Dish Pays for Its Big Sub Gains

By MONICA HOGAN -- Multichannel News, 3/19/2001

EchoStar Communications Corp.'s fourth-quarter earnings report last week confirmed what many already knew: The direct-broadcast satellite industry added more new subscribers last year than ever before.

EchoStar added about 1.85 million net new subscribers to its Dish Network service in 2000, ending the year with 5.26 million customers.

Earlier this year, DBS leader DirecTV Inc. reported it added 1.8 million net new subscribers in 2000. That brought the industry's overall additions to more than 3.6 million for the year and DirecTV's total subscriber count to about 9.5 million.

"We're not acting like a mature company," EchoStar chairman Charlie Ergen told analysts last week in an earnings call. "All our trend lines are up."

Had the economy not started to slow last August, Dish could have signed up another 500,000 customers in the second half, Ergen estimated. He added that although his company is not recession proof, it's probably recession resistant.

"I've been predicting that when the economy slows, that's when we'll make our breakout as a company," Ergen said.

Because it paid dearly in subscriber acquisition costs-they rose as high as $548 per new customer in the fourth quarter-EchoStar was not cash-flow positive last year. But Ergen vowed to reach positive EBITDA (earnings before interest, taxes, depreciation and amortization) by the end of 2001.

"That's job one for us," said Ergen, adding, "we have to fire ourselves as management" if the company can't reach that goal.

So intent is Ergen on cutting costs that he told analysts he would review the company's business-travel policy of two employees per hotel room.

"We're thinking of putting three people to a room now," he said. "All of us are fighting over that cot."

Ergen estimated that EchoStar could end the year with $400 million in EBITDA.

EchoStar would have approached the cash-flow milestone this year, had it kept its subscriber acquisition levels at the same rate as 1999, Ergen estimated, hinting that the company might miss its numbers again next year if growth is especially aggressive.

"If we do 2 million subscribers and aren't cash flow positive, we might be happy with that," he said.

Ergen blamed heavy fourth-quarter competition from DirecTV and its retailers in the EchoStar's higher acquisition costs. Blockbuster Video, for example, promoted a satellite system for $48, along with in-home service and a year's worth of video rentals.

Cable also put some pressure on DBS with its various dish buy-back offers, although Ergen and other executives dismiss them as a threat.

"Cable is so desperate for subscribers that one company has given up to $500 for Dish customers," Ergen said. "That's a position of weakness."

In addition to balancing subscriber growth with cash-flow goals, EchoStar plans this year to put a greater emphasis on digital video recorders and to seek possible strategic partnerships with digital subscriber line high-speed-data providers.

Next month, EchoStar plans to introduce a new DBS receiver with built-in DVR software that it developed in-house. The company has already sold about 250,000 "DishPlayer" DBS/DVR receivers through a partnership with Microsoft Corp.'s WebTV Networks.

"Our goal is to be the first to one million" in the DVR category, Ergen said last week, but added that Dish would not necessarily hit that goal in 2001.