UPDATE, 10:55 AM: Dish Network CEO Joe Clayton was clearly talking about Warner Bros, although he didn’t single the studio out by name in his company’s conference call with analysts. Warners wants to make Blockbuster wait 28 days for new home videos, leading the rental operation that Dish bought in April to go to the open market to buy DVDs of WB’s Horrible Bosses and Green Lantern. The studio withheld them, largely to help its efforts to promote VOD and sales of new discs that include UltraViolet’s digital streams to PCs and mobile devices. That “creates some challenges,” Clayton says – adding that Blockbuster rentals improve promotion for films as they move to TV and other markets.
As for the main satellite video business, Clayton says: ”Progress was made in the third quarter. Was it enough? No.” He vowed to step up Dish’s marketing, which he says “needed the most work,” adding that he’s “cautiously optimistic” there’ll be progress in 4Q. Chairman Charlie Ergen said that DirecTV’s strong 3Q results last week shows that “there’s still a big business out there for satellite television on a stand-alone basis…. We’re just not getting our fair share.” Dish would consider offering less expensive video packages. “I’m a big believer in having step up selling, good-better-best,” Clayton says. That could mean offering customers the option to buy programming that doesn’t include expensive sports channels. “Sports programming may be 20% of the viewing, but it’s 50% of what the consumer pays,” Ergen says. “There’s a limit to where sports costs can go. It’s not going to be in 90% of the homes if the costs go too high.” Programming costs also are rising as broadcasters seek new or higher retransmission consent payments from pay TV providers. Ergen doesn’t believe federal officials will do anything to limit that. “Washington can’t fix the budget let alone the retrans problem,” he says. “When (pay TV) gets too expensive, people will steal it.” Dish can’t afford to raise prices just yet, but it could happen and “there’s a limit to the price increases that are passed to consumers.”
But analysts were mostly interested in Ergen’s plans to amass wireless spectrum for a TV, broadband, and phone product that would enable consumers to avoid having anything to do with their local cable or phone companies. Dish is waiting for the FCC to approve some of its wireless acquisitions. “My expectation is that in relatively short order we should see approval” although possibly with some conditions, Ergen says. “If we’re in the video business we need to be in mobile as well.” If regulators approve then “it would put us in a decent spectrum position” to take the next step. But if they don’t, or if the conditions are too onerous, then “we could take a loss. … They want to see the United States be a leader in wireless, not a follower. If you take the government at their word, we’ve made a big bet.” Dish would need a strong partner to help it succeed. If the government allows AT&T to buy T-Mobile, “then I wouldn’t see any problem with us merging with DirecTV,” Ergen says. While it “wouldn’t be my first choice,” he adds that Dish is “prepared to go into wireless by ourselves if we have (FCC) approval and a roadmap to compete.” There’s no turning back, though. “Strategically we believe we have to be in something other than a stand-alone video business as a company.” He says that about 20% of Dish customers also subscribe to Netflix, and those who do frequently drop premium services including HBO, Showtime and Starz. Many young people also don’t buy pay TV, they go online and “just search until they find something they want to watch.” That’s a “long-term, macro threat to the industry” and with the added pressure of a weakening economy “it’s a good time to change your business.” Ergen says that “all of us in the video business are looking at streaming video” but the danger for companies such as Netflix is that usage costs could soar as cable and phone broadband providers begin to charge higher prices to customers who use a lot of bandwidth. “That’s why I like wireless,” Ergen says.
PREVIOUS, 3:47 AM: Analysts feared that Dish Network would come in lighter than they’d forecast when they saw how well DirecTV did with its NFL Sunday Ticket promotion and lower-than-expected sub losses at Comcast and other cable operators. Dish ended 3Q with net income of $319.1M, up 30.2% from the period last year, on revenues of $3.6B, up 12.3%. That revenue figure was just slightly lower than the $3.65B the Street projected. But earnings, at 71 cents a share, missed analysts’ target of 73 cents. The big questions today will probably revolve around the 111,000 drop in subscriptions to 13.95M — that compares to a 29,000 loss of subs in the same period last year. Before the recent run of 3Q announcements from Dish’s competitors, Brean Murray Carret analyst Todd Mitchell predicted that the company would lose 25,000 customers and Credit Suisse’ Stefan Anninger forecast a drop of 87,000. On Friday, Anninger revised his projection to -174,000. “We spoke to some investors that had anticipated a loss between 150k to 200k (after DirecTV disclosed its) results last week so overall, we would say this is not as bad as feared,” says Wells Fargo Securities analyst Marci Ryvicker. Dish attributed the loss to competitive pressures as well as “the weak housing market in the U.S. combined with lower discretionary spending.” Dish says that Blockbuster, which it acquired in April, had a net loss of $177,000 on revenues of $347M but didn’t provide a comparison with previous years, saying that the operation has changed so much it “would not prove useful in assessing our post acquisition earnings and cash flows.” Blockbuster operated 1,500 retail stores as of the end of September. “We have negotiated flexible termination provisions in the leases of over 900 of these stores, should estimates of future revenue growth not meet our expectations,” Dish says.
The company also announced this morning that it will pay a non-recurring dividend of $2 a share. That news “not only represents a welcome return of cash to shareholders but also signals that Chairman Charlie Ergen isn’t going to hoard cash to build his wireless field of dreams (probably),” says Bernstein Research analyst Craig Moffett.