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Dish May Serve Rate Hikes

After adding 249,000 net new subscribers during the fourth quarter, Dish Network LLC (Nasdaq: DISH) executives said the company is looking at hiking the fees it charges subscribers for programming packages and hardware. (See Dish Posts Q4.)

Noting that cable networks are hitting Dish with license fee increases at a rate of “two to three times inflation,” CEO Charlie Ergen told analysts and reporters Monday that the No. 2 U.S. satellite TV provider is looking at passing more of those costs on to subscribers.

“I think we have room to do it later in the year. It depends on getting ourselves in a position to do that. I think we’re under-indexed [on rates for programming packages] compared to the rest of the industry," he said.

Ergen also bemoaned the discounting war that Dish and rival DirecTV Group Inc. (NYSE: DTV) have been waging the last two years, where each company has offered steep discounts to new subscribers that sign programming contracts.

“I’ve been befuddled a little bit that DirecTV, who had a very nice brand position, actually started discounting that brand a couple of years ago with heavy discounting. It took us a while to figure out that they turned our business into more of a commodity by discounting a brand,” Ergen said.

The Dish Network chief said his company is prepared to continue battling DirecTV on price, but also pointed to opportunities to squeeze more revenue from subscribers once they sign with Dish.

“If this is going to be a commodity business, I like where we’re positioned. If it’s a branding business, we’re certainly not at that level with DirecTV today. But it looks like if it’s a ‘have a big discount to bring you in, raise your prices later’ [business] -- we’re very comfortable in that kind of environment.”

Ergen said he’s pushing management at Dish to reduce their reliance on steep discounts for programming packages to hook customers. “I hate discounting. I hate devaluing what we sell. I don’t mind giving away hardware, but I hate devaluing the programming that we actually sell. I think we have some significant room for improvement there. I’ve challenged our guys not to discount as much in the second half of the year as we do today.”

The fourth quarter was the third consecutive period that Dish gained customers, and its subscriber churn rate of 1.44 percent was lower than Wall Street estimates of a 1.53 percent churn, Sanford C. Bernstein & Co. Inc. analyst Craig Bernstein wrote in a note today.

But when asked if that low churn rate was sustainable, Ergen noted that some of the two-year contracts that Dish Network subscribers had signed will expire during the first half of 2009, which could impact churn.

“The churn has benefited from the transition from an 18-month to a 24-month commitment. That ends during the first and second quarters,” Ergen said.

Turning to new products, Dish is developing a TV Everywhere online video strategy that relies on Sling Media Inc. place-shifting technology that's now part of the EchoStar Corp. LLC (Nasdaq: SATS) technology and set-top spinoff. (See Dish Slings Its 'TV Everywhere' Strategy.)

“We’re putting the building blocks in place for services for the consumers that are easy to use and understand, and we’re also working with video providers to make sure we protect copyright, and protect their streams,” Ergen said.

Ergen, who stepped aside as EchoStar CEO last year, said he believes he has a management team at Dish that could succeed him one day as CEO, but that he is still focused on running the company himself. (See EchoStar Promotes Dugan to Prez/CEO.)

“Ultimately I think we have the people on board here today who could probably take over. The question is, could they do a better job than I could do? As soon as they do a better job, I hope I’m unemotional enough to give them the key.”

He also appeared to take pleasure in noting that rival DirecTV has gone through several management changes in recent years. “I’m on my sixth CEO at DirecTV. So I don’t know how many more I can outlive,” Ergen said.

Also worth noting from Ergen’s conference call with analysts Monday:
  • Ergen said if EchoStar loses appeals on the $400 million in judgments that TiVo Inc. has won from DVR patent infringement suits filed against the company, the rulings will impact EchoStar’s balance sheet. “I don’t think we have pricing power to pass on DVR costs [to subscribers]. That would affect our margin,” Ergen said. (See Court Awards $200M More to TiVo ).

  • When asked how Comcast Corp. (Nasdaq: CMCSA, CMCSK)’s proposed merger with NBC Universal could impact Dish, Ergen said he is concerned about the companies adhering to program access commitments. He also raised concerns about network neutrality, noting he wants to ensure that Dish Network “customers are not discriminated against in terms of priority for bits or bit buckets.”

    “They’re both good companies, and have been great partners for us. But we need to verify that they’re going to be held accountable and act in a fair way,” Ergen said regarding Comcast and NBC’s positions on program access and net neutrality.


— Steve Donohue, Special to Light Reading Cable



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