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Dish Loses More Subs in Second Quarter, Swings to Loss

Charlie Ergen
Alex Wong/Getty Images
Dish Network chairman Charlie Ergen

UPDATED: "You have a general kind of momentum, gravity, toward consolidation, in part because the programming partners have gotten so powerful that their rates are going up four or five times the rate of inflation," chairman Charlie Ergen told analysts.

Dish Network on Tuesday said it swung to a second-quarter loss as the satellite TV giant, led by chairman Charlie Ergen, also posted a bigger-than-expected subscriber decline for the period ended June 30.

Dish's loss of $11 million compared with a profit of $226 million in the year-ago period. The company said the loss was driven by $438 million in impairment charges on satellites acquired through two recent transactions. Revenue of $3.61 billion compared with $3.57 billion.

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Dish lost 78,000 net subscribers in the second quarter, compared with a drop of 10,000 in the year-ago period. The second quarter tends to be the seasonally weakest for pay TV companies. Wall Street had on average expected a decline of 47,000 subscribers.

The company ended June with 14.014 million subscribers.

STORY: Dish Adds Fewer Subs as Earnings Drop in First Quarter

Pay TV subscriber churn, or turnover, increased to 1.67 percent from 1.60 percent in the second quarter of 2012. Dish cited its "first programming package price increase in two years" as a key reason.

Dish also said it added approximately 61,000 net broadband subscribers in the second quarter, up from a year-ago gain of 11,000. That brought the company's total broadband user base to about 310,000.

Amid heated competition in the pay TV industry, Dish has focused on rolling out new technology and services, such as the ad-skipping Hopper DVR, which big TV network groups have opposed. On a conference call with analysts, executives raved about the popularity of the Hopper and its importance in retaining customers, though it has been expensive to manufacture and market.

"We are pleased to see continued growth in Hopper receiver take rates, as well as growth in broadband-connected subscribers," said Dish CEO Joseph Clayton. "This performance reflects efforts like our Dish Anywhere mobile app and our iPad 2 promotion with Apple and will set the stage for long-range revenue performance."

Dish's stock was about flat in midday trading.

Also on the conference call, executive vp corporate development Tom Cullen lamented that some Dish customers are tangentially involved in a carriage dispute between Time Warner Cable and CBS, given that some Dish subscribers use TWC for broadband Internet.

"It bothers us that our customers would be brought into the fray in a dispute between Time Warner and CBS," he said.

Ergen complained that five big content companies are "essentially monopolies" that have been able to drive up transmission fees. "It's just two one-sided today," he said. Therefore, he said the market is ripe for consolidation in the cable TV industry first, followed by the satellite industry.

"You have a general kind of momentum, gravity, toward consolidation, in part because the programming partners have gotten so powerful that their rates are going up four or five times the rate of inflation," Ergen said. "We got into the video business because cable companies, as monopolies, were raising their rates three times the rate of inflation year after year after year so the government worked to open up new competition. We got almost that going on, plus even a little bit more, in my opinion, where the programmers themselves are really in a way monopolies."

ISI Media analyst Vijay Jayant cited "aggressive competitor promotions" as having affected subscriber momentum in the latest period. He predicted: "Investors will look past this report and think about chairman Ergen's next moves."

Wells Fargo analyst Marci Ryvicker said that "sub metrics missed [expectations] but could have been a lot worse." Her conclusion: "There were many one-time items, but generally speaking, we would characterize the core business as 'good enough'."

E-mail: Georg.Szalai@THR.com
Twitter: @georgszalai