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Dish Network loses subscribers

Economy, competition slam Douglas satellite TV operator

By Jeff Smith, Rocky Mountain News (Contact)

Published November 10, 2008 at 10:12 a.m.
Updated November 11, 2008 at 12:43 a.m.

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Dish Network lost subscribers in its third quarter - the second such loss in its history - as the Douglas County-based satellite TV operator continued to be rocked by the weakening economy, competition and high customer churn.

Profits plummeted 54 percent to $92 million, mostly because of a $106 million write-down on the value of investments. The lower profit also reflected increased spending on advertising and incentives designed to acquire new customers.

Craig Moffett, a telecommunications analyst at Sanford C. Bernstein in New York, wrote in a research note that there are few signs things will improve.

While Dish's quarterly revenue of $2.94 billion was in line with expectations, "things go downhill from there," Moffett wrote. "Subscriber losses, (customer) churn rate, earnings and margins were all much worse. In short, there are no signs of a turnaround."

Investors also were glum, sending shares down nearly 15 percent to $13.24, compared with a 52-week high of $50.80.

Dish ended the quarter with 13.78 million subscribers, down 10,000 for the quarter. That followed a second-quarter loss of 25,000 subscribers.

Not long ago Dish was adding subscribers at brisk rate - 110,000 in the third quarter of 2007 and as many as 350,000 in the fourth quarter of 2006.

Dish CEO Charlie Ergen acknowledged to analysts in a conference call that the company "probably didn't pay the kind of attention for three years" that it should have to operational issues.

But Ergen otherwise sounded upbeat, stressing to analysts that Dish has been through tough times before, has plenty of cash and no debt to repay for a couple of years, and that this may be merely a time to "tread water" before conditions improve. He also seemed to relish the challenge.

"It's a good environment for us," Ergen insisted. "Your mistakes are magnified, your successes are magnified. You've got to be good to be successful in this environment and we're not as good as we'd like to be. But it's going to be a fun environment no matter what."

Part of what concerns analysts is that there's little to suggest Dish will be able to add subscribers next year. Revenues are up slightly from last year only because the average monthly bill is up to $69.82.

AT&T recently shifted its marketing partnership from Dish to DirecTV effective early next year, and Moffett believes that could cost Dish about 150,000 customers a quarter. About 1 million of Dish's current customer base stems from the AT&T partnership.

Moffett said Dish's customer churn rate of 2.02 percent was the worst ever for a direct broadcast satellite TV operator in the U.S. and that gross subscriber additions were down 8.7 percent from the same period a year ago.

"Dish is not having success keeping its customers and it is not having success getting new ones in the door," Moffett said.

Moffett, though, has rated Dish "market perform" with a target price of $19.

Ergen attributed high customer churn not only to the weak economy, but also to piracy and fraud.

Dish is issuing set-top box "smart cards" featuring new encryption to try to resecure its system from those who steal the TV signals. Ergen said the company should start to see some benefits by early next year.

The weakening economy isn't all bad news.

Some analysts say Dish, a lower-cost provider than rival DirecTV and many cable TV companies, could pick up consumers looking to save money.

Ergen referred to that phenomenon when he noted companies such as McDonald's are posting good numbers as consumers seek to "downscale."

Dish, buoyed by a recent successful satellite launch, has stepped up its efforts to promote its expanding high-definition lineup, introducing "TurboHD," an all high-definition programming package.

But as popular as high-definition is, it may not be an automatic bonanza during tough economic times.

Acknowledged Ergen: "(Consumers) probably are not going to buy quite as much HD as we would have thought, given the economy."

Comments

  • November 11, 2008

    10:49 a.m.

    John2009 writes:

    (This comment was removed by the site staff.)

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