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Dish Loses 281,000 Subscribers in Q2, Its Worst-Ever Quarterly Drop, But Beats Earnings Forecasts

Satcaster's fight with Tribune over deal for 42 stations likely helped fuel decline

Dish Network shed a net 281,000 satellite TV and Sling TV customers, marking its worst quarterly subscriber loss to date, while it posted earnings that topped Wall Street expectations.

The No. 2 satcaster posted revenue of $3.84 billion for the quarter ended June 30, 2016, flat compared with $3.83 billion from a year earlier. Net income rose to $410 million for period, up 26.5% year over year, with earnings per share of 88 cents, beating analyst consensus estimates of EPS of 74 cents.

Dish’s earnings were boosted by price increases for satellite TV packages, offsetting the lower fees from its over-the-top Sling TV service (which starts at $20 per month). Overall, the company’s average monthly revenue per pay-TV customer for for the second quarter was $89.98, up from $87.91 in the year-ago period.

Dish’s latest carriage spat, with Tribune Broadcasting over an agreement covering 42 stations in 33 markets, likely contributed to the subscriber woes. On June 12, Tribune TV stations were removed from Dish lineups and remain blacked out. While Dish said it couldn’t predict “with any certainty” the effect of the Tribune outage, it said past disputes have resulted in higher cancellations and lower subscriber signups. Dish has a long history of engaging in combative negotiations with broadcast and cable programmers over renewal terms, and has shown more willingness than its rivals to let TV nets go dark in a bid to land better terms.

Dish’s reported subscribers include all of its Sling TV over-the-top customers as well as traditional satellite customers. In Q2, it activated approximately 527,000 gross new pay-TV subscribers compared with 638,000 in the second quarter of 2015.

Net pay-TV subscribers declined 281,000 in the second quarter — three times analyst expectations of a net loss of 91,000 — compared with a loss of approximately 81,000 in the second quarter 2015. Dish doesn’t break out satellite TV vs. Sling TV subs, but analyst Craig Moffett calculated that the company gained 49,000 Sling customers, implying that it lost some 330,000 on the satellite side.

In its quarterly SEC filing, Dish blamed the record subscriber losses on higher churn rates — including the effect of cord-cutting — and lower gross adds. “Our pay-TV churn rate continues to be adversely affected by increased competitive pressures, including aggressive marketing, bundled discount offers combining broadband, video and/or wireless services and other discounted promotional offers, as well as cord cutting,” the company said.

As of the end of June, the company had 13.593 million pay-TV subscribers (including those with Sling TV), compared to 13.932 million at the end of second quarter 2015. Dish’s pay-TV subscriber churn rate was 1.96% in the period, versus 1.71% for the second quarter of 2015.

Since 2008, Dish has invested more than $5 billion to acquire wireless spectrum licenses and related assets, which are subject to interim and final build-out requirements by the FCC. At this point, “the travails of Dish’s core business only increases the urgency around their spectrum holdings,” Moffett wrote in a research note. If the FCC’s broadcast TV spectrum auction is delayed until 2017, that will also postpone Dish’s opportunity to engage in serious negotiations to sell its spectrum, according to Moffett. That means that unless Dish is willing to sell its current spectrum rights at a “distressed” price, it’s increasingly likely that the company will be forced to start building a wireless network that uses those airwaves — and even a “sham” placeholder network will cost billions, the analyst wrote.

Meanwhile, Dish lost 15,000 net satellite-broadband subscribers in the second quarter, lowering its broadband subscriber base to 613,000.

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