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Dish’s Core TV Business Is Shrinking at ‘Shocking’ Rate: Analyst

Internet TV is not saving the day for Dish Network, which is hemorrhaging traditional pay-TV customers at a seemingly unprecedented rate.

Since Dish launched Sling TV this past February, the company has signed up an estimated 394,000 subscribers for the cheaper, slimmed-down over-the-top TV package priced starting at $20 per month, according to MoffettNathanson analyst Craig Moffett. That would include a net gain of 155,000 for the third quarter of 2015.

That implies Dish dropped 178,000 satellite subscribers in Q3, which would mark its worst quarterly loss ever. “That’s dramatically worse than the 12K subscriber loss from a year ago, and leaves Dish’s traditional subscriber base shrinking at a shocking 3.7% annual rate,” Moffett wrote. (Dish does not disclose quarterly figures for satellite TV customers; it now combines traditional pay-TV and Sling TV customers into its total subscriber numbers.)

CEO Charlie Ergen reiterated the outline of the Sling TV strategy to investors Monday, saying the skinnier Sling TV over-the-top offering is designed to appeal to younger, millennial consumers who aren’t interested in a taking a full pay-TV package.

“For certain customers, particularly millennials who are not in the pay-TV universe today… it’s an attractive product,” Ergen said.

But Sling TV has not become the growth engine Ergen had hoped, and he acknowledged that the OTT service is not performing up to a technical level customers expect: “We’re not there yet,” Ergen said.

It’s not clear the extent to which Dish’s subscriber losses were the result of cord-cutting — that is, people canceling pay-TV service altogether — and how much was the result of consumers switching to competitors. In the quarter, AT&T looked to be “somewhat successful” in capturing share with bundles that combined DirecTV and mobile service, Ergen said.

Sling TV has some key drawbacks, including that it provides just one stream of programming per account at a time. Consumers are used to being able to access multiple concurrent streams through services like Netflix, Ergen noted. And customer feedback indicates a strong interest in network DVR, a feature Sling TV lacks currently. “We’ll design Sling for all those things,” Ergen said on the call.

In announcing Q3 results Monday, Dish said it ended the period with 13.909 million pay-TV customers (including those with Sling TV), compared with 14.041 million at the end of third quarter 2014. The company said average monthly revenue per customer for Q3 was $86.33 — a decline from $87.91 in the prior quarter but up from $84.39 in Q3 2014. On the other hand, Dish’s subscriber acquisition cost per sub was $736 in the most recent quarter versus $861 in the year-ago period.

Meanwhile, Dish is facing a contract renewal with Viacom. Ergen said (as he has in the past regarding upcoming programming deals) that he expects Dish to get a deal done. “We know what people watch… We know there are alternatives to their product,” Ergen said. “You can get kids’ programming on YouTube and Neflix and it’s quite good, and some of it is even Viacom product.”

Overall, Dish posted $3.73 billion in revenue for the third quarter of 2015, up 1.4% year over year, and net income of $196 million (42 cents per share), up 34% over $146 million (31 cents per share) in Q3 2014. For the most recent quarter, Wall Street analysts expected $3.79 billion in revenue and EPS of 39 cents.

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