Ergen: I’ve Got a ‘Seinfeld Strategy’

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Dish Network chairman and CEO Charlie
Ergen didn’t answer the big question on the satellite giant’s
conference call with analysts last week, but given the first
quarter he had, he didn’t really have to.

Dish Network had been saddled with three straight
quarters of subscriber losses and a flurry of seemingly
disparate acquisitions by its CEO. While that has caused
some concern — analysts have openly wondered whether
the purchase of wireless spectrum meant Dish was eventually
planning to abandon satellite delivery of TV signals
— all was forgiven after the satellite-TV firm beat firstquarter
estimates on practically every turn.

GAINED SUBS

Dish gained 58,000 net new subscribers in the quarter,
soundly beating analysts’ consensus estimates, which had
predicted a loss of about 75,000 customers. The gain comes
after three straight quarters of subscriber losses and in the
wake of a hefty monthly rate increase, of between $3 and
$5, for most customers. Sanford Bernstein cable and satellite
analyst Craig Moffett wrote that in February, Dish took
what was the equivalent of a three-year price increase in
one swoop, a move that helped boost average monthly revenue
per customer to $75.39 in the quarter, up almost 6%.

Dish also continued to perform well on the financial
front — revenue rose 5.5%, to
$3.2 billion, and net income
more than doubled to $549 million
in the period, from $239
million in the previous year.

Dish stock soared — it rose
19% ($4.75) on May 2 to $29.79,
dipping slightly the next day to
close at $29.20. That increase
was largely due to a $500 million
settlement the satellite giant
reached with DVR pioneer
TiVo, which, according to most
analysts, removed a five-year overhang on the stock.

LIFT FROM TIVO

The TiVo settlement also helped boost net income and
cash flow. Dish had allocated about $517 million for litigation,
but because of the lower-than-expected terms (it
will initially pay $290 million in cash to TiVo), $335 million
was returned to the company, adding about 47 cents
per share to net income and boosting cash flow to $1.225
billion, up 75% year-over-year. Even without the one-time
gain, cash flow would have come in at around $884 million,
still above consensus of $875 million.

While Dish avoided continuing one protracted legal
battle, another potential lengthy piece of litigation reared
its head last week when The Walt Disney Co. and Starz
sued the satellite giant in federal court, claiming its promotion
offering the premium
movie channel free for one year
violates its distribution agreements.

Ergen sidestepped the question
that has puzzled many analysts
for months — just what was
behind his thinking in buying
wireless spectrum holder DBSD
for $1 billion and the $320 million
purchase of video rental giant
Blockbuster?

‘SEINFELD STRATEGY’

Ergen half-jokingly called the recent moves his “Seinfeld
Strategy,” after the popular 1990s sitcom, adding that as
with the show, Dish’s full intentions won’t truly be known
until the final minutes.

“You’re going to have to wait and see,” Ergen said.
Ergen, perhaps realizing he was on the phone with a
group of TV analysts that followed the show that was famously
about nothing, stressed that his recent moves have
a purpose.

“We know where we want to go,” Ergen said. “Each of
our assets is important and each is going to open a door
of opportunity.”

Ergen did reveal some tidbits about Blockbuster, adding
that the company has yet to determine what it will do
with the video giant’s 1,700 retail locations throughout the
country. Earlier, he said that Dish had identified about 400
locations where it would renew leases, but said that ultimate
number will be determined by the movie studios.

“A lot of it depends on studio participation,” Ergen said.
“If the studios want a physical presence, I think there are
a lot of reasons to keep the stores open.”

That could change however, as Ergen later revealed that
most of Blockbuster’s output deals with studios expire in
2012.

STREAMING SPECULATION

While speculation has been high that Dish would focus
more on streaming video to its satellite TV customers —
à la Blockbuster’s chief competitor, Netflix — Ergen noted
that may not be feasible given Dish’s mostly rural footprint.

“The last places that will be built out to broadband is going
to be rural America,” Ergen said on the call. “It won’t
be for a while.”

The strong fundamentals elicited praise from most analysts.

“The TiVo settlement adds an exclamation point to what
would have been a solid quarterly report even without this
one-time benefi t,” Moffett wrote in a report. “Dish Network
gained subscribers even in the face of a very large
price increase. Subscriber results were strong, and financial
results were stronger.”

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