No wonder Charlie Ergen was so eager to win control of Sirius XM Radio (SIRI). An alliance with Sirius might have gone a long way toward easing the pressure on his company, Dish Network (DISH), which was brought into sharp focus by results released Mar. 2. The satellite TV provider lost 102,000 subscribers in the fourth quarter, even as larger rival DirecTV (DTV) added 301,000 customers, its best showing in three years.
Ergen, who had bought up more than $199 million in Sirius debt in hopes of forcing the struggling satellite radio operator into a merger, now seems to be on the outside looking in. Sirius has since partnered with John Malone's Liberty Media (LMDIA), accepting a bankruptcy-averting capital infusion of as much as $530 million.
Dish Network attributed the decline to economic malaise and the related "downturn in the housing market." The company also acknowledged that it was losing the war against phone companies that are selling TV services delivered over fiber-optic networks.
Dish also acknowledged its own role in the customer losses, saying some departed amid frustration with the quality of service. "We have not always met our standards for performing high-quality installations, effectively resolving customers' issues when they arise, answering customers' calls in an acceptable time frame," the company said in a statement. As a result, Dish lost 1.86% of its customer base each month, a rate that is 9% higher than a year ago and 20% higher than DirecTV's 1.47%.
To offset its drop in subscribers, Dish Network introduced a $9.99-a-month offer for up to six months and says it has continued to make what it called "material investments in staffing, training, and information systems." Even though it reported a 24% increase in fourth-quarter earnings, Dish Network investors fretted over the company's prospects. Its stock fell 1.32, or 11.7%, to 9.93.
Sirius XM might have given Ergen a new platform to help revive growth of his satellite operations. Liberty, the majority owner of DirecTV, has recently said it intends to bundle new offers for satellite radio to many of its 17.6 million subscribers. Ergen, whose Dish Network serves nearly 13.7 million subscribers, clearly needs the boost. Among other challenges, Dish Network no longer has the power to bundle its offerings with those of major telecom operator AT&T (T), which is ending its longtime relationship with Dish to move over to DirecTV. According to Dish, by offering satellite TV services as well as its phone or data services, AT&T accounted for 17% of its new subscribers last year.
Where does all this leave Ergen? The hard-charging CEO acknowledged in a conference call that "in 2008, the goal was to stop getting worse," but "it was disappointing that operationally, we made the product too complex." The good news, he says, is that the company has a relatively strong balance sheet; it has no major debt coming due until 2011, and so it has no need to tap uncertain credit markets. He promised that "in 2009, we are prepared to go forward by getting better." Dish Network will just have to do that without help from Sirius XM.