Ergen: Dish Network May Have to ‘Tread Water’ 

Comments Come After DBS Posts Net Loss of 10,000 Subs in 3Q

By Linda Moss -- Multichannel News, 11/10/2008 2:17:00 PM

After a second consecutive quarter of subscriber losses, Dish Network CEO Charles Ergen Monday said it might make sense for the company to “tread water” rather than spend to drum up new customers.

“In today’s environment, the question is how much are you going to spend to go get customers and what kind of customers can you get,” Ergen said during a third-quarter conference call. “Obviously, people are shopping for deals and customers are flipping around. They have a variety of choices. So you have to be a little bit careful about that.”

While HDTV and DVR subscribers are probably good long-term customers for Dish Network to pursue, Ergen said, “At some point in time, you have to be willing to tread a little bit of water, based on the marketplace that’s out there…The marketplace is not valuing our customers much greater than the SAC (subscriber acquisition costs) that we have today. You have to be prudent in terms of where we spend our money. We’ve always said that satellite customers it the best place for us to spend our money. That may change be in 2009.”

Dish Network reported that it lost about 10,000 net subscribers during the third quarter, compared with its gain of 110,000 subscribers in the year-ago period. The satellite provider now has 13.78 million subscribers. For the second quarter, Dish Network had also reported a subscriber loss of 25,000 households, the first such loss ever for the satellite company.

In contrast, last week satellite provider DirecTV reported that it gained 156,000 subscribers in the third quarter.

That was 35% less than a year ago, when it added 240,000 subscribers, but it still represented a gain.

In a report Monday, Sanford Bernstein analyst Craig Moffett wrote, “Waiting for a turnaround at Dish Network has the flavor of waiting for Godot. Hope springs eternal, but there are few tangible signs in Dish's third-quarter results that signal a turn is near. Despite heavy advertising and the tailwind of a (temporary) marketing relationship with AT&T, Dish lost subscribers (again) in Q3. Unlike peers, the dark clouds at Dish have no obvious silver lining.”

During the conference call, Ergen continued to blame operational problems and piracy for Dish Network’s subscriber losses.

“The first thing we have to do as a company really is to get our operating metrics stronger,” Ergen told analysts. “We’ve got a lot of blocking and tackling to do at our company, which we’ve talked about in previous quarters, and we continue to do that, continue to make progress…The thing you’ve got to do is quit getting worse.”

Dish Network has opened up a new call center, and is distributing new encrypted smart cards to put the kibosh on piracy, according to Ergen.

In its 10-Q securities filing Monday, Dish Network also said that the end of its reselling deal with AT&T, effective Jan. 31, could also hurt the company. About 1 million subscribers of Dish Network’s distribution of more then 13 million comes from the AT&T pact.

Ergen was also asked about the pending litigation with TiVo. In October, Dish Network paid TiVo a $105 million judgment from a patent infringement verdict. But a judge is still deciding whether Dish Network violated an injunction when it downloaded new software, which it claims doesn’t violate TiVo’s patents, to its set-tops out in the field.

According to Ergen, TiVo claims Dish Network owes it “a couple of million dollars” more, while Dish Network puts the figure at $16 million.

“We wouldn’t be going with this litigation if we didn’t think we were right,” Ergen said ‘The judge could rule any day.”

As to the third quarter, while Ergen said, “I’m very disappointed from an operational point of view,” he pointed out that Dish Network had paid off $1.5 billion in debt, was cash flow positive and generating $1 billion in free cash-flow.