DISH Network recently reported its second quarter financials for 2016, showing increased net income and a slight increase in subscriber-related revenue but a decline in overall subscriber totals. Highlights from the second quarter financials include:

• Revenue of $3.84 billion compared to $3.83 billion year-over-year
• Subscriber-related revenue increased to $3.83 billion from $3.80 billion year-over-year*
• Net income was $410 million compared to $324 million year-over-year.
• Diluted earnings per share were $0.88 for Q2, compared to $0.70 for the same period last year

*The difference between overall revenue and subscriber-related revenue of $10.8 million comes from equipment sales and “other revenue.”

The subscriber numbers, which include numbers for DISH-owned Sling TV, were a bit volatile during the second quarter:

• 13.593 million Pay-TV subscribers for Q2 2016 compared to 13.932 million year-over-year
• DISH activated 527,000 gross new Pay-TV subscribers compared to 638,000 year-over-year
• Total subscriber acquisition costs were $353.1 million, including promotion subsidies and advertising expenses.
• Net Pay-TV subscribers dropped by 281,000, compared to 81,000 year-over-year.
• Pay-TV ARPU (average revenue per user) was $89.98, compared to $87.91 year-over-year.
• Subscriber churn rate was 1.96 percent compared to 1.71 percent year-over-year.
• DISH lost 15,000 net broadband subscribers in Q2, bringing its total broadband subscribers to 613,000

The July 21 press release announcing the second quarter financials did not contain any narrative by company executives as to what the numbers mean, but DISH Network’s 10-Q filing with the SEC contained some answers.

“We face intense and increasing competition from satellite television providers, cable companies and telecommunications companies, especially as the pay-TV industry has matured and bundled offers have become more prevalent, which may require us to further increase subscriber acquisition and retention spending or accept lower subscriber activations and higher subscriber churn,” said DISH.

In addition, DISH cited that changing consumer behavior and competition from digital media companies that deliver video content over the Internet are reducing its gross new subscriber activations and may also be causing them to purchase fewer services or cancel services. They also said they face growing competition in terms of unique programming for specific niches like foreign language and sports programming.

“As the pay-TV industry is mature, our strategy has included an increased emphasis on acquiring and retaining higher quality subscribers, even if that means that we will acquire and retain fewer overall subscribers. We evaluate the quality of subscribers based on a number of factors, including, among others, profitability. Our pay-TV subscriber base has been declining due to, among other things, this strategy. There can be no assurance that our pay-TV subscriber base will not continue to decline,” DISH said.

In addition to DISH’s pay-TV and broadband services, DISH offers high functioning DVRs – the Hopper series – that allow subscribers to watch programming on their TVs or through internet-connected tablets, smartphones and computers. DISH also offers bundled packages of broadband and phone services with its DISH branded pay-TV service.

Insider Take:

DISH is feeling the effects of the growing OTT market and the maturing pay-TV market (cable, satellite) where consumers have many more entertainment choices. They are no longer beholden to one cable company or satellite TV provider. Except for needing a broadband connection, cord cutters and cord nevers can essentially cut out cable and satellite altogether. DISH is poised to accept its share of the growing cord-cutting audience with its Sling TV bundle which is one of the more competitive products available now.

While it is the fourth largest pay-TV provider, DISH seems to have accepted its current place in the pay-TV market place, as reflected by its strategy. And while subscriber growth is down, it is making more revenue per subscriber which will help offset the subscriber losses. It will take more than a higher ARPU to help DISH maintain revenue levels though. We are curious to hear what plans DISH has in the works to maintain its position in the pay-TV and OTT industries.