As DISH Network Corp. continued to shed pay TV subscribers in the second quarter, company executives explained why they are very optimistic about the opportunities presented by its over-the-top Sling TV offering.
"The advertising side of it is an important element. Because what OTT does is it enables a new form of advertising, which is entirely targeted," Sling TV CEO Roger Lynch said during an Aug. 3 earnings conference call.
Lynch noted that enabling targeted advertising had not been an easy technological feat.
"It took longer than expected. But we think we have it cracked now," he said, noting the company is continuing to expand the number of networks on which it has enabled dynamic ad insertion. Those ads, he said, are selling for "strong" rates.
Source: Sling TV LLC
DISH CEO and Executive Chairman Charlie Ergen said advertising will represent a bigger portion of the revenue in Sling's profit margins than it does in linear TV.
The other advantage to Sling, according to Ergen, is that the subscriber acquisition costs are significantly lower as compared to the costs for acquiring a satellite customer.
"When you're spending $800 SAC to get linear TV customers, that was pretty easy to do back in the day when the customer life cycle was going to be 7 or 8 or 9 [or] 10 years, and the customer's only choice was to go to an inferior cable product," Ergen said.
Now, though, Ergen said customers have "about 10 different options," including an improved cable product, a telco TV product and half a dozen OTT options. With all of those options, "the odds on that customer lasting 7 or 8 or 9 or 10 years is probably not good," he said, meaning that it no longer makes financial sense to spend $800 on subscriber acquisition costs.
For the second quarter, DISH reported net income attributable to the company of $40.0 million, or 9 cents per share, down from net income of $424.0 million, or 91 cents per share, in the year-ago period. The company said its net income for the second quarter was negatively impacted by $280 million in litigation expenses, net of related taxes.
The second-quarter S&P Capital IQ consensus EPS estimate was 72 cents on a GAAP and normalized basis.
Revenue for the most recent quarter was $3.64 billion, down 5.7% year over year from $3.86 billion. Net pay TV subscribers declined approximately 196,000 in the second quarter, compared to a decline of approximately 281,000 in the second quarter 2016.
All in all, the company closed the second quarter with 13.3 million pay TV subscribers, compared to 13.6 million pay TV subscribers at the end of second quarter 2016.