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Dish Network (DISH)
Dish Network Profit Drops 81%
Dish Network Corporation (DISH: Charts, News, Offers) announced today that its quarterly profit dropped 81%. The second-largest satellite-television provider in the United States watched its net income fall to $63.4 million from $335.9 million a year ago. Dish posted a positive gain in subscribers for the first time in five quarters, yet its profit still took a major hit. The satellite TV provider's revenue was fairly consistent with previous quarters at $2.9 billion. So if Dish's subscribers increased and sales remained relatively constant, what exactly caused Dish Network's profit to fall so much?
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A major catalyst behind Dish's shrinking profit has been its ongoing legal battle with TiVo Inc. Dish Network is currently in a courtroom slugfest over patent violations with TiVo's digital recording technology. Dish has sunk a total of $196.4 million into its fight against TiVo Incorporated. These heavy legal expenses have been detrimental to Dish's bottom line numbers. If Dish Network is found guilty, it could be facing up to $1 billion in penalty infractions. Unfortunately, the bleeding does not stop there for the satellite TV provider.
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Dish Network is also seeing increased competition from its rival DirecTV and other cable providers like Verizon Communications. In an attempt to maintain market share, Dish Network amplified its advertising budget by 65%. However, the budget bump up only generated 26,000 new users during the quarter. Dish Network's lead generation is way off the pace from other industry leaders. DirecTV gained 224,000 subscribers while Verizon netted an additional 300,000 subscribers. In addition, Dish just lost its AT&T advertising sponsorship to DirecTV, which has also hurt performance. The combination of heavy legal expenses and increased advertising spending has been devastating to Dish's quarterly performance.
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Dish Network has managed to remain profitable, but just at a significantly lower level. Dish has been hit hard by its ongoing legal struggle with TiVo Inc. It continues to pour millions and millions of dollars into financing its courtroom showdown, and as a result is becoming increasingly more dependent on the court's ruling. The second-largest satellite-television provider is not only concerned with the case's continuing legal expenses but the future implications from both a punitive damages and overall business strategy standpoint. Dish Network has also been disappointed with the mediocre performance results produced by its increased advertising efforts. Dish is hoping to change the channel on its subpar quarterly performance with a favorable ruling in its patent battle with TiVo and an improvement in its advertising campaign.
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