Everyone expected the numbers to be up from last year which included a $730M charge to settle a legal dispute with AMC Networks. But Dish Network did even better than investors anticipated. It generated $314.9M in net income, up from a $158.5M loss, on revenues of $3.6B, +2.2%. The Street thought revenues would be a tad lower at $3.58B. Diluted earnings at 68 cents a share were well ahead of the consensus forecast of 44 cents. The results were helped by the addition of 35,000 pay TV subscribers since the end of June, bringing Dish’s total to 14.05M. The sub increase was well ahead of the 15,000 forecast by Brean Capital’s Todd Mitchell. The company says that its churn rate dropped from last year although it “continues to be adversely affected” by the need for aggressive marketing and discounts, as well as “sustained economic weakness and uncertainty.” Average revenue per subscriber was up 5.3% to $81.05 due to a price hike, and added revenues from hardware and pay-per-view purchases. But subscriber-related expenses rose 9.4% from last year to nearly $2B which Dish says was largely due to rising programming costs. Blockbuster, which the company said last week it plans to scrap, continued to weigh on the financials. Dish says it expects to incur future losses of as much as $30M from the home video chain. Blockbuster generated a $24M operating loss in Q3, double what it was last year, on revenues of $97M, down from $231M in 2012 when the company still had Blockbuster UK.
Losses at Blockbuster, and costs from acquisition of wireless spectrum, contributed to the dreariness of Dish Network’s Q2 report. The company had net income of $226M, -32.6% vs the same period last year, on revenues of $3.6B, -5.6%. The revenue figure was just slightly short of analysts’ forecasts. But earnings at 50 cents a share were far worse than the 68 cents the Street expected. Dish had already announced that it lost about 10,000 subscribers in Q2, ending with 14.1M — which was better than many analysts anticipated. This morning’s report shows, though, that Blockbuster — which Dish bought in April 2011 — is still struggling. The unit’s revenues of $253M were slightly down from last year, but this time it had an operating loss of $13M vs a $10M profit. Dish says that it has closed about 650 domestic stores this year — including 150 in Q2 — leaving it with about 900. In addition, Dish had to account for its recent purchases of wireless spectrum which it intends to use to create a national streaming service, yet to be clearly defined. The spectrum generated just $1M in revenue, but $18M in expenses for Q2.
UPDATE, 7:39 AM: The total being closed this quarter equals about a third of the 1,500 U.S. outlets Blockbuster had at the end of 2011 — and there may be more closings ahead. The company says in its annual report that it’s responding to the stores’ weak financial performance due to “increasing competition from video rental kiosk, streaming and mail order businesses.” If things get worse, it says, then it may “close additional Blockbuster retail stores.” Dish hopes to keep Blockbuster at break-even. Since April 26, when Dish acquired Blockbuster, the video retailer has had an operating loss of $1.2M on revenues of $974.9M. Dish CEO Joe Clayton told analysts in a conference call this morning that the vast majority of the stores to be shuttered have lease terms that give the company flexibility to back away. The company says the shut down cost will be “minimal.”
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.