Dish’s Profit Falls Despite Subscriber Gains
Dish Network’s Q3 profit fell by 12 percent from the same quarter last year to $81 million, it said Monday. Its revenue fell 1.5 percent from Q3 2008 to $2.89 billion. But Dish net subscribers grew by 241,000 during the quarter, to 13.85 million.
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Dish’s churn dropped to 1.57 percent in the quarter, partly because new subscribers are now required to sign a 24- month contract rather than the previous 18 months. Other factors included fraud mitigation and improvement in customer services, the company said during a conference call. There were fewer expiring subscriptions in the quarter due to a change in Dish’s promotional mix, it said.
Operating cost grew by seven percent in the quarter to $2.7 billion, partially due to an increase in subscriber related expenses. That figure included the $132 million the company paid for litigation in the on-going patent dispute with TiVo.
Promotional discounting has caused some erosion of the company’s margins, said CEO Charlie Ergen. “I hate giving away programming in part because it does give you problems in the back end,” said Ergen. “The customers are going to see significant price increases before their contract term is up.” Dish will continue to focus on improving customer relations while reducing discounts it offers, Ergen said.
Ergen said the company is testing a number of uses for the 700 MHz spectrum the company acquired last year during an FCC auction, though it’s unlikely to make a significant investment until the FCC makes its broadband policy intentions clear. “Where we might go with that spectrum” will depend on where the FCC will go with policy, he said: “We are looking for a little direction coming out of Washington.” The company may come up with “two or three good uses” and then see where spectrum policy ends up, he said.
The company is getting more subscribers from cable and the telcos as more people disbundle, said Tom Cullen, executive vice president of corporate development.
EchoStar hasn’t “progressed as fast as we would have liked” since being spun off from Dish Network last year and needs to “better market” its Sling technology, Chairman Charles Ergen said Monday in a conference call.
In addition to delays in introducing Sling-based products, EchoStar has been hampered by a sluggish market for transponder leases, company officials said. Dish Network uses transponders on EchoStar owned and leased satellites for its direct-to-home service. But business-to-business operations, which includes backhaul for programming, has been “slow going,” Ergen said. “We don’t have the scale yet to do what we need to do in that business,” he said.
EchoStar’s agreement with MDS Communications to deliver satellite service in Mexico using EchoStar 8 at 77 degrees west isn’t expected to start generating significant revenue until 2010, Ergen said.
The company also will benefit from ViaSat’s proposed purchase of satellite-based Internet service provider WildBlue, which leases transponders from EchoStar on SES’ AMC-15 satellite at 105 degrees west. EchoStar made a $50 million loan to WildBlue in 2008. “This solidifies satellite broadband capacity and they will continue to pull down capacity in the future,” said Dean Olmstead, president of EchoStar Satellite Services. EchoStar also has made progress in converting SES Americom IP Prime customers to its VIP TV service, which provides more than 300 channels. SES pulled the plug on IP Prime earlier this year. EchoStar recently signed pacts with CT Communications in Ohio to supply 46 HD channels, and with TCT West, whose service area includes northwestern Wyoming and southeastern Montana, to provide 42. A third agreement, with Northern Pennsylvania Telephone Co., Prattsburg, N.Y., calls for delivering 49 HD channels and 50 audio channels, EchoStar said.
EchoStar’s Q3 net income swung to a $294.6 million profit from a $307.9 million loss a year earlier on $349 million in unrealized one-time gains on investments, the company said. Among these was a $100 million gain on EchoStar’s investment in XM Sirius Satellite Radio, analysts said. EchoStar also posted a $52.6 million net loss on its investment in TerreStar, against a $66.1 million loss a year ago.
Revenue fell to $482.9 million from $616.1 million as hardware sales to Dish dropped to $314.3 million from $461.6 million. Hardware sales to other customers fell to $68.6 million from $85.1 million. Dish-related service revenue slipped to $89.9 million from $91.3 million, while that from other customers rose to $10 million from $8 million, EchoStar said.