As his company unveiled a big drop in earnings for 2012, Dish Network chief Charlie Ergen didn’t try to shade his concern about the long-term fate of the satcaster’s core subscription TV biz.
The earnings plunge was hammered by litigation costs — primarily the $700 million settlement reached with Cablevision in October — and rising programming costs. But in discussing the company’s prospects, Ergen sounded the alarm about the traditional subscription TV biz becoming outmoded in the eyes of younger consumers.
“I think cord-cutting is here to stay and will accelerate over time” as monthly bills increase for consumers, Ergen said Wednesday during a conference call with analysts and reporters. “The younger generation sits down to watch something that is entertainment to them. It’s not always network TV or cable channels any more. It can be Amazon, Netflix, YouTube or whatever else they search for. That’s why I think our core business is a mature business.”
The satcaster reported that net income for the year plunged to $637 million, compared to $1.52 billion in 2011. Total revenue grew 1.6% year-over-year to $14.27 billion.
Dish cited the cost of settling the legal fight with Cablevision over the now-defunct Voom channel service, which cost Dish $700 million in an agreement reached in October, and increased programming and subscriber-acquisition costs.
Dish’s subscriber gains were below Wall Street expectations, with an net addition of 89,000 customers, including 14,000 in the fourth quarter, after a net loss of about 166,000 pay-TV subscribers in 2011. Dish ended the year with 14.05 million subs.
Dish is embroiled in another lawsuit with the major broadcasters over key features of its next-generation Hopper DVR that it hoped would be a major marketing push last year. Broadcasters sued Dish to stop the AutoHop feature that allows viewers to remove commercial breaks from broadcast programs after a one-day lag. Another function that raised the ire of the Big Four was the Primetime Anytime service that allows viewers to record large blocks of programming across multiple networks — which the networks have called a copyright infringement.
Ergen argued that the nets would be wise to “work with us not against us” on new services rather than resort to litigation. Each of the Big Four have rejected Dish’s blurbs touting the Hopper DVR, although many cablers are running them.
“The advertising model is going to change with or without the Hopper,” Ergen said, adding that Dish’s focus is on giving its subscribers more options to watch network programming. “We can show broadcasters that we’re not foe, we’re friend,” he said.
Ergen and other execs emphasized Dish’s focus on expanding its business into wireless broadband services, although that effort has hit a speed bump through its battle with Sprint to buy major wi-fi provider Clearwire. The slow pace of expanding Dish’s wireless network — hampered also by regulatory delays at the FCC in approving Dish’s request to use its spectrum for wireless — has impacted its ability to revamp Blockbuster, the former homevid giant that Dish acquired out of bankruptcy in 2011. The initial plan was to transform Blockbuster stores into outlets selling wireless products, including packages of video programming.
The Blockbuster overhaul has “taken longer than we would have liked,” Ergen acknowledge. The roughly 500 stores that remain open “are too big for video only as a product,” he said. As a result, Blockbuster’s fate will be evaluated in tandem with “where we are in our other businesses,” Ergen said, though he stressed that the remaining stores are in premium locations with affordable lease rates. He’s hoping “we can tread water long enough to use the stores for wireless and other products.”