Dish Network lost a record number of TV subscribers in the second quarter as programming blackouts and price increases drove customers to seek cheaper online alternatives, reviving industrywide concerns about "cord-cutting."
Pay-TV executives had been feeling better about the threat lately, with a strong subscriber showing by Comcast in the first quarter and sudden churn at Netflix after price hikes.
But Dish shed 281,000 pay-TV customers in the quarter, compared with a loss of 81,000 a year earlier, according to a statement from the Englewood, Colo.-based company Thursday. That marks the biggest loss of TV subscribers in any quarter. The rate of monthly customer defections, or churn, rose to 1.96% from 1.71% a year earlier, Dish said in a separate filing.
The shares fell as much 4% to $49.91 in New York Thursday, and were trading at $50.40 at 9:39 a.m. The stock had dropped 9.1% this year through Wednesday's close.
The results underscore the challenge Dish faces in trying to keep customers from ditching their traditional satellite-TV service for lower-priced, online-only options like Netflix or Hulu. To help stem the losses, Dish created Sling TV, a streaming-video service starting at $20 a month that includes live broadcasts from channels including NBC and ABC as well as cable networks ESPN, USA and Bravo. Dish doesn't disclose Sling TV's customer count, though analysts estimate it added between 49,000 and 100,000 subscribers in the second quarter.
"While we were prepared for some weakness due to a number of programming disputes this quarter, we were not prepared for the magnitude," Philip Cusick, an analyst with JPMorgan Chase & Co., said in a research note Thursday. Last month, Tribune Media Co. removed local broadcasts in 33 cities after the two companies failed to reach a contract renewal agreement.
Despite the subscriber losses, Dish reported better-than-expected earnings growth partly because of a price increase earlier this year. Second-quarter earnings rose to 88 cents a share, beating analysts' projections of 73 cents, according to the statement.
"Dish is focused on profitability at the expense of subs, especially given the aggressive competitive environment," Wells Fargo analyst Marci Ryvicker said in a note to clients Thursday.
Dish is among more than 60 bidders that have qualified to participate in a federal auction of TV broadcasters' airwaves. The company already holds wireless licenses worth as much as $46 billion. Ergen's plan has been to use the airwaves in a wireless network that can deliver advanced services like video and Internet to rival the larger U.S. carriers.
Revenue increased to $3.84 billion from $3.83 billion a year earlier. Analysts had predicted revenue of $3.86 billion. Dish reported 13.6 million video subscribers at the end of the quarter, including satellite and Sling, compared with 13.9 million a year earlier. Dish had about 613,000 broadband subscribers, compared with 595,000 a year earlier.
-- Bloomberg News