Rising costs slow EchoStar Q3

Ergen warns of financial impact of signal ruling

Satellite TV operator EchoStar Communications posted a lower third-quarter profit Tuesday as higher programming costs and a year-ago tax benefit dragged down the bottom line, though its subscriber gains for the latest period exceeded Wall Street expectations.

The stock closed up 1.9% at $35.98 on Tuesday after hitting a 52-week high of $37.28 during intraday trading.

Chairman and CEO Charles Ergen said he has seen little impact on EchoStar from cable companies' triple-play service bundles and expressed confidence that his firm will prevail in litigation with DVR pioneer TiVo Inc.

However, he signaled that Echo-Star's financials will take a hit when it has to cut off distant network channels it provides to 900,000 subscribers unless it can reverse a recent court ruling through the courts or an act of Congress.

Asked about the effect of a possible takeover of competitor DirecTV Group by Liberty Media in a transaction with current owner News Corp., Ergen said it might be "a slight positive" as it will create some transition worries, but he lauded Liberty and News Corp. brass for their savvy.

He also told investors that analysis of the potential benefits of a DirecTV-EchoStar merger is "not something we're spending time on," even though he admitted that when the firms considered a combination a few years ago, the expected synergies amounted to several billion dollars.

EchoStar posted a profit of $140 million, down from $209 million a year ago, which included a $73 million tax benefit. Revenue rose 16% to $2.5 billion, beating average analyst estimates.

EchoStar said it added 295,000 subscribers, ending the third quarter with about 12.8 million.

Oppenheimer & Co. analyst Thomas Eagan called the results "impressive" and said they beat most of his customer and financial estimates.

He also suggested that the company's third-quarter net user gains "likely beat DirecTV's." News Corp.-controlled DirecTV Group posts its latest financials today, with Eagan eyeing 225,000 net subscriber growth.

EchoStar also said average subscriber-acquisition costs fell from $697 to $688.

However, in one disclosure that worried some, EchoStar said subscriber-related expenses rose 22.3% to $1.2 billion overall. The firm cited higher programing costs, among other factors.

Ergen said Tuesday that he has "not (seen) as much impact" from cable's bundled service offerings as market talk would suggest.

Asked about the TiVo litigation, EchoStar executives said Tuesday that the firm stopped accruing funds for possible further damage payments since the end of July as management feels they are likely to prevail in the legal battle.
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