that work.
> 
> ...


I certainly agree with what you are saying, however, the original question was what do these boxes cost DTV. You can look at that in two ways. Cost only from the manufacturer they purchased them from or total cost to put into operation. Two very different items with a large spread of cost between them.

Maybe we need to define exactly what we are talking about?


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## jwd45244 (Aug 18, 2006)

I suspect that part of the impetus around this thread was to begin understand the some of rationale behind not including OTA in the box in the HR21. 

If that is the case, then you can look at the first set of easily identifiable costs: the components and the labor to assemble. 

Then you look at not having to have and maintain the entire code base for the OTA. This means to can have programming staff working on other stuff.

Then you look at not having to pay TMS for as much of the guide data (just a guess but I suspect DTV pays TMS based in part on the number and kind of boxes in question. I have nothing to base this but, it makes sense that DTV would pay TMS a higher rate for guide data for an H20/HR20 than an equivalent H21/HR21.).

The you get a lower installation costs. No 3rd cable run (or "funny" BBC diplexer games).

You get lower support costs as you are not having to deal with any OTA related questions.

Given all that you could say the same for any feature that the HR20 has. 

Not to stir up any old discussions about the fairness of not having OTA in the H21/HR21. But it is clear that there are a bunch of costs in OTA (and every other feature) and a business must balance costs against revenue.

This is a very simplest look at what might be part of the rationale (not that I like it) behind not including OTA. A real analysis would look at the Microeconomic factors (Marginal Variable Costs and Revenue).


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## dms1 (Oct 26, 2007)

40yearfan said:


> You are quoting quantities of 1,000 and 10,000. I'd be willing to bet you get a better price break than that if you buy 100,000.


Actually, the price difference between 10000 and 100000 (or higher) for most electronic components is minimal. You have to remember that the parts cost the supplier (Broadcom in this case) a finite amount to make and that cost isn't particularly price dependent. The reason that the buyers price goes down with quantity is that the supplier is willing to cut their margin in exchange for large value orders. However, there is a limit to how much discount they can offer without making a loss themselves.


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## RAD (Aug 5, 2002)

On the 11/7 earnings call Chase said DVR cost now are $430/$440 but going to $250, guess that answers the question.


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## Doug Brott (Jul 12, 2006)

RAD, thanks for the update .. $250 cost will be a much better number for DIRECTV. Maybe it will reduce the "owned" retail cost from $800 down to $499 whenever that happens.


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## mhayes70 (Mar 21, 2006)

RAD said:


> On the 11/7 earnings call Chase said DVR cost now are $430/$440 but going to $250, guess that answers the question.


Thanks!!! Hopefully that will satisfy some people about the cost.


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## nuke (Aug 14, 2003)

BOM cost would appear to be around $160 or likely much less, (presuming lower volume production than I'm used to working in) to my eye and I work in the industry.

No idea about the amortized HW/SW engineering costs, tooling, etc. 

The shareholder info includes all the paperwork padding that goes on. As leased equipment, the more they tack on, the more they can improve their tax treatment.


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