Dish Network Stumbles (DISH, DTV, VZ, T, NFLX, AMZN, SATS, CMCSA)

Dish Network Corp. (NASDAQ: DISH) came close to meeting consensus estimates on earnings and revenues, and in this case, close may be good enough. The company lost 111,000 subscribers in the third quarter, compared with a loss of just 29,000 in the same period a year ago. Dish added 656,000 gross new subscribers during the quarter, compared with 819,000 a year ago.

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