Dish Posts Its Biggest Quarterly Pay TV Sub Drop Ever, Earnings Beat Estimates

Charlie Ergen - House Hearing - 2001
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Charlie Ergen talks about a carriage dispute with Tribune Media, consolidation and the pay TV industry's mature business.

Dish Network on Thursday reported improved second-quarter earnings, but it lost more pay TV subscribers than in the year-ago period and more than Wall Street had expected.

In fact, the company reported its biggest quarterly pay TV sub decline ever. "This was, by far, the worst subscriber result Dish has ever had," said MoffettNathanson analyst Craig Moffett. "This includes Sling TV additions. The results of the satellite TV platform were even worse."

Indeed, Dish in its earnings report once again included subscribers for its Sling TV streaming service, but didn't detail how many of those it had recorded in the quarter or how many it had in total at the end of June.

Dish continues to be engaged in a carriage dispute with Tribune Media that saw 42 TV stations and the WGN America cable network go dark last month.

The satellite TV company, led by Charlie Ergen, lost 281,000 net pay TV subscribers in the second quarter to end it with more than 13.59 million. In the first quarter, the company had lost 23,000 net subscribers, and in the second quarter of 2015, it had lost 81,000. Wells Fargo analyst Marci Ryvicker had projected a loss of 123,000 subs in the latest period.

"Our gross new pay TV subscriber activations continue to be negatively impacted by stricter customer acquisition policies for our Dish branded pay TV subscribers, including an increased emphasis on acquiring higher-quality subscribers, as well as increased competitive pressures, including aggressive marketing, more aggressive retention efforts, bundled discount offers combining broadband, video and/or wireless services and other discounted promotional offers," Dish said in a regulatory filing.

It also highlighted an increased churn rate, saying that "continues to be adversely affected by increased competitive pressures, including aggressive marketing, bundled discount offers combining broadband, video and/or wireless services and other discounted promotional offers, as well as cord cutting." Plus, "in the past, our gross new pay TV subscriber activations, net pay TV subscriber additions and pay TV churn rate have been negatively impacted as a result of programming interruptions and threatened programming interruptions in connection with the scheduled expiration of programming carriage contracts with content providers."

In terms of the Tribune Media dispute, it added: "On June 12, 2016, Tribune removed 42 of its local broadcast channels in 33 markets across 34 states and the District of Columbia from our programming lineup, after we and Tribune were unable to negotiate the terms and conditions of a new programming carriage contract. While we work to reach an agreement, we are offering “over-the-air” antennas at no additional charge so that customers in affected markets can watch Tribune’s local broadcast channels. We cannot predict with any certainty the impact of such removal on our business, results of operations and financial condition."

Dish also said in its filing that losing subscribers is part of its strategy as it has instituted stricter financial policies for its hunt for customers. ''Our strategy has included an increased emphasis on acquiring and retaining higher-quality subscribers, even if it means that we will acquire and retain fewer overall subscribers," the company said.

Dish also said on Thursday that it lost approximately 15,000 net broadband subscribers in the latest quarter, bringing its total broadband base to approximately 613,000 subscribers. It was the company's first quarterly broadband user drop ever.

Dish also posted earnings of $410 million, or 88 cents per share, compared with $324 million in the year-ago quarter, or 70 cents per share. Wall Street had on average projected $338.6 million, or 73 cents per share. Second-quarterly revenue rose to $3.84 billion from $3.83 billion, below Wall Street consensus estimates.

On the earnings conference call, Ergen discussed the outlook for the pay TV sector, the Tribune Media dispute and consolidation.

"The pay TV industry, the linear industry as we know it, [is] a mature-to-declining business," he said, reiterating a comment he had made on the first-quarter call, adding that "it's clearly been a declining business for Dish for a while." He said the company was focusing more on the profitability of subscribers than in the past. "We have just gone to a strategy that says it doesn't make sense to use if we invest in a customer if we don't get a return," Ergen said. "We'd rather also make money." That wasn't an issue years ago, but it is now amid increased competition and a stronger cable industry, he explained.

"OTT has a bright future," Ergen also told analysts. He predicted that Sling TV would be where the needle would move for Dish. Ergen explained that downtown Manhattan, apartment complexes and the like are new opportunities for Sling where Dish used to not be available.

He also said that OTT services are more seasonable, predicting more sign-ups before the Olympics and football season, for example. Dish management also said the company hasn't seen much in terms of moves from traditional satellite TV to Sling TV as the two have different audiences. And Ergen said Sling has more interest from content companies than it has space for.

Asked about the subscriber impact from the Tribune Media blackout, Ergen said such disputes always have a negative effect, but didn't estimate its size. He called the showdown an "honest" dispute and said WGN America was "not a super-popular channel for Dish customers," meaning Dish subs don't see as much value in it as Tribune Media executives or other people. 

In the case of blackouts, "we have to be prepared that we will never put that channel back up again," he said, adding that any Dish sub who really wants WGN America has likely already left. "We are certainly prepared to live without" Tribune Media and WGA America, Ergen said, but added that at the right price the company would renew a carriage deal. He also lauded the long-standing relationship Tribune Media and Dish have.

"We take no joy from Dish's loss of nearly 300,000 subscribers in second quarter of this year," a Tribune Media spokesman said. "Nothing would make us happier than to get our valuable programming back up on Dish's network and to help Dish reverse this trend. We simply ask that Dish pay us fair market value for our programming, which includes everything from the upcoming Olympics to NFL football in 22 of our markets to acclaimed entertainment, such as our hit shows Underground and Outsiders on WGN America. In the interest of our viewers, yesterday we offered to extend our previous agreement with Dish to September 15, with no true-up or retroactive payments once we reach a new deal. This would enable Dish to immediately restore our stations and WGN America to its network at no added expense, even as we continue to negotiate. We also put a very fair proposal on the table. We hope Dish takes us up on our offers."

Asked about pay TV industry deals and whether they would continue and whether there would be deals in the OTT space, Ergen said: "I would say that there probably will be consolidation within the video business," due to synergies between linear and OTT offerings. Regulators will be more open to it "in a mature market" if consumers have multiple choices, he said. Ergen also suggested that many companies will launch OTT businesses and some of those will consolidate as not everyone will get it right. 

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