Dish's Losses Are Sling TV's Gains
While Dish Network reported bigger video subscriber losses in the second quarter, the losses are probably much bigger than the satellite TV provider seems willing to concede.
That's because Dish Network LLC (Nasdaq: DISH) counted the subscriber gains of its over-the-top (OTT) video provider, Sling TV , in its spring quarter results. So, the pay-TV customer losses for the main satellite TV service are likely to be much greater than indicated.
How much greater? Dish officially reported shedding 81,000 video subs in the quarter, about in line with Wall Street's consensus estimate of 83,000 subs while nearly double its loss of 44,000 subs in the same period a year ago. But its actual loss of satellite TV customers may have been more like 151,000, according to the most recent analysis conducted by research brokerage firm MoffettNathanson LLC .
In a detailed note to its investor clients, MoffettNathanson based this estimate on its calculation that the parent company added about 70,000 Sling TV subscribers in the quarter. The research firm came up with this calculation by analyzing Dish's subscriber acquisition costs (SAC) for the first two quarters, just as Dish Network Chairman & CEO Charlie Ergen suggested that the firm do on the company's earnings Wednesday afternoon. MoffettNathanson had previously calculated Dish's satellite TV loss to be 187,000 subscribers and Sling TV's corresponding OTT sub gain to be 105,000 subs, using a methodology based on average revenue per unit (ARPU).
Using these latest calculations, MoffettNathanson also estimates that Sling TV, which launched with a big splash in February and closed the first quarter with a reported 169,000 subscribers, ended the spring quarter with about 240,000 subs. Previous reports from various sources reckoned that Sling TV had as few as 100,000 "skinny bundle" customers and as many as 250,000.
On the Dish earnings call, Ergen and other company executives declined to disclose how their subscriber numbers break down between their different pay-TV services. Under persistent analyst questioning, Ergen did acknowledge that the "mature" pay-TV business has been slowly but steadily declining since 2012 while the OTT business has been growing swiftly. But he defended Dish's counting method as reasonable because "the [two] businesses fundamentally appear to be economically similar" since they value customers in economically similar ways.
"So I think you have a point when you say there's certainly more losses on the linear side than 80,000 or whatever," Ergen told analyst Craig Moffett. "But we haven't broken that out because that's not how we look at it."
Despite the overall video subscriber losses (and higher losses on the much pricier satellite TV side of the business), Dish still posted a gain in revenues to $3.83 billion for the spring quarter, up 3.7% from $3.69 billion a year earlier. At the same time, the company's net income jumped more than 50% from $213 million a year ago to $324 million in the latest quarter, largely due to programming package price increases.
The latest decline of Dish's satellite TV service and corresponding rise of the Sling TV service come as the ground continues to shift under traditional video service and content providers alike because of OTT video's soaring popularity. In another recent note to investors, MoffettNathanson estimated that the new HBO Now service, which launched in mid-April, has already signed up somewhere between 970,000 and 1.9 million OTT subscribers. (See Study Sees OTT Revenues Soaring.)
In their second-quarter earnings call this week, Time Warner Inc. (NYSE: TWX) and Home Box Office Inc. (HBO) officials declined to comment to those and other analyst estimates of HBO Now's reach. But they said the new OTT service is progressing well and cannibalizing less than 1% of the core HBO pay-TV network's subscribers. They also said HBO has started investing in new programing to support the à la carte streaming service.
Further, in their second-quarter earnings call, Walt Disney Co. (NYSE: DIS) executives sought to downplay reports that one of their prime networks, ESPN, has lost around 3.2 million subscribers in just over a year. Disney Chairman and CEO Bob Iger told analysts that ESPN's "modest" losses "were less than reported" by The Nielsen Co. and that 80% of the losses were due to declining pay-TV penetration, with "only a small percentage due to skinny packages." Iger also reiterated his earlier statement that ESPN, usually a pioneer in new media, doesn't plan to launch its own direct-to-consumer streaming service for at least five years.
— Alan Breznick, Cable/Video Practice Leader, Light Reading