Video services

Dish Thrown for a Loss

10:55 AM -- After heaping on subscriber gains for years on end, Dish Network LLC (Nasdaq: DISH) has finally run into a problem usually relegated to cable operators: a loss of video subscribers.

Cable has generally managed to wash out basic video subscriber losses by adding digital video customers, but Dish reported today that it lost 25,000 subs in the second quarter, leaving a total of 13.79 million.

That translates to a dubious "first" for the U.S. direct broadcast satellite (DBS) industry, which is still led by DirecTV Group Inc. (NYSE: DTV) and its 17 million or so subs.

The subscriber loss reported today "was the first ever by a satellite operator in the U.S.," said Sanford C. Bernstein & Co. Inc. analyst Craig Moffett, in a note issued this morning.

Dish added 170,000 subs in the year-ago quarter. "And the difference is even starker when one considers that the current weak results come with marketing partner AT&T Inc. (NYSE: T) now exclusively distributing Dish Network service for the first time," Moffett adds.

And, depending on how things shake out in further negotiations, even the "tailwind" of that relationship could be short-lived, because the present Dish-AT&T deal is slated to terminate at year's end. (See 8-K: AT&T Scraps Dish Deal and AT&T Breaking DISHes.) DirecTV is believed to be in the catbird seat for a new AT&T co-marketing partnership.

In a 10-Q, Dish attributed the sub loss partly to competitive broadband bundles and more attractive programming packages.

Annual "seasonality" is also partly to blame for Dish's second-quarter disappointment, but that didn't stop Comcast Corp. (Nasdaq: CMCSA, CMCSK) from turning in a solid quarter. (See Comcast Rings the Telcos' Bell .)

"Dish's marketing engine seems to be broken," Moffett says. "Put simply, Dish appears to have lost its mojo when it comes to attracting new customers."

But it is trying to appeal to existing and new subs, particularly in the area of high-definition television services. Dish, for example, has initiated a plan to color up its HDTV palate by adding channels and offering some fare in the eye-popping 1080p format. (See Dish to Serve Up 1080p.)

Moffett expects DirecTV, which reports this Thursday, to show some sizable sub gains despite a category (satellite TV) that, as a whole, is continuing to lose momentum.

Dish shares were down $2.14 (7.39%) to $26.91 in Monday morning trading.

— Jeff Baumgartner, Site Editor, Cable Digital News

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