Dish Network lost 94,000 subscribers during its first quarter but still reported increased revenue and profit.
The company reported revenue of $2.91 billion, a 2.1 percent increase compared with $2.84 billion for the similar period in 2008. Net income in the most recent quarter was $313 million, compared with $259 million in Q1 ’08.
Dish has always spent lavishly on customer acquisition, but in recent quarters it has been pulling back on such spending; that trend continued in Q1, dropping from $709 per sub a year ago to $659 in the quarter just completed.
Dish rolls the capital cost of its set-tops into subscriber acquisition costs (SAC). The company reported that with its emphasis on high-definition – and therefore on MPEG-4 transmission – it may have to start spending more on set-tops.
“We may choose to invest significant capital to accelerate the conversion of customers to MPEG-4 and/or 8PSK in order to realize the bandwidth benefits sooner,” the company said in its 10-Q filing with the SEC. “In addition, given that all of our HD content is broadcast in MPEG-4, any growth in HD penetration will naturally accelerate our transition to these newer technologies and may increase our subscriber acquisition and retention costs.
“All new receivers that we purchase from EchoStar now have MPEG-4 technology. Although we continue to refurbish and redeploy MPEG-2 receivers, as a result of our HD initiatives and current promotions, most new customers in certain markets will be required to activate higher-priced MPEG-4 technology. This limits our ability to redeploy MPEG-2 receivers and, to the extent that our new promotions in certain markets are successful, will accelerate the transition to MPEG-4 technology, resulting in an adverse effect on our SAC.”
ARPU, meanwhile, was up almost $2 a sub to $70.03. Churn was up slightly from 1.68 percent in Q1 ’08 to 1.83 percent in Q1 ’09.
Dish said several factors went into its loss of subscribers, including the recession and increased competition in a pay-TV market that it estimates approaches 90 percent penetration. The company is also struggling to compensate for the end of its relationship with AT&T, which used to represent “substantial” revenue, but which decided on an exclusive relationship with DirecTV. That situation kicked in on the first of the calendar year.
The company also explained it is facing increasing cost pressure. In its 10-Q, the company said: “In recent years, Dish Network’s position as the low-cost provider in the pay-TV industry has been eroded by increasingly aggressive promotional pricing used by our competitors to attract new subscribers and similarly aggressive promotions and tactics used to retain existing subscribers. Some competitors have been especially aggressive and effective in marketing the value and quality of their service.”
The company also said it had been impacted by “signal theft and other forms of fraud,” but it also admitted to operational inefficiencies – poor customer service. “We have not always met our own standards for performing high-quality installations, effectively resolving customer issues when they arise, answering customer calls in an acceptable timeframe, effectively communicating with our subscriber base, reducing calls driven by the complexity of our business, improving the reliability of certain systems and subscriber equipment, and aligning the interests of certain third-party retailers and installers to provide high-quality service.”
The company allowed it may not be able to reduce churn.
Dish remains one of the largest pay-TV providers with more than 13.5 million subscribers.
Ultimately, Dish did better than Wall Street expected during the quarter, but with a shrinking customer base and revenue growth at “a truly scary 2.1 percent; it seems likely that they will be a negative growth company soon,” said analyst Craig Moffett of Sanford C. Bernstein, as quoted by MarketWatch (story here).
Simultaneous with its financial reporting, Dish Network added several HD channels: FX, Speed, Fashion TV (FTV), Logo and MavTV. The company also said it will now host the complete 24-hour feed of The N. It also intends to launch MSNBC HD in June.
