Dish adds 30K pay TV subscribers, as Sling TV gains and satellite TV loses

Dish Network in the third quarter counted net pay TV subscriber gains of 30,000, as additions for virtual MVPD Sling TV countered losses within its satellite TV base.

The additions compare to net losses of around 13,000 pay TV customers in Q3 of 2021. It beat Wall street expectations for net losses of 134,000. It’s also a much better showing than the 257,000 net losses across traditional satellite and Sling TV in Q2 2022. That said, it wasn’t exactly a rosy quarter for the pay TV provider and nascent wireless entrant.

As of the end of September the company has 7.61 million Dish TV subscribers (losing roughly 183,000 in Q3, with a base declining from the 7.79 million it ended Q2 with).  Analysts at MoffettNathnson noted the satellite losses were spot on Wall Street consensus estimates, and weaker than the 130,000 Dish lost a year ago.  

“The loss leaves Dish’s traditional subscriber base shrinking at an 9.7% annual rate,” marking continued acceleration from last quarter and a year prior, wrote analyst Craig Moffett in a note to investors.

Moffett also said it’s getting harder for Dish to keep even its rural subscribers, which the company started targeting more heavily, as churn grew to 1.53% in Q3.

“The benefits of Dish’s rural retreat strategy have seemingly run their course,” wrote Moffett. “Fiber and fixed wireless broadband are rapidly expanding in rural market. Cord cutting is coming to the heartland.”

For virtual MVPD Sling TV, it appeared to be a good quarter, ending with a base of 2.41 million, up from the 2.19 million at the end of Q2. Sling TV added around 214,000 net subscribers in the period, according to Moffett. The additions mark a change from the previous three quarters which all saw consecutive subscriber losses. Still, Dish’s Sling subscriber base is smaller than the 2.6 million it had in Q3 of 2021.

Dish’s pay TV business generated around $3.07 billion in Q3, a decline from the $3.22 billion it recorded in Q3 of 2021. Pay TV operating income also declined year-over-year to $647 million.

Net income was down to $412 million for Q3, versus $557 million in the same period last year.

MoffettNathanson said that while Sling had surprisingly strong subscriber growth, and larger-than-expected ARPU increases for the satellite TV business (blended pay TV ARPU rose 6%) “margins in the Satellite TV and in Retail Wireless were very weak, and overall EBTIDA results were therefore very poor.”

Consolidated adjusted EBITDA dropped 32.8% year over year, missing expectations by 19.2%, according to the firm.

Dish is also in the middle of working to build and generate funds for a 5G network to compete as a new wireless entrant.

To MoffettNathanson, the firm believes obvious question continues to be “the extent to which the satellite TV segment can support Dish’s 5G wireless network business, either financially or through cross marketing opportunities.”

Dish, DirecTV merger still on the table

As Dish’s debt has risen, and satellite TV EBTIDA receded, MoffettNathanson analysts said the company’s leverage ratio has risen sharply.

In a side note, the firm pointed out this could create further problems for a potential merger between DirecTV and Dish – a tie-up between satellite TV providers that Dish Chairman Charlie Ergen has previously said he thinks is inevitable.

In Moffett’s note to investors he wrote that “it is likely that there is no equity value whatsoever ascribable to Dish’s satellite TV segment. This further creates a dilemma for actually reaching a deal with DirecTV, should one be attempted, as in any scenario based on a valuation below 6.0x EBTIDA, Dish would actually have to pay DirecTV in order to take on the business and its associated debt.”

Still, Dish does appear to be in favor of a deal with DirecTV.

On the company’s third quarter earnings call Wednesday, Ergen reiterated his stance, saying “I’ve always said I thought it was inevitable, I haven’t changed my opinion on that,” while noting he couldn't speak for the other parties invovled. 

In terms of the political environment and allowing a deal to go through, he noted that companies are hesitant to be a “’political football” for someone to complain about, but that the election cycle will be over next week. That means a deal wouldn’t be in the political arena, from an election standpoint, for another 15 months or so, he added.

“If the timing was right, it would be in the near-term, not the longer term,” Ergen commented. He also said Dish still believes there are material synergies from a deal – though acknowledging not what they were 5 or 2 years ago – but declined to go into specific details as to what those are.

“And certainly in a declining industry, taking advantage of synergies is a rational strategy,” he continued. Ergen also thinks that on the political side, any legal objections to a merger have been diminished by time and the decline of the linear pay TV business alongside competition from dozens of OTT providers and the proliferation of broadband.

Still, Moffett indicated Dish’s gross subscriber satellite figures, which were 170,000 in Q3 and down 24.1% from a year ago, don’t bode well for merger synergies – saying gross additions “more than any other metric, underpin synergy prospects of a potential merger with DirecTV.”

A merger wouldn’t enable the companies to merge satellite fleets or change net add totals for satellite TV as a category, according to the firm.

“It would, however, reduce the activity levels required to achieve those net adds, by cutting churn and gross additions roughly in half,” Moffett wrote. “Unfortunately, with gross additions this low, there isn’t much synergy opportunity left here.”