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Dish Network Reports More Users But Lower 1Q Profit

05/07/2012 | 03:08pm US/Eastern
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--Dish boosts subscriber numbers but still reports disappointing revenue

--Says in talks with wireless tech, infrastructure companies over spectrum

--Closing 100 Blockbuster shops in 2Q, could close more

(Updates with details from conference call in the first through third paragraphs, analyst comments and share price.)

 
   By William Launder 
   Of  
 

Dish Network Corp. (>> DISH Network Corp.) boosted its subscriber rolls in the first quarter by keeping rates stable, but the additional viewers stopped short of delivering the revenue expected from the satellite-TV operator.

In addition to its quarterly update, Dish also gave a few clues as to how it plans to use the airwaves that the company has paid several billion dollars to acquire in recent years. Chairman Charlie Ergen said Dish is in ongoing talks with wireless technology and infrastructure companies about collaborating.

"It probably makes sense to work with people who are already in the business," Ergen told analysts on a conference call. He said Dish's portfolio of 40 megahertz spectrum would be sufficient to get started in the business, suggesting Dish won't try to acquire more airwaves anytime soon.

As airwaves become more scarce, Dish's holdings have become a lightning rod for speculation. The company needs regulatory approval in order to convert the spectrum for terrestrial use, which would allow Dish to build its own wireless network or seek out potentially lucrative deals with existing operators like Verizon Wireless or AT&T Inc. (>> AT&T Inc.).

Dish awaits a decision on converting the assets from the Federal Communications Commission, which is said to want to decide by the end of the year, after taking public comment.

In the first quarter, Dish added 104,000 net subscribers and lowered its monthly subscriber-turnover rate, or churn, thanks to the addition of its Blockbuster video service and the absence of a rate increase. The Englewood, Colo., company added 58,000 net subscribers a year earlier.

Dish is attempting to attract more affluent customers who are willing to spend more each month on video and who are less likely to cancel their service. In an aggressive move for pay-TV operators who face consistently rising programming costs, Dish has said it will freeze prices through January 2013.

Dish reported a profit of $360.3 million, or 80 cents a share, down from $549.4 million, or $1.22 a share, a year earlier. The year-earlier quarter included a $340.7 million gain from the reversal of accrued expenses related to a settlement agreement with TiVo.

Revenue jumped 11% to $3.58 billion. Analysts polled by Thomson Reuters had forecast earnings of 70 cents a share on revenue of $3.62 billion.

Analysts worried that the strong subscriber growth wasn't reflected in the company's bottom-line performance. "Revenue growth, revenue per subscriber, and subscriber-related expenses ... were all less encouraging," Bernstein analyst Craig Moffett said.

Dish shares rose 21 cents to $31.52 Monday; for the year, the stock has risen 10.7%.

Blockbuster, which Dish acquired out of bankruptcy last year in an effort to diversify from the maturing U.S. subscription TV market, contributed a modest $14 million operating profit.

Dish is aggressively closing unprofitable Blockbuster locations and selling off their inventory, shutting 500 locations in the first quarter. Another 100 closures are planned for the current quarter, and Dish said it might shut more stores going forward.

Dish is instead focusing on Blockbuster's streaming service, which it launched last year as part of broader efforts by pay-TV operators to establish a niche in the growing over-the-top video business.

Dish said its goal was to operate Blockbuster on a break-even basis, while experimenting with new marketing ideas for the stores and in order to integrate the business with its pay-TV operations.

Blockbuster is currently offered by Dish in a bundled package with its satellite video service, according to the Dish Web site.

Ergen offered little praise for the types of digital partnerships with Netflix Inc. (NFLX) and Apple Inc. (>> Apple Inc.) that content companies have credited for boosting their profits in recent quarters.

"Programmers have devalued programming content by making it available in a variety of outlets," Ergen told analysts. "It's not quite the same as if something was exclusive."

Dish Network last week dropped its coverage of AMC Networks Inc. (>> AMC Networks Inc) channels, including AMC and the Independent Film Channel, citing high costs "compared to their low viewership."

-By William Launder, Dow Jones Newswires; 212-416-3412; william.launder@dowjones.com

--Melodie Warner contributed to this article.

Stocks mentioned in the article : DISH Network Corp., Apple Inc., AMC Networks Inc, AT&T Inc.
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