Dish Looks to Better Q3 After Q2 Brings Decline in Subscribers, Revenue
Chairman Charles Ergen said Dish Network is well-positioned to survive any ruling on a broadcaster lawsuit and any FCC order on the DBS company’s plans to use wireless 2 GHz spectrum for a terrestrial service. The agency’s decisions on Dish’s application to operate a terrestrial wireless service and Verizon Wireless’s deal for spectrum licenses from Spectrum Co. will provide clarity for the marketplace, Ergen said in a teleconference Wednesday to discuss Q2 results. President Barack Obama and the FCC indicated they want to free up spectrum and see more entrants in the market besides Verizon Wireless and AT&T, Ergen said. “It’s unclear to consumers whether there’s a third or fourth option out there” of a carrier with as many subscribers as the two biggest, AT&T and Verizon Wireless, for wireless broadband service, he said.
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Dish “made the bet that what they've said is what they really mean,” Ergen said of the administration. The coming FCC order on the company’s spectrum “will bring more clarity on where the administration and the FCC would like to see the competition in the wireless business,” he said. “In general, the FCC has made good decisions. I think they will want us in this business.” Dish also is remaining positive following a Q2 decrease in profit, a net subscriber decline of about 10,000 and pending litigation over its ad-skipping technology, Ergen said.
Ergen said he expects to see a change in the dynamic around carriage deals for cable channels and retransmission consent deals for TV stations. Both types of programmers “de-value the product when they give it away on the Internet,” he said. “So far, the networks are fighting change and if they don’t get what they want, they go to Capitol Hill,” he said of the broadcast networks. More people will likely get their content from platforms like Google’s YouTube, he added: “They aren’t going to be watching broadcasts.” The Viacom and DirecTV carriage dispute “was one where the dynamics are changing,” he said. There doesn’t seem to be any enthusiasm in the FCC or Congress to force more of an a la carte offering, Ergen added. Dish’s programming partners are at a disadvantage because companies like Disney receive a disproportionate share of revenue due to sports, he said. “I think there'll be a day when there’s an offering that doesn’t include sports."
The company plans to spend more ad dollars promoting the Hopper DVR product, CEO Joe Clayton said. The Auto Hop, introduced in May, allows Hopper users to record programming from the four major broadcast networks without commercials (CD May 14 p5). Fox Entertainment, CBS and NBCUniversal sued Dish over the technology (CD May 29 p5). Dish received “hell and damnation from the major broadcasters,” Clayton said. “We don’t know how the courts will rule on Auto Hop, but we do know that we've already won in the court of public opinion.” Programmers “should be embracing the Hopper, not suing [Dish], because the Hopper will make them more money,” Ergen said.
The agreement with Qualcomm to use a satellite chipset in wireless devices could enhance Dish’s use of ground-based wireless broadband, Clayton said. The company wants to be prepared “once we do receive regulatory clarity” on the 2 GHz rulemaking, he said. “We've been developing relationships with companies throughout the wireless sector.” There is “some strategic advantage to having some handsets that can link to the satellites,” Ergen added.
AMC, We, IFC and Sundance significantly underperformed with Dish subscribers, Clayton said. The company dropped the channels in June, he said. For Dish customers, movies were the most-watched programming on AMC, Ergen said. Most of those movies are available on HDNet, “but HDNet has a lower cost structure and no commercials,” he said. Dish chose not to burden its satellite and cost structure with those channels, which weren’t heavily-viewed by its customers, he added. “We'll be several dollars less than our competitors and we think we give them [customers] a better offering with HDNet,” he said of monthly subscriber bills.
Dish Q2 revenue was little changed at $3.57 billion, vs. the year-ago period. Profit fell to $226 million from $335 million. The company “made solid progress toward increasing revenue and investing for long-term growth and improvement in subscriber performance” in activations and churn, said CEO Joseph Clayton. Dish added 665,000 subscribers, but with churn ended the quarter with a net loss of 10,000 subs, he said. Average revenue per user grew 0.1 percent due in part to event-driven pay-per-view revenue and bundled broadband service, Clayton said.
EchoStar meanwhile postponed delivery of a higher speed HughesNet broadband service to late September from August, as it finalizes operation of its new EchoStar-17 satellite, executives said on another conference call Wednesday.
EchoStar-17 launched July 5 aboard an Ariane-5 rocket. EchoStar acquired the satellite, which will be at 107.1 degrees west, in buying Hughes Communications last year. The satellite is designed to deliver up to 25 Mbps downloads, though average transmission speeds, pricing and packaging haven’t been set. The download speed for the basic package could start at 3-5 Mbps, company executives have said. EchoStar has $63 million remaining to be paid for the satellite, including milestone payments, the company said in an SEC filing. EchoStar-17 is covered by $330 million in insurance, which includes the satellite and launch, executives have said. HughesNet said it ended Q2 with 624,000 subscribers, down 8,000 from the previous quarter.
In the wake of the failure Monday of a Proton rocket’s Breeze-M upper stage and likely loss of two telecom satellites, the EchoStar-16 launch planned for September in Kazakhstan has been postponed, EchoStar executives said. The rocket anomaly likely caused the loss of a satellite owned by Russian Satellite Communications Co. as well as PT Telekomuniksasi of Indonesia’s Telkom-3 telecom satellite. The EchoStar-16 satellite, which was to be positioned at 61.5 degrees west, has been returned for storage at Space Systems Loral until a new launch date is set, EchoStar CEO Michael Dugan said. Dish Network, EchoStar’s sister company, is leasing 32 transponders on the Ku-band satellite. EchoStar had $61 million in payments remaining on EchoStar-16 as of June 30, executives said.
EchoStar’s Q2 profit grew to $35.4 million from $18.5 million,in the corresponding period last year, despite a sharp rise in expenses to $760 million from $538.4 million due largely to the Hughes acquisition. Revenue rose to $806 million from $584 million in the previous Q2. EchoStar’s technology business’ profit fell to $11.3 million from $12.4 million year over year as revenue jumped to $445.7 million from $426.9 million. The technology business includes set-top box sales to Dish and Bell Canada. Sales to Dish slipped to $385.3 million from $398.8 million on lower pricing, while those to Bell rose to $89 million from $48.5 million amid increased revenue from digital DVR/satellite receivers, EchoStar executives said.