Despite profit, Dish not smiling

Satellite delays, economy hurt subscriber gains in Q4

U.S. satellite TV giant Dish Network reported a higher fourth-quarter profit, but sharply lower subscriber gains Tuesday, citing "worsening economic conditions," including the continued U.S. housing slump, increased competition and satellite launch delays.

"Satellite launch delays at Dish Network have slowed its growth of local (high-definition) markets, which in turn has delayed its own aggressive retention-marketing efforts," the company said in a filing with the U.S. Securities and Exchange Commission. "Subscriber growth was also affected by worsening economic conditions, which included a slowdown in new housing starts."

Chairman and CEO Charles Ergen said in a conference call that economic issues were the first and biggest challenge in the latest quarter, with competitive pressures ranking second. He named DirecTV and Verizon's FiOS video service as the strongest competitors, saying "they deserve a lot of credit."

Dish's comments come toward the end of a quarterly earnings season that has seen media and entertainment industry CEOs face repeated questions about a much-feared U.S. recession and how it might affect their companies.

Shares of Englewood, Colo.-based Dish Network, one of two successor companies to what used to be called EchoStar Communications, closed down 4.8% at $29.18. That was much closer to the stock's 52-week low of $27 than its high of $52.54. It was Tuesday's leading decliner on The Hollywood Reporter's Showbiz 50 stock index.

Dish added only about 85,000 net subscribers in the fourth quarter, bringing its total to 13.8 million as of the end of 2007. That was well below Wall Street expectations and a far cry below the 350,000 additions recorded a year ago.



Bernstein analyst Craig Moffett spoke of the "glaring weakness" of the user gains, and Bear Stearns analyst Spencer Wang said they were "substantially below our 253,000 estimate and consensus expectations of 193,000." Moffett said gross user growth was the company's lowest since first-quarter 2004, and he blamed Dish's audience, as others on the Street have done. "The issues seem to be the familiar culprit of a lower end subscriber base," which gets squeezed in a sluggish economy, Moffett said.

Revenue for the quarter still jumped 12% compared with a year ago to $2.9 billion. That helped boost profit 14% to $175 million.

Monthly subscriber churn came in at 1.7%, and average revenue per user rose 5.8% year-over-year to $67.06, both slightly beating Wall Street forecasts.

Gross subscriber-acquisition costs of $670 per user was down $8 from a year ago, also helping the bottom line.

Meanwhile, EchoStar, the second successor firm of the former EchoStar Communications that houses its set-top box and technology assets, posted a fourth-quarter loss of $45.4 million. Revenue amounted to $361.3 million. These were the first quarterly figures reported for the firm as a stand-alone entity after the two companies' split at the beginning of the year.

EchoStar shares closed up 4.9% at $39.09.

The two companies didn't provide financial growth guidance for the year, but analysts predict more tough going. "Dish's exposure to the low-end market, and to housing weakness, is likely to continue to weigh on results in the near-term," Moffett said.
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