Dish Network Reverses Sub Losses In Q4

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Dish Network Reverses Sub Losses In Q4
Ergen Calls Satellite TV "A Commodity"
Mike Farrell -- 3/1/2010 5:41:01 PM

Dish Network appears to have reversed the subscriber losses that have plagued it in 2008, reporting a net gain of 249,000 subscribers in the fourth quarter.

While the company seems to have turned the corner on stemming its subscriber losses -- it ended the year up 422,000 customers compared to 2008 when it was down 102,000 -- Dish chairman and CEO Charlie Ergen told analysts on a conference call that the industry trend toward heavy discounting has to end.
While Ergen didn't say how much of Dish's subscriber growth was due to heavy discounts, Ergen said that the video end of the business has become a "commodity."
Ergen said he was "befuddled" when satellite TV rival DirecTV began heavily discounting its service last year, a move that he said commoditized the business.
But moving the competitive needle to focus ore on pricing actually proved to be an advantage to Dish, he said.
"We've always been much better in a commodity business," Ergen said. "In this environment, once TV became a commodity, we gained some momentum."
But Ergen added that he would like to turn back the dial on discounting -- especially of its programming packages -- and issued a challenge to his managers to keep discounting to a minimum in the second half of the year.
"I hate discounting," Ergen said. "I hate devaluing the actual programming that we sell. I think we have some significant room for improvement."
Ergen said that Dish could start to raise prices and still stay below DirecTV. He estimated that Dish is priced on average about $20 per month less than its chief rival.
Ergen also chimed in on the Federal Communications Commission's decision to close the terrestrial loophole that prevented non-cable distributors from carrying certain regional sports networks. Ergen said that Dish hasn't made formal application for the cable only RSNs, but said that will probably happen in the future.
"The bottom line is you can see some light at the end of the tunnel where all of the distributors in the video business will have a chance to compete on regional sports," he said.
As far as the other big regulatory matter of the year, the FCC approval process concerning Comcast's NBC Universal joint venture with General Electric, Ergen said that Dish has not formally submitted what conditions it would like put on the deal, but added it would likely focus on two areas - program access and Net Neutrality.
For the quarter, revenue was up 1.4% to $2.9 billion, but earnings before interest, depreciation and amortization was down 15.5% compared to the prior year to $631 million.
Analysts were split on characterizing the quarter, with Collins Stewart media analyst Tom Eagan and Wells Fargo media analyst Marci Ryvicker focusing on Dish's ability to soundly beat consensus estimates for revenue, cash flow and subscriber growth.
Sanford Bernstein cable and satellite analyst Craig Moffett, focused on sustainability, noting in a research report that while subscribers were up, average monthly revenue per unit (ARPU) was "anemic" at $69.90 and subscriber acquisition costs ballooned to $723 per gross addition in the period, well ahead of consensus of $703 and sharply higher than the $694 SAC in the third quarter.
"Dish Network is paying more to get subscribers... and getting less when they arrive," Moffett wrote.
Investors seemed more focused on the subscriber growth, as Dish stock was up $1.29 per share (6.5%) to $21.26 each in afternoon trading.