Dish Network (DISH)

Q4 2012 Earnings Call

February 20, 2013 12:00 pm ET

Executives

Jason Kiser - Treasurer

R. Stanton Dodge - Executive Vice President, General Counsel and Secretary

Joseph P. Clayton - Chief Executive Officer, President and Director

Robert E. Olson - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Charles W. Ergen - Co-Founder and Chairman

Thomas A. Cullen - Executive Vice President of Corporate Development

Bob Toevs

Analysts

Philip Cusick - JP Morgan Chase & Co, Research Division

Marci Ryvicker - Wells Fargo Securities, LLC, Research Division

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

Benjamin Swinburne - Morgan Stanley, Research Division

Bryan D. Kraft - Evercore Partners Inc., Research Division

Amy Yong - Macquarie Research

Jaison T. Blair - Telsey Advisory Group LLC

Vijay A. Jayant - ISI Group Inc., Research Division

Tuna N. Amobi - S&P Equity Research

Matthew J. Harrigan - Wunderlich Securities Inc., Research Division

Presentation

Operator

Good afternoon. My name is Tracy, and I will be your conference operator today. At this time, I would like to welcome everyone to the DISH Network Corporation Q4 2012 Earnings Conference Call. [Operator Instructions] Thank you, I will now introduce and turn the call over to Mr. Jason Kiser, VP, Treasurer. You may begin your conference.

Jason Kiser

Thanks, Tracy. Thanks for joining us. My name is Jason Kiser. I'm the Treasurer here at DISH Network. I'm joined today by Charlie Ergen, our Chairman; Joe Clayton, our CEO; Bernie Han, our COO; Robert Olson, our CFO; Paul Orban, our Controller; and Stanton Dodge, our General Counsel. Both Joe and Robert have some prepared remarks that they'd like to go through before we open it up for Q&A. And then following the analyst portion of the call, we're also going to invite the press to ask some questions as well.

But before we do all that, we do need to do our Safe Harbor disclosure. So for that, we'll turn it over to Stanton.

R. Stanton Dodge

Thanks, Jason. We ask that media representatives not identify participants or their firms in your reports. We also do not allow audio taping and ask that you respect that.

All statements we make during this call that are not statements of historical fact constitute forward-looking statements, which involve known and unknown risks, uncertainties and other factors that could cause our actual results to be materially different from historical results from any results expressed or implied by such forward-looking statements. For a list of those factors, please refer to the front of our 10-K. All cautionary statements that we make during this call should be understood as being applicable to any forward-looking statements we make wherever they appear. You should carefully consider the risks described in our reports and should not place undue reliance on any forward-looking statements, which we assume no responsibility for updating.

And with that out of the way, I'll turn it back over to -- or I'll turn it over to Joe.

Joseph P. Clayton

Thanks, Stanton, and good afternoon to those of you on the East Coast and good morning to our West Coast participants. We at DISH continue to invest in a portfolio of assets that will serve as the foundation for our long-term growth. First and foremost on everyone's mind today is our wireless spectrum investment. We were pleased to have some clarity on our S-band spectrum as a result of the FCC's recent rulemaking process, plus Charlie is here to take your questions on wireless a little later.

Next, let me give you all an update on Blockbuster. First, we're shutting down 300 unprofitable domestic stores in the next few months. This will leave us with approximately 500 stores, and we'll continue to evaluate these over the coming months. Going forward, we'll focus on maximizing value from this brand and monetizing the nonstrategic assets.

So at DISH today, it is clear that we embrace change. We embrace technology, and most importantly, we embrace the consumer. We're using innovation to make consumers' viewing experience easier and simpler. That is why unlike many content providers and broadcasters, we're willing to take risk and to make changes to our existing technology and business model. And to win in a sea of sameness, which is the nature of today's pay-TV market, we must distinctively differentiate our products and services. And this is what DISH has been doing over the last year, all with an eye on what the consumer is willing to pay. In order to provide the best value to consumers and to generate a return on our investment, we do not shy away from making difficult decisions, including taking down channels from time to time, which has been necessary to combat the spiraling cost of programming. This was especially true in a year where DISH did not increase programming prices to our customers.

So in 2012, we achieved our goals of growing high-value subscribers, increasing revenue and investing for long-term growth. As reported, we changed our pay-TV subscriber trajectory. DISH turned in significant year-over-year improvement in both activations and churn. In 2011, we lost 166,000 pay-TV subscribers. Last year, we added 89,000 new customers for a year-over-year improvement of 255,000.

Now a large portion of this growth was driven by our award-winning Whole-Home HD DVR, the Hopper. In addition to Hopper, our other 2012 product achievement was dishNET. In October, we launched a new broadband satellite service, which makes available faster speeds, greater capacity and lower cost to more than 15 million underserved American homes. Now after the launch of dishNET, we generated significant broadband growth by adding 44,000 net subscribers in the fourth quarter. We ended the year with 183,000 dishNET customers, both satellite and wireline. These customers are nearly 100% attached to our DISH pay-TV service. Understanding the importance of owning the bundle, we expect these dishNET customers to provide incremental value over the coming year with higher revenue and lower churn.

Okay. So what's new for 2013? At DISH, we know that customers want their video content to be affordable, easy to use and available anywhere. Americans are not making a gradual shift to mobile entertainment, it's a full blown sprint. And as a result of actually hearing consumers, we've developed a host of new features to meet this ever-growing demand for mobility. Our first step was to incorporate the patented Sling technology inside the next-generation Hopper. Now you all may remember that DISH has had this technology since 2007, when our new DISH Anywhere capability is now much easier to use and more cost effective. And with the newly introduced Hopper with Sling, it will be built right into the set-top box. This gives the consumer the ability to access live and recorded content via mobile phones, tablets or PCs. We call this capability DISH Anywhere.

Hopper with Sling was introduced last month with great fanfare at the Consumer Electronics Show in Las Vegas. In fact, it was voted Best of Show, but not without some controversy and intrigue. I guess that's just the price that you pay for standing up for the rights of consumers. At DISH, we are fanatics when it comes to giving customers their video content, what they want, when they want it and where they want it.

And speaking of the consumer, we've also added the ability to watch shows on your mobile device even without an Internet connection. We call this feature Hopper Transfers. For instance, our customers can move their favorite recorded programming to their iPad and watch offline, on a plane, in a train or in an automobile. Now that's the real anywhere experience and only from the Hopper with Sling.

The Hopper has several other consumer-friendly apps, including What's Hot, identifying the nation's most popular shows and the most-watched programs in your own ZIP Code; the Game Finder app, offering quick access to your favorite sporting events and teams; and DISH Explorer, the app that turns your iPad into both a remote control and information resource as a second screen. This is an exploding trend for 85% of the tablet owners, and it's changing the way customers discover and watch content. So DISH is redefining the in-home and out-of-home entertainment experience.

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