Dish Rises on DirecTV Merger Talk as Customer Growth Stalls
Dish Network Corp. (DISH) gained after Chairman Charlie Ergen said the second-largest U.S. satellite TV company and its larger rival DirecTV should consider a merger to address a slowing pay-TV market.
Both companies “have to consider” a combination given the lack of growth remaining in the U.S. video business, Ergen, the world’s 87th wealthiest man and Dish’s founder, said during a conference call today. No deal discussions have taken place, he said.
“I think it’s something that probably both companies will look at,” Ergen said.
The second-largest U.S. satellite-TV provider reported a loss of 19,000 net subscribers in the third quarter, a smaller decline than the average analyst estimate of 36,000. DirecTV posted fewer subscriber gains in the U.S. and Latin America than analysts projected.
Darris Gringeri, a DirecTV spokesman, declined to comment on Ergen’s remarks. Both Ergen and DirecTV Chief Executive Officer Mike White have said a combination would benefit consumers by giving more power to a joint entity to push down programming costs on content providers.
DirecTV added 67,000 net U.S. customers, less than the 99,000 average analyst estimate. The company has sought to entice subscribers with National Football League Sunday Ticket promotions, which give new customers access to all Sunday football games for free for a year. DirecTV also lowered the price for Sunday Ticket for current customers. The promotions have led to a 50 percent increase in paying customers for the package, White said during a conference call.
Net income attributable to DirecTV rose to $565 million, or 90 cents a share, from $516 million, or 70 cents, a year earlier, the El Segundo, California-based company said. Analysts had estimated 92 cents on average, according to data compiled by Bloomberg. Sales rose 8.4 percent to $7.4 billion, in line with the average analyst estimate.
DirecTV added 543,000 net subscribers in Latin America, fewer than the 585,000 estimate from nine analysts surveyed by Bloomberg. The results were “underwhelming,” said Marci Ryvicker, an analyst at Wells Fargo & Co. in New York.
Latin American customer additions fell from 645,000 in the quarter ended in June. Last year, DirecTV reported 574,000 new Latin American users in the third quarter, an increase from the prior three-month period.
Dish reported a surprise net loss of $158.5 million, compared with a profit of $319.1 million a year earlier. Analysts had predicted a profit of $251 million, the average estimate compiled by Bloomberg.
Dish recorded litigation-related expenses of $730 million in the period, the cost of settling with AMC Networks Inc. (AMCX) and Cablevision Systems Corp. (CVC) over Voom, the suite of high- definition television channels that Dish terminated more than four years ago. AMC and Cablevision sought $2.4 billion in damages before settling. The settlement was announced Oct. 21, in the fourth quarter, even though the charges were assigned to third-quarter earnings.
Sales fell 2.2 percent to $3.52 billion, trailing the $3.56 billion average analyst estimate.
Dish is awaiting Federal Communications Commission approval to use its airwaves to transmit mobile video and data. The Englewood, Colorado-based company has said it’s searching for a partner that already has a wireless network, letting it avoid spending billions on building a new one. Dish said it still plans on hearing from the FCC by the end of the year.
Approval of a merger between DirecTV and Dish would become more probable if Dish is given approval to enter the wireless business, letting it compete against a broader array of companies, said Craig Moffett, an analyst at Sanford C. Bernstein & Co. in New York. Ergen said a transaction would be approved by either a Republican or Democratic administration if “it was good for the American public.” The U.S. presidential election takes place today between President Barack Obama and Republican Mitt Romney.
Dish and DirecTV attempted to combine in 2002. The deal was blocked by regulators after it was deemed anti-competitive.
“The industry has changed since the last time Dish pursued that kind of a transaction,” with phone companies offering television service and more video options online, White said in a September conference call.
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