Dish serves up a Q1 surprise

But subscriber growth falls short

Charlie Ergen's Dish Network on Tuesday posted first-quarter financials that bested analyst expectations, but subscriber growth nearly ground to a halt.

The satellite TV giant's sluggish 35,000 net subscriber additions in the latest period fell way short of Wall Street's average estimate of about 100,000 as management cited increased competition and weakening demand because of a sluggish U.S. economy. Competitor DirecTV, telecom firms Verizon and AT&T and such cable operators as Time Warner Cable and Cablevision Systems have reported stronger-than-expected user gains this quarter.

"Given the relative outperformance of other pay TV providers and the generally weaker high-definition (TV) offering from Dish in the quarter, it was not a complete surprise that Dish net adds underperformed," Goldman Sachs analyst Ingrid Chung said.

Sanford Bernstein analyst Craig Moffett argued that Dish's customer targeting leaves it between a rock and a hard place.

"At the low end, Dish's 'everyday low price' value proposition suddenly appears vulnerable against cable's economically advantaged triple play," he said. "At the high end, Dish has been outflanked by DirecTV's 'best HDTV' positioning." This led to a 15% increase in subscriber churn in the first quarter.

In a conference call, Dish chairman and CEO Charles Ergen admitted that "we are not operating as well as we should have." He cited a need to strengthen HD offerings, fight piracy and improve customer service as the three key areas of focus for his team. Ergen also said he has gotten more actively involved in day-to-day operations again to right the ship.

Still, investors looked past the gloomy subscriber momentum and bid Dish's stock up 3.7% to $31.56. It is down 7% year-to-date.

Dish earned $259 million in the first quarter, up from $157 million a year ago, on revenue that rose 7.6% to $2.84 billion.

After Dish, it was EchoStar's turn to report first-quarter earnings for the first time since it was spun off from Dish. The satellite and set-top box technology company swung to a small $5.7 million profit after losing $18.5 million a year ago. Revenue, which comes mainly from primary customer Dish, rose 24% to $555 million.

Ergen said Tuesday that it "remains to be seen" how profitable EchoStar can be with its variety of TV technology assets that includes the Slingbox.

Like many of his peers, he said the planned U.S. conversion to digital broadcast television in February might be a money-making opportunity, since 13 million homes will need set-top boxes.

Georg Szalai reported from New York; Paul Bond reported from Los Angeles.