Dish Sub Count, Outlook Disappoints in Q1

Satellite-TV Operator Dish Network Experiences Sharp Deceleration in Net-Subscriber Additions
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Among the last of the multichannel-TV platforms to report first-quarter earnings, Dish Network disappointed Wall Street late Monday with a sharp deceleration in net-subscriber additions, although net profit rose sharply.

Dish is the low-price leader in multichannel TV, compared with cable operators and satellite rival DirecTV -- the latter’s first quarter earnings mostly impressed investors.

The Englewood, Colo.-based satellite-TV platform finished the quarter ended March 31 with a net gain of 35,000 additional subscribers, giving Dish approximately 13.815 million. However, Wall Street was anticipating a net gain of 60,000-120,000 customers. Its subscriber count is 3% higher than one year ago, but EchoStar reported a net add of 310,000 new subscribers in the year-ago quarter.

In comparison, DirecTV reported a net add of 275,000 U.S. subscribers in its first quarter, giving it 17.1 million total in the United States.

Dish reported that net income climbed 65% to $259 million, or 58 cents per share, compared with $157 million (35 cents) in the first quarter of 2007. Revenue totaled $2.84 billion, up 7.6% from $2.64 billion a year ago.

Although Dish exceeded first-quarter earnings forecasts by several cents per share, Wall Street has its eye on the future, worrying that Dish will have to spend heavily on marketing to woo subscribers. In the first quarter, its average subscriber-acquisition cost per new subscriber rose a sharp 6.9% to $709. Subscriber churn -- meaning turnover -- grew to 1.68% versus 1.46% a year ago in another cautionary metric.

“Satellite-launch delays have slowed the growth of our local HD markets which, in turn, has delayed our own aggressive local-HD-marketing efforts,” the company said in a regulatory filing. “Subscriber growth has also been affected by worsening economic conditions, including the slowdown in new housing starts. Operational inefficiencies at Dish Network, as well as signal piracy and other forms of fraud, have also adversely impacted subscriber growth. Most of the factors described above have affected both the growth of new subscribers and the churn of existing customers.”

Average revenue per subscriber was $67.93 for the quarter, up a solid 5.9% from the first quarter of 2007. Indicating that Dish emphasizes low price, cable operators generally average $100 per subscriber, which includes broadband -- not a strong suit of satellite-TV services.

“Were it not for the BellSouth contract converting from DirecTV for Q2, the seasonally weak second quarter would appear almost a lock for a subscriber loss,” research firm Sanford C. Bernstein wrote in an earnings note. “Dish would appear to be 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. At the high end, Dish has been outflanked by DirecTV’s ‘best HDTV’ positioning.”

Dish was created in January when Charlie Ergen-led EchoStar Communications was divided into two parts. Dish manages subscribers and the separate EchoStar handles equipment and operations.

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