Is Dish Going Down the Drain?

Alan Breznick
News Analysis
Alan Breznick, Cable/Video Practice Leader, Light Reading
7/21/2016



The subscriber losses just keep mounting at Dish Network as even its still-growing Sling TV OTT service can't make up for the rapid contraction of its core satellite TV business.

In its latest earnings release Thursday morning, Dish Network LLC (Nasdaq: DISH) reported that it shed a staggering 281,000 video customers in the historically weak second quarter, more than three times as many as it shed a year ago and far worse than Wall Street analysts had expected from the nation's second biggest satellite TV provider. The dismal subscriber performance, coming on the heels of video customer losses in the prior four quarters, easily amounted to Dish's worst quarter in its history.

But worse yet, the heavy subscriber losses came in spite of probable continued growth in Dish's Sling TV business. So, because Dish combines the results of its traditional satellite TV and newfangled OTT operations, the satellite TV subscriber losses were likely even higher than the company is willing to reveal, indicating that its core video business is stumbling badly at the same time that rival cable operators are starting to rebound.

In a scathing note to investors this morning, research brokerage firm MoffettNathanson LLC estimated that Dish actually lost a whopping 330,000 satellite TV customers in the second quarter, or about 50,000 more than its overall video subscriber loss. The research firm came up with this calculation by analyzing Dish's subscriber acquisition costs (SAC), churn rates and gross subscriber additions over the quarter.

Using the same analysis, Moffett Nathanson estimated that Sling TV, Dish's pioneering "skinny bundle" OTT service, added just 49,000 subscribers in the spring quarter. While that net gain would be enough to push Sling TV over the 700,000-subscriber mark after just five and a half quarters in operation, it would also be Sling TV's smallest increase yet, indicating that it may be running out of runway for further growth.

"Over the past year, gains at Sling TV have softened the blow of losses in the satellite core," wrote analyst Craig Moffett, a principal in MoffettNathanson, in the research note. "This time, combining the two businesses likely observes how quickly Sling TV is hitting a wall. For a one-year-old OTT service, that may be an even more alarming result than the huge 330,000 subscriber loss that same Sling TV result implies for the core satellite business."


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In their earnings call this afternoon, Dish Network Chairman and CEO Charlie Ergen and his chief lieutenants will likely blame the heavy subscriber losses largely on the company's ongoing rights fee disputes with major TV programmers, as they have in the past. Over the past few months, for instance, Dish has bitterly battled with first Viacom Inc. (NYSE: VIA) and now Tribune Media Services Inc. over contract renewal rights, resulting in programming blackouts for its satellite TV subscribers. (See Dish, Sinclair End Largest TV Blackout.)

However, Dish's longer-running and heavier than expected subscriber losses indicate that more than programming disputes are to blame for its travails. According to Moffett's calculations, the company has now lost about 860,000 satellite TV subscribers over the past five quarters, reducing its total satellite TV customer count to less than 13.1 million, which is more than a 6% drop. At the same time, Dish has seen its churn rate rise and its number of gross subscriber additions fall.

As Moffett notes, these poor subscriber results also do not bode well for Dish's prospects in the Federal Communications Commission (FCC) 's upcoming broadcast incentive auction. With Dish already holding a good deal of wireless spectrum and highly leveraged, it is likely looking to sell off or trade its current licenses before it has to start meeting the government's build-out requirements for the older spectrum. But, with the auction now facing possible delays, Dish may be hard pressed to come up with the revenue it needs in time to make that all happen and realize its wireless ambitions, he said. (See Dish Mutating Into a Broadband Company.)

— Alan Breznick, Cable/Video Practice Leader, Light Reading

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