From Muzak 2006 10-K Annual Report filing:
"Distribution Systems
We transmit our offerings through various mediums including direct broadcast satellite transmission, local broadcast transmission, audio and videotapes and compact discs. During 2006, we served our music client locations through the following means: approximately 84% through direct broadcast satellite transmission, approximately 3% through local broadcast technology, and approximately 13% through recorded media consisting of tapes, compact discs, and hard-drives.
Our transmissions via direct broadcast satellite to clients are primarily from transponders leased from Microspace Communications Corporation (“Microspace”) and EchoStar Satellite Corporation (“EchoStar”). Microspace provides us with facilities for uplink transmission of medium-powered direct broadcast satellite signals to the transponders. Microspace, in turn, leases its transponder capacity on satellites operated by third parties. Such satellites include the Galaxy 3C satellite operated by Intelsat, through which a majority of our direct broadcast satellite client locations are served, and AMC-1, operated by SES Americom.
To mitigate our expenditures in the event of a satellite disruption, we have secured insurance to cover our re-pointing costs of up to $5.0 million in the event of a Galaxy 3C satellite failure. In addition, we have secured insurance coverage on AMC-1 to cover costs up to $4.2 million in the first quarter of 2007 stepping up to $4.6 million by the end of 2007.
The term of our transponder lease with Microspace for the Galaxy 3C satellite is projected to end in 2016 while the lease for AMC-1 is projected to end in 2011. Microspace can terminate its agreements with us immediately upon termination of its underlying agreements with Intelsat and SES Americom. We regularly review the availability of alternate transponders.
As part of our arrangements with EchoStar, we furnish music channels to commercial and residential subscribers over EchoStar’s satellite system. Pursuant to the agreements with EchoStar, EchoStar pays us a programming fee for each of its residential subscribers and pays us, and our franchisees, a commission for sales made by EchoStar or its agents to commercial subscribers in the respective territories. We pay EchoStar a fee for uplink transmission of music channels to our clients and we rent space at EchoStar’s Cheyenne, Wyoming uplink facility. We also pay EchoStar a royalty and combined access fees on music programs sold by the Company, which are distributed by EchoStar to commercial subscribers. The term of each of our agreements with EchoStar is dependent upon the life of one of its satellites, which is estimated to cease operations sometime in 2010. During the first quarter of 2004, EchoStar informed us that it had agreed to distribute Sirius Satellite Radio’s programming to EchoStar’s residential subscribers. At that time we believed that such programming would replace our music channels offered to EchoStar’s residential subscribers and, possibly, EchoStar’s commercial subscribers. As of December 31, 2006, EchoStar has continued to utilize our music channels for EchoStar’s residential and commercial subscribers, and we do not foresee a change in such use in the near future. Even if EchoStar were to discontinue utilizing our programming, EchoStar would remain obligated to uplink and provide space segment to distribute our music channels currently being offered to our commercial subscribers over EchoStar’s satellite system. In any event, we believe that any future discontinuation of our programming to EchoStar’s commercial and/or residential subscribers would not have a material financial impact on the Company.
EchoStar has agreed that it will not provide transponder space to, enter into or maintain distributor agreements or relationships with, or enter into any agreements for the programming or delivery of any audio services via direct broadcast satellite frequencies with, a specified group of our competitors. We have agreed that we will not secure transponder space for, enter into or maintain distributor agreements or relationships with, or enter into any agreement for the programming or delivery of any of our services with any competitor of EchoStar via direct broadcast satellite frequencies or with specified competitors of EchoStar via specified frequencies."
