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DISH execs tout 2017 Sling growth, talk impact of Disney/Fox deal

DISH Network Corp. likes the growth it is seeing in its Sling TV business even as its overall number of video customers continues to drop.

For the first time in Sling's history, DISH on Feb. 21 separately disclosed its DISH TV and Sling TV subscribers within the total population of the company's pay TV subscribers. The company ended 2017 with 13.2 million pay TV subscribers, including 11.0 million DISH TV subscribers and 2.2 million Sling TV subscribers. Although net pay TV subscribers technically increased by about 39,000 in the fourth quarter of 2017, that figure includes 75,000 reactivations in Puerto Rico and the U.S. Virgin Islands following the devastation of Hurricane Maria. Excluding these reactivations, DISH saw a net decline in video customers.

Speaking during a Feb. 21 earnings conference call, Erik Carlson, who was named DISH CEO and president in December 2017, said there is no question that DISH's legacy satellite TV service is "a maturing business," adding, "We don't have the growth dynamics that we had in early years." Nevertheless, Carlson said DISH still sees opportunity for the legacy business.

"We spent really the last two and a half years improving our subscriber mix really by focusing in on acquiring or retaining long-term profitable customers, despite the tough competition with both cord cutting and aggressive bundled offers," he said, adding that because of these "higher quality" new customers, voluntary churn is now down. DISH TV's average monthly subscriber churn for 2017 was 1.78%, compared to 1.97% in 2016.

"DISH TV is really the engine that's funding our future," Carlson said.

SNL Image
Sling TV
Source: DISH Network Corp.

As for Sling, the CEO said the service saw 47% year-over-year subscriber growth in 2017 and has continued to see steady improvements in the stability of the platform. "This has translated into more engaged subscribers watching 27% more Sling per day," he said.

On the downside, the higher mix of Sling TV customers as well as DISH TV cord shaving led to pressure on overall average revenue per user. Pay TV ARPU was $86.43 during 2017 versus $88.66 in 2016. But Carlson said increased DVR penetration and pay-per-view events are helping boost ARPU in a positive direction.

All in all, Carlson said DISH is keenly focused on "margin expansion in areas that we're better able to control," especially as programming costs continue to rise. "For instance, Sling TV ad sales had increased tenfold year-over-year due to really pushing technology forward. And that leads to higher CPMs that really reflect the more targeted nature of the Sling TV service," he said.

An analyst, though, noted that as the pay TV space consolidates, especially as Walt Disney Co. seeks to buy an array of 21st Century Fox Inc.'s media assets — including Fox's movie and TV studios, its 22 regional sports networks, the FX Networks and National Geographic Partners and a controlling interest in streaming service Hulu LLC — "DISH has been able to keep the cost of programming down by kind of separating Disney and FOX content, so it's not in all of your packages. Do you think that's going to be sustainable?" the analyst asked.

A DISH executive said "we obviously have concerns" with the Disney/Fox deal as well as AT&T Inc.'s pending purchase of Time Warner Inc. But the executive also said the company is "as well positioned as anybody" to adapt to the changing media environment.

"I think that we're part of the first guys in the industry to take a real hard look at the profitability of customers and adjust accordingly," the executive said.

For the fourth quarter of 2017, DISH reported net income attributable to the company of $1.39 billion, or $2.64 per share, up from net income of $355.0 million, or 73 cents per share. The increase was due in part to an income tax benefit of about $1.2 billion due to an adjustment to deferred tax assets and liabilities related to tax reform legislation, while the company was also negatively impacted by a $112 million impairment of long-lived assets.

The S&P Capital IQ consensus estimate for the quarter was 54 cents on a GAAP basis and 55 cents on a normalized basis.

Revenue for the quarter ended Dec. 31, 2017, was $3.48 billion, down 7.2% year over year from $3.75 billion.

For the full year 2017, DISH reported total revenue of $14.39 billion, compared to $15.21 billion in 2016. Net income attributable to DISH in 2017 was $2.10 billion, or $4.07 per share, compared to $1.50 billion, or $3.15 per share, in 2016. The S&P Capital IQ consensus estimate for the year was $1.98 on a GAAP basis and $2.45 on a normalized basis.