“Viacom has been a long term partner” and Dish is “a pretty loyal company,” Ergen said in a conference call to discuss his company’s earnings. “It would take a lot for us to not do a deal, but those things happen.”
And he noted that “the world has changed somewhat” since the companies negotiated their last carriage contract. “We know what our consumer base watches. We know there are alternatives to their product that weren’t there five years ago” — including streaming services that offer popular shows from Viacom channels such as Nickelodeon, MTV, VH1 and Comedy Central.
Credit Suisse’s Omar Sheikh said late last month that Dish probably will renew. But “there could be up to 40% downside to the [Viacom] stock if we are wrong.” Some small cable operators, including Suddenlink and Cable One, have dropped Viacom channels and said it ended up improving their profit margins, even though they lost some subscribers.
Price will be the key issue: The analyst estimates that Dish pays Viacom about $3.00 per subscriber per month, and would have to come up to at least $3.20 to avoid having to reduce the price for Comcast, which has a Most Favored Nation clause guaranteeing it the lowest price available.
In response to other questions, Ergen said that he’s more focused on profits than on boosting his subscriber numbers.
For example, he says, the value of introductory discounts is diminishing because consumers probably will find several new, and more attractive, alternatives — including from digital streaming services — at the end of a one or two year contract.
“The life cycle of a customer in linear (pay TV) today is less than it was four or five years ago,” Ergen says. What’s more, a deep discount that hides equipment and other costs is “not an honest way to deal with consumers.”
Cable and satellite companies also have to consider what to do with customers who frequently call looking for discounts or have other needs that run up expenses.
“It’s smart business that over time we wean those customers off of our service. …I’d rather have 13 million customers who are profitable instead of 13 million who are profitable and 1 million who are unprofitable.”
Dish has responded by becoming “more conservative on the type of consumers we want” including limiting the number who generate less than $50 of revenue a month, and who have low credit scores. He says that will hurt Dish’s tally of linear TV subscribers which he describes as “a mature to declining business.”
The No. 2 satellite company hopes to compensate for that with sales of Sling TV, its $20 a month streaming service.
Analysts who prodded for insights into Sling’s business mostly came away empty handed.
Sling CEO Roger Lynch wouldn’t say when the service might offer a version that offers programming to more than one device at a time. He said that add-on packages of channels, which cost an additional $5 or so, are “quite popular.”
Ergen added that “we’re far enough along to know that for particular customers, including millennials, it’s a pretty attractive product for them. We’re bringing our partners incremental subscribers that they can’t get any other way.”
Dish today said that its satellite service and Sling together had 13.91 million subscribers at the end of September, down nearly 1% vs the same time last year.
The company reported net income of $196 million, up 34.3%, on revenues of $3.73 billion, up 1.4%. Analysts expected the top line to hit $3.79 billion. But earnings at 42 cents a share beat forecasts for 39 cents.
Dish shares are down 1.7% in mid-day trading.