Pandemic just one of big problems plaguing pay-TV, Dish's Ergen says

The COVID-19 pandemic played a role in widening pay-TV subscriber losses at Dish Network in the first quarter, but the issues plaguing the industry run much deeper than that, according Dish Chairman Charlie Ergen.

"The [pay-TV] product itself, from a consumer point of view, isn't good enough," Ergen said on today's company earnings call. He noted that consumers continue to gravitate to ad-free streaming services like Netflix and Disney+ that also facilitate binge-viewing.

The linear TV model, with ad loads of 16 to 17 minutes per hour of programming, is "painful" after a commercial-free experience, he said. "The user experience has to be better."

But other big changes are also impacting pay-TV, notably the shift of some programming to a broad range of subscription and free, ad-supported streaming services. Ergen suggested that the branding of TV channels continues to dissipate and consumers are increasingly wary of paying for the same content twice – from a pay-TV service and an SVoD service.

Meanwhile, that confluence of factors continues to carve into Dish's pay-TV business.

Dish's video sub losses widened to 413,000 in Q1 2020, versus a loss of 295,000 a year ago. Dish lost 132,000 satellite TV customers in the period (ending with 9.01 million). The bigger shock came from the 281,000 losses at Sling TV, which ended the quarter with 2.31 million subscribers.

The commercial side of Dish's video business, which delivers TV service to hospitality venues and airlines, was particularly hit hard in Q1 as the company paused service or provided temporary rate relief for some accounts during the early stages of the pandemic.

Dish said commercial accounts, including those it expects to disconnect because of COVID-19 disruption, represent approximately 250,000 subscribers, which were removed from its pay-TV sub count as of March 31. The good news is that Dish doesn't expect to absorb significant expenses when those customers re-activate service.

Dish's total TV sub count is now shrinking by 4.1% year-on-year without the commercial customer adjustment, and 6.1% with the bar and restaurant adjustment, according to Craig Moffett, analyst with MoffettNathanson.

Sling TV's future questioned
While Dish's decision on the commercial front was costly and commendable, the steep losses at Sling TV were a surprise, Moffett explained in a research note issued today.

"Sling has now lost subscribers for the past two straight quarters," he wrote. "To be fair, a small loss had been expected by consensus. But this wasn't a small loss."

The steepness of that loss, he added, was even more shocking as it came during a quarter when Sony PlayStation Vue shut down, leaving about 500,000 subs looking for a new provider. But Sling TV also hiked rates in late January and likely contributed to the losses, Moffett pointed out.

Moffett also wondered if Sling TV, a service launched in February 2015, might be living on borrowed time.

"Is it too early to write Sling's obituary?" Moffett posited. "To repeat, Sling TV obviously wasn't ever going to be a profitable alternative to satellite TV; even with its price increases, we suspect it is very likely still barely breakeven even at the gross margin level. And it is almost certainly a money loser at the net level. But if it doesn't help profitability, and neither does it help growth, how long will they keep supporting it?"

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— Jeff Baumgartner, Senior Editor, Light Reading