After Loss, Ergen Claims Dish Can Resume Sub Growth

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Dish Network CEO Charlie Ergen Monday pledged that his company can continue to increase its distribution, even after racking up a loss of 25,000 subscribers in the second quarter.

“It’s not a good number, and obviously we’re disappointed,” Ergen told analysts during a conference call, while maintaining that subscriber growth will resume as Dish Network addresses its problems.

He blamed the subscriber loss, and an increase of monthly churn to 1.87% versus 1.68% a year ago, on four factors: the weak economy; piracy; competitive offers to consumers from Verizon FiOS and AT&T’s U-verse and aggressive HD marketing by Dish rivals; and poor operational performance by Dish on functions such as customer service.

Dish Network ended the quarter with roughly 13.79 million subscribers. This year’s second-quarter subscriber loss is in stark contrast to the second quarter last year, when Dish Network added 170,000 new subscribers.

Ergen told analysts that Dish Network can’t do anything about the weak economy, adding that it “has some affect on you when customers can’t pay their bill and either downgrade or drop off completely and watch free TV, particularly on some of your low-end type customers.”

But he said Dish Network has been making progress on its other issues. In the case of piracy, last month Dish Network started sending out a new generation of smart cards to subscribers that will prevent free-to-air set-tops from pirating the satellite provider’s programming, according to Ergen.

In addition, DirecTV has ramped up its HDTV lineup, and as of Aug. 1 had more than 100 national HD networks on its roster, and well as debuting several HD-only packages.

“We were actually the first company to have, and have today, 114 national channels,” said Ergen, who also maintained that Dish Network has made improvements on the operational side.

Several analysts asked Ergen what Dish Network’s contingency plans are now that AT&T has notified it that it will not continue reselling Dish’s satellite service when their 2003 contract expires at the end of the year.

“Only AT&T can talk about what their true intentions are, but we have to be ready one way or the other,” Ergen said. “We’ll be ready with AT&T and we’ll be ready without AT&T.”

He maintained that Dish Network can continue to see subscriber gains even without the AT&T deal.

“We can still grow subscribers no matter what, with or without AT&T...We have confidence that we can grow this business and we want to grow this business in a smart way,” Ergen said. “We still think that’s still growing video subscribers, but there’s other things we can do in the business.”

He was also asked about Dish Network’s ongoing legal battle against TiVo, which won a $74 million jury verdict – now up to $94 million with interest – in 2006 against the satellite company for patent infringement. Dish is appealing the verdict.

TiVo claims that Dish Network has failed to comply with a court injunction that mandates it turn off its infringing DVRs, and a hearing on the case is set for Sept. 4. Ergen said Dish Network designed around the TiVo patent, by creating new software and downloading it to all its DVRs.

“We believe we complied with the injunction,” Ergen said, while adding that he thinks that TiVo and Dish Network can work together in the future.

On the conference call, Ergen didn’t mention -- and no analyst asked about -- the company’s current contract disputes with GolTV and Citadel Communications. The satellite company dropped the cable network and four of Citadel’s Midwestern stations last Friday, when its carriage deal with GolTV and its retransmission-consent agreement the broadcaster all expired.

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