Dish Network Corp., the nation’s second-largest satellite TV provider, on Monday reported a 54 percent drop in third-quarter net income as it spent more on promotions to keep customers from canceling and wrote down the value of its investments.
For only the second time in Dish’s history, the company saw a decline in net new subscribers—the number of customers who sign up minus those who cancel. It lost 10,000 net subscribers to end the quarter with 13.8 million customers. It had gained 110,000 in the same quarter last year.
“There are no signs of a turnaround,” Sanford Bernstein analyst Craig Moffett said in a research note. “Dish is not having success keeping its customers… and it is not having success getting new ones in the door.”
Shares of Dish fell $2.12, or 13.5 percent, to $13.40 in midday trading after sinking to a new low of $13.23 earlier in the ssession.
Englewood, Colo.-based Dish Network spun off EchoStar Corp., which sells set-top boxes and provides satellite television services, in January.
Dish has been performing worse than cable operators and DirecTV Group Inc. partly because its target market of cost-conscious customers have been cancelling or downgrading service at a higher rate than subscribers who spend more. Its churn, or customer turnover rate, of 2.02 percent was the worst ever for a U.S. satellite TV operator, the analyst said.
Dish earned $92 million, or 20 cents per share, in the three months ended Sept. 30, down from $200 million, or 44 cents per share, last year. Sales rose 5 percent to $2.94 billion from $2.79 billion a year ago.
Analysts polled by Thomson Reuters on average expected a profit of 58 cents per share on sales of $2.9 billion.
Earnings were hurt by a $106 million net write-down on marketable investment securities, but Moffett noted that it only accounted for part of the earnings miss.
Dish recorded operating income of $417.8 million, up from last year’s $396.5 million.
It said subscriber acquisition costs rose by 13.8 percent in the quarter due to customer demand for more advanced equipment such as high-definition receivers, as well as promotions, higher spending on advertising and costlier set-top boxes.
“Market demand for more advanced technology equipment and a very competitive environment have caused us to increase our customer acquisition and retention costs,” the company said in a regulatory filing made Monday.
In the quarter, customers paid $69.82 per month on average, up 5.8 percent, due to higher prices for services, higher fees for equipment and the protection plan, increased demand for HD programming and gains in advertising revenue.
Dish said the loss of 10,000 net customers in the quarter was due to the “weak” economy, promotions and heavy marketing of HD service by competitors, among other factors.
The company also warned that once it loses its distribution deal with AT&T Inc. in February 2009, finding another partner that will fully replace the phone company may be “difficult.” If so, Dish said its net subscriber growth “may be impaired, our churn may increase and our results of operations may be adversely affected.”
About a million of Dish’s current subscribers were acquired through AT&T.
“One shudders to think that next year, without AT&T, things could even be worse,” Moffett said.
Meanwhile, EchoStar Corp. reported separately Monday that its losses surged in the third quarter due to write-downs and other losses on troubled investments.
For the quarter ended Sept. 30, EchoStar lost $308 million, or $3.43 per share, compared with losses of $7 million, or 7 cents per share, a year ago. The company cited $301 million in losses due to “unrealized losses and impairments on marketable and non-marketable securities.” Its revenue jumped 52 percent to $616 million from $404 million a year ago.
