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Dish Serves Up Worst-Ever Quarterly Subscriber Loss Amid Univision Blackout

Dish Network continued to shed satellite TV customers in the third quarter — with the pressure of cord-cutting amplified by the ongoing blackout of Univision programming. And Dish’s unprecedented loss of HBO last week threatens to make the situation even worse.

For the third quarter of 2018, the company reported its worst net subscriber losses to date, dropping 367,000 direct broadcast satellite customers while gaining only 26,000 Sling TV over-the-top subs. It ended the period with 10.29 million Dish TV subscribers and 2.37 million Sling TV subscribers; all told, its TV customers are down 19% year-over-year.

Dish’s stock was down as much as 3.2% in pre-market trading Wednesday on the worse-than-expected satellite TV losses. Its financial results topped Wall Street expectations, with Q3 revenue of $3.40 billion (down 5% year over year) and earnings of 82 cents per share (up from EPS of 57 cents a year earlier).

After contract talks between Dish and Univision hit a roadblock this summer, Univision channels were pulled from the satcaster and Sling TV on June 30. In a 10-Q filing, Dish reiterated that the removal of Univision programming “may be permanent” and that the loss of the channels resulted in a higher churn rate, higher net pay-TV subscriber losses and lower gross new subscriber activations beginning in the third quarter 2018 and continuing into Q4.

Dish appears to be ready to gird for a drawn-out battle with Univision, and may never bring the Hispanic programmer’s content back to its services.

“[O]ver the long term, we anticipate that we will be able to provide more compelling offers to our subscribers, particularly containing Latino programming because of, among other things, our ability to provide more flexible and lower-cost programming,” the company said in the 10-Q. In addition, it said, some Univision programming is also available through alternative methods including over-the-air antennas and directly from Univision over the internet.

In another programming fight that’s likely to depress Dish pay-TV numbers, HBO on Oct. 31 removed its HBO and Cinemax channels from Dish and Sling TV lineups, the first time the premium cabler has ever gone dark.

“What is a surprise is that Dish continues to fight these battles. It seems as though they have one almost every quarter,” MoffettNathanson analyst Craig Moffett wrote in a note Wednesday. While the rationale for each blackout may make sense individually as Dish tries to hold down costs, “taken collectively, they send a troubling message. What Dish seems to be signaling with all of these blackouts is… that they don’t really want to be in the video business anymore.”

Dish improved its operating income for Q3 2018 by 25% year over year, primarily because of a 41% reduction in subscriber acquisition costs. The company said the decline in SAC was primarily related to fewer gross new Dish TV subscriber activations and a $41 million positive impact related an accounting change it made effective Jan. 1, 2018, that capitalizes payments made under certain sales incentive programs that were previously expensed as “subscriber acquisition costs” (and are now initially recorded on the balance sheet as “Other current assets” and “Other noncurrent assets, net”).

While Dish’s standoffs with Univision and HBO may be exacerbating its customer losses, it’s not the only pay-TV provider suffering the pain of ongoing cord-cutting and cord-shaving. AT&T reported a Q3 net decline of 346,000 traditional DirecTV satellite and Uverse video customers, gaining 49,000 DirecTV Now subs.

In its 10-Q filing, Dish also noted that higher programming costs have caused it to hike rates for subscribers, which continues to add pressure to its pay-TV biz. The company also said that even if subscribers do not actually cancel TV service, they may buy some OTT content (like pay-per-view movies) from other platforms resulting in a revenue loss.

Dish’s average monthly TV subscriber churn rate of 2.11% in Q3 was well above the 1.82% in the third quarter of 2017.

Since its inception in 1996, Dish has basically been a one-trick pony, completely reliant on the subscription-TV product. But it may become a player in next-gen wireless data.

Over the last decade Dish has spent over $11 billion to acquire wireless spectrum licenses and invested billions more in other wireless assets. Dish plans to deploy a 5G-capable network, focused on supporting narrowband internet-of-things applications, with the first phase scheduled to be completed by March 2020. The company expects to spend $500 million-$1 billion through 2020 on the wireless projects, while it projects the second phase of the network deployment will cost upwards of $10 billion.

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