The company blamed the subscriber losses on more intense competition and a weak economy. The company’s main competitor, DirecTV (NASDAQ: DTV) offered subscribers free access to all NFL games, an offer that led to subscriber growth of 327,000 in the third quarter. Dish has no comparable deal with the NFL. The weak economy also hits Dish’s generally lower-income subscribers harder, causing them to cancel subscriptions more quickly when pennies need to be pinched. The company’s churn rate fell, from 1.98% a year ago to 1.83% in the third quarter, but the competitive punch from DirecTV and the “quality of subscribers acquired in past quarters” remain significant threats to subscriber retention.

Dish is also trying to position itself in the streaming market, where Verizon Communications Inc. (NYSE: VZ), AT&T (NYSE: T) are also competing for customers of their high-value broadband services. Then there are Netflix Inc. (NASDAQ: NFLX) and Amazon.com (NASDAQ: AMZN) which also offer subscription packages for streaming video.

Dish is still trying to finalize its acquisitions of DBSD North America and TerreStar, which the company plans to use to integrate wireless and wireline services in a single offering. FCC approval is pending for both acquisitions, but even if it comes, there are still a lot of questions about whether or not Dish can make the offering work.

The company is also working to integrate its acquisition of Blockbuster. The introduction of its ‘Blockbuster Movie Pass’ during the quarter didn’t exactly bring a rush of new subscribers. Current subscribers have to pay $10/month, more than either Netflix or Amazon charges for streaming content. Dish is hedging its plan to keep the 1,500 bricks-and-mortar stores it acquired with the Blockbuster purchase, saying it has negotiated “flexible termination” leases on 900 of the stores in the event that revenue growth doesn’t materialize as planned.

Dish reported diluted EPS of $0.71 on revenue of $3.6 billion. The consensus estimates called for EPS of $0.73 on revenue of $3.63 billion. Subscriber losses were forecast at 81,000, considerably below the actual loss of 111,000. To soften the blow, the company announced that it would pay a one-time dividend of $2/share

EchoStar Corp. (NASDAQ: SATS), the satellite spin-off from Dish, also reported third-quarter earnings today. The company posted revenue of $863 million and an EPS loss of -$0.22. Analysts were expecting revenue of $755 million and EPS of $0.38. Because Dish buys its set-top boxes from EchoStar, and because Dish had fewer gross additions, EchoStar felt the pain.

Dish carries a market cap of around $10.5 billion, about a third of DirecTV’s and a sixth of Comcast Corp.’s (NASDAQ: CMCSA) and a tenth of Verizon’s. What Dish is trying to integrate — wireless spectrum, wireline broadband, video rental stores, video streaming, satellite subscriptions — could be a huge success or not. If the company appears to be making it happen, a buyout by a telecom compay — say, Verizon — could make a lot of sense. We’ll know the integration is not working, if Dish ends up selling its spectrum licenses. Those are the key to its grand plan.

Dish is trading down more than -3% in the pre-market this morning, at $22.70, in a 52-week range of $17.95-$32.56.

Paul Ausick

Cephalon, Inc. (NASDAQ: CEPH) is up 5.5% premarket to $81.20, relative to a 52-week range of $54.15-$77.59. Teva Pharmaceuticals (NASDAQ: TEVA) agreed to purchase the company yesterday for nearly $7 billion. Teva is up 3.2% premarket to $47.30, relative to a 52-week range of $44.86-$60.78.

Spectrum Pharmaceuticals, Inc. (NASDAQ: SPPI) is up 7.8% premarket to $9.70, relative to a 52-week range of $3.67-$10.63. The FDA recently approved the company’s Fusilev drug.

Tivo, Inc. (NASDAQ: TIVO) is up 16.5% premarket to $11.15, relative to a 52-week range of $6.92-$18.44. The company received a $500 million settlement in a lawsuit from Echostar (NASDAQ: SATS) and Dish Network (NASDAQ: DISH)

Streaming versus mail… In 2010, Netflix passed a significant milestone with the majority of its subscribers viewing more of their TV shows and movies via streaming than by DVD.

Competition… Netflix considers just about everyone short of movie theaters and radio stations as competition.  In cable: Time Warner Cable (NYSE: TWC) and Comcast Corporation (NASDAQ: CMCSA); in direct broadcast satellite providers: DIRECTV (NASDAQ: DTV) and Echostar Corporation (NASDAQ: SATS) in telecommunication IPTV providers: AT&T Inc. (NYSE: T) and Verizon Communications Inc. (NYSE: VZ); Internet movie and TV content providers: Apple Inc. (NASDAQ: AAPL) for iTunes, Amazon.com Inc. (NASDAQ: AMZN), Hulu.com and Google Inc. (NASDAQ: GOOG) for YouTube; DVD rental outlets and kiosks: Blockbuster and Coinstar Inc. (NASDAQ: CSTR) for Redbox; and retailers such as Best Buy Co. Inc. (NYSE: BBY), Wal-Mart Stores Inc. (NYSE: WMT), and Amazon.com Inc. (NASDAQ: AMZN). What is interesting is that while Amazon.com shows up twice in ‘competition’ is that Netflix also utilizes the services of third-party cloud computing providers from Amazon Web Services and others.

The calendar… Many might not consider this to be the case, but there is seasonality to the business.  The higher growth quarters are Q4 and Q1 from October to March.

This acquisition really does nothing to jeopardize, or for that matter enhance, a long-rumored deal between AT&T (NYSE: T) and Dish, made headlines again last week when Credit Suisse suggested that AT&T may be ready to make an offer for Dish. For its part, Dish has agreed to purchase satellite communications provider DBSD North America Inc., which is currently in bankruptcy, for about $1 billion. If the deal goes through, Dish would add wireless spectrum, something AT&T would be more than happy to have.

The catch, of course, is whether or not regulators would allow AT&T to acquire either Dish or competitor DirecTV (NASDAQ: DTV). And as soon as AT&T announces a deal, Verizon Communications Inc. (NYSE: VZ) would be in line to acquire the other. President Obama has outlined a plan to expand wireless broadband access to residents of the rural US and to create a nationwide mobile emergency network. The more spectrum that AT&T and Verizon have available, the better their chances of getting a piece of the action.

The terrestrial cable broadband providers, Time Warner Cable Inc. (NYSE: TWC), Comcast Corp. (NASDAQ: CMCSA), and Cablevision Systems Corp.(NYSE: CVC), are certain to object to any expansion or consolidation from the large wireless carriers. It’s unlikely that they will want to compete for wireless spectrum, but they could certainly raise objections that would slow down and perhaps persuade regulators to stifle consolidation in wireless broadband.

Dish may not be able to complete the buyout of DBSD as cheaply as the company had hoped because a bankruptcy judge has ruled that DBSD must entertain other bids that have been reported to be in the works.

The deal with Hughes doesn’t add a lot of value to Dish from AT&T’s point of view. EchoStar’s role with Dish expands, but doesn’t break into a new space. Dish’s deal with DBSD is more important, but could still fall through. Even if it does, though, it’s not enough to be a deal-breaker for AT&T.

Shares of Hughes are trading off about -3.75% this morning, under $60/share, while EchoStar shares are up about 1%.

Paul Ausick

TiVo reported a loss and guided for another loss ahead.  Its quarterly loss was $20.6 million, or -$0.18 EPS, and and revenue fell to $50.9 million versus $57.1 million a year ago.  Thomson Reuters had estimates at -$0.17 EPS.  The company now sees a loss of $32 million to $34 million in the coming quarter.  TiVo is still shrinking.  Its service revenues fell 9% to $34.3 million, technology revenue fell almost 25% to about $7 million, and hardware revenue fell about 5% to $9.5 million

The company lost about 112,000 customers in the quarter to end with about 2.3 million subscribers.  A year ago it had lost 314,000 subscribers and had  2.7 million subscribers.  The good news is that the customer defections are slowing. The churn rate rose to 2% from 1.7% a year earlier.  The bad news is that it still is on par with the same rate of decline as you saw in the statistics on smokers back in the 1990′s.   The customer acquisition cost was up to $6.2 million versus $5.6 million a year ago, and TiVo’s average revenue per user fell to $7.59 from $7.65 a year earlier.

Not all is bad at TiVo and there are some opportunities here.  First is a move into Europe that can rekindle subscriber growth.  The second, and more important issue, is the patent war it has with EchoStar Corporation (NASDAQ: SATS) and Dish Network Corporation (NASDAQ: DISH) though its potential impact is hard to quantify.

TiVo shares are down 2% at $8.63 at 10:18 AM but shares had traded under $8.30 earlier this morning.  Its 52-week range is $6.92 to $18.93.  Maybe TiVo watchers can find the George Costanza scene from the “Shrinkage” episode on their TiVo devices.  Even if not, TiVo shareholders are getting their own version of shrinkage this morning.

JON C. OGG

EchoStar Corp. (NASDAQ: SATS) Raised to Buy at Citigroup.
First Solar, Inc. (NASDAQ: FSLR) Cut to Neutral at Macquarie.
Las Vegas Sands Corp. (NYSE: LVS) Raised to Buy at Citigroup.
Molycorp, Inc. (NYSE: MCP) Cut to Neutral at JPMorgan.
Monster Worldwide, Inc. (NYSE: MWW) Raised to Buy at Citigroup.
NII Holdings Inc. (NASDAQ: NIHD) Raised to Overweight at Morgan Stanley.
NuVasive Inc. (NASDAQ: NUVA) Downgraded at BMO, Needham, JPMorgan, and Stifel Nicolaus.
Starwood Hotels & Resorts Worldwide (NYSE: HOT) Cut to Underperform at Baird.
VIVUS Inc. (NASDAQ: VVUS) Raised to Overweight at JPMorgan.

You can join our free daily email distribution list to hear more about dividend trends, analyst upgrades and downgrades, top day trader and active trader alerts, news on Buffett and other investment gurus, IPOs, secondary offerings, private equity, and more.

JON C. OGG

The United States District Court, Eastern District of Texas ordered contempt sanctions against the satellite TV firms.

Tivo said “We are pleased by the Court’s ruling to impose contempt sanctions of approximately $200 million against EchoStar for its continued violation of a court-ordered permanent injunction, and to award TiVo its attorney fees and costs incurred during the contempt proceedings. This brings total damages and sanctions in this case to approximately $400 million through July 1, 2009, plus attorney fees, and is exclusive of potential further damages and sanctions.”

The matter is not over. Echostar and Dish will continue the appeal process, which could go on for years.

According to MarketWatch, In April 2005, a Texas jury found in favor of TiVo, and a judge subsequently issued a permanent injunction against EchoStar, ordering it to pay $94 million in damages, to stop selling its DVRs and to turn off about 4 million of the devices.

In August 2006, after EchoStar filed an appeal, a federal appeals court in Washington stayed the permanent injunction.

In January 2008, after another EchoStar appeal, the U.S. Court of Appeals for the Federal Circuit unanimously ruled that TiVo be awarded full damages, and that the injunction ordering EchoStar to stop deploying its DVRs be reinstated.

But EchoStar continued to deploy its DVRs, claiming that it had made an adjustment to its software that didn’t infringe on TiVo’s patents. TiVo subsequently asked that EchoStar be held in contempt of the injunction.

In June 2009, after a hearing, the U.S. District Court for the Eastern District of Texas again found in TiVo’s favor, ruling that EchoStar’s software “workaround” still infringed on TiVo’s patents. That court also found EchoStar to be in contempt of court and ordered that the injunction it first issued four years ago be fully enforced.

Douglas A. McIntyre

Amgen (AMGN) Started as Buy at RBC.
Brightpoint (CELL) Raised to Buy at Citigroup.
Echelon (ELON) Raised to Neutral at Piper Jaffray.
Echostar Holdings (SATS) Raised to Buy at Citigroup.
Kroger (KR) Started as Buy at Deutsche Bank.
QLogic (QLGC) Raised to Outperform at RBC.
MBIA Inc. (MBI) Cut to Underweight at JPMorgan.
PETsMART (PETM) Cut to Neutral at JPMorgan.
Sprint Nextel (S) Cut to Underweight at Piper Jaffray.
YUM! Brands (YUM) Cut to Neutral at UBS.

JON C. OGG
AUGUST 11, 2009

Reuters:   The Justice Department is probing big tech employee recruiting.

Reuters:   Medical bills underlay 60% of American bankruptcies.

Reuters:   The US will offer its new financial regulatory plan on June 17.

Reuters:   Chinalco may revise its Rio Tinto (RTP) bid.

Reuters:   United (UAUA) is asking Boeing (BA) and Airbus to provide 150 new plans.

Reuters:   Wal-Mart (WMT) will add 22,000 employees at US stores.

Reuters:   Morgan Stanley (MS) may be among the first to exit the TARP.

Reuters:   Touchscreen PCs may be more hype than reality.

Reuters:   Creeping rates, volatility, and risk could derail the financial recovery.

WSJ:   Bernanke warned that the deficit must be reduced.

WSJ:   Banks are trying to escape off-balance-sheet accounting rules that could make them raise more money.

WSJ:   Executives often sell shares in their companies right before their prices go down.

WSJ:   Homebuilders see signs of stabilization.

WSJ:   Merck (MRK) plans to sell its animal health assets.

WSJ:   Electronics companies are now selling screens that are thinner than those released just a few years ago.

WSJ:   Icahn claimed board seats in his fight with Biogen.

WSJ:   Data Domain (DDUP) took at $1.9 billion order from NetApp (NTAP) over one from EMC (EMC).

WSJ:   Dish Network (SATS) won a stay of a court victory by Tivo (TIVO).

WSJ:   GM may become profitable but only because of billions of dollars in upfront investment by taxpayers.

WSJ:   Temasek lost big on its investment in Barclays (BCS).

WSJ:   The market is wondering if Pepsi (PEP) will stand by its original offer for its bottlers.

WSJ:   Southwest (LUV) pilots rejected a new contract.

WSJ:   News Corp (NWS) appointed a new president.

WSJ:   Adobe (ADBE) is trying to crack the handset market.

NYT:   Taiwan tech firms are seeking to expand into global markets.

NYT:   More and more Americans cannot afford prescription medicines.

NYT:   Rising interest rates on world debt could hurt growth across the globe.

NYT:   Regulators will announced their plans for derivatives.

NYT:   Investors in developing markets see optimism.

NYT:   In its restructuring, GM will try to learn from its successful global operations.

NYT:   Selling troubled mortgage assets would force banks to take large write downs.

NYT:   Manchester United will replace AIG (AIG) as its sponsor.

FT:   Clear Channel investors may force a debt restructuring on the company.

FT:   AIG (AIG) may break up its aircraft leasing company.

Bloomberg:   GM’s bonds indicate investors think its market value will eventually be greater than Ford’s (F).

Bloomberg:   The International Air Transport Association says global airline losses will be worse than expected.

Douglas A. McIntyre

Tivo’s business suffered when the DVR function was adopted by cable and satellite-TV set-top boxes, and the originator of the technology languished, as is so often the case.

Tivo got a measure of revenge by enforcing patents on its devices and the company began to collect licensing fees from the large firms that used knock-offs of its boxes. EchoStar (SATS), the satellite TV firm, tried to create a “work around” to the Tivo technology as a way to save licensing costs. The plan did not work.

Today, a court found that EchoStar was still improperly using Tivo’s technology and awarded the company $103 million. That is not much money for the firm that created the DVR and got trampled in the land rush to market it to consumers. But, Tivo’s shares were up 38% after hours to $9.65.

Douglas A. McIntyre