Broadband Cable Association of Pennsylvania


August 6, 2013

Dish Network Corp. and Charter Communications Inc. posted second-quarter results hurt by video-subscriber defections and programming costs, fueling speculation they'll seek mergers to improve results. Dish, the third-largest U.S. pay-TV company by customers, and Charter, the eighth-biggest, both may look to combine with competitors as a way to gain leverage in negotiations with TV networks to carry their programming, according to Paul Sweeney, an analyst at Bloomberg Industries. Both companies reported second-quarter losses today. "The logic seems to be that challenging subscriber trends only highlight the need for consolidation to drive down costs in a mature industry," Sweeney said. "Investors clearly expect the remainder of 2013 to be active."

Dish's most likely partner is DirecTV, the second-largest pay-TV company and biggest satellite-TV provider, said Jaison Blair, an analyst at Telsey Advisory Group in New York. The two largest satellite-TV providers attempted to merge in 2002, and the deal was struck down by regulators. Dish lost about 78,000 customers in the second quarter, more than the 37,000 average decline estimated by 11 analysts surveyed by Bloomberg. About 48,000 residential-video customers left Charter, a larger decline than the 36,000 average estimate of six analysts surveyed by Bloomberg. Dish, based in Englewood, Colorado, rose less than 1 percent to $44.91 at the close in New York. Charter fell 2.4 percent to $127.05.

The pay-TV industry is "materially different than the last time we tried to merge," Dish Chairman Charlie Ergen said during today's earnings conference call, referring to the presence of AT&T Inc.'s U-verse and Verizon Communications Inc.'s FiOS, which have more than 10 million video customers combined, and online video distributors including Netflix Inc. and Hulu LLC. "We would certainly look at DirecTV and putting Dish and DirecTV together because we think that's obviously something that makes a lot of sense strategically," Ergen said. "That doesn't mean - we look at a lot of deals that don't get done."

DirecTV Chief Executive Officer Mike White said during his company's earnings conference call last week that higher programming costs from content companies, such as Walt Disney Co. and Comcast Corp.'s NBCUniversal, are making consolidation more appealing. "Further industry consolidation does make sense to help address what I think are unsustainable cost increases for the average customer," White said. Consolidation in the cable business may be the driving force that pushes Dish and DirecTV together, Ergen said. Charter, for one, is studying mergers with larger cable companies, people familiar with the matter have said.

John Malone's Liberty Media Corp., which owns 27 percent of Charter, is pushing the company to pursue an acquisition of Time Warner Cable Inc. or a combination with Cox Communications Inc., the fourth- and seventh-largest pay-TV companies, the people said. "Our big opportunity is to take advantage of our inherent strengths and grow our share," Charter Chief Executive Officer Tom Rutledge said during today's earnings conference call. "In terms of timing of M&A, I think Charter can be extremely successful without it and potentially with the right deal be even more successful."

Dish's disappointing subscriber numbers are less important than its company strategy and potential wireless plans, said Blair of Telsey Advisory Group. Dish was thwarted earlier this year in its attempts to buy Sprint Nextel Corp. and Clearwire Corp. - deals that would have let the company take advantage of its stockpile of wireless spectrum. Acquiring T-Mobile US Inc., the fourth-largest U.S. wireless provider, "may be a challenge we wouldn't feel comfortable taking on," Ergen said, now that the largest industry players have gained strength. Sprint and Clearwire are together under SoftBank Corp.'s management, and AT&T agreed to acquire Leap Wireless International Inc. last month.

Instead, a Sprint partnership may be "an interesting fit," Ergen said, despite losing out on the opportunity to acquire the third-largest U.S. wireless provider to SoftBank. "They basically won an asset that we'd like to have," Ergen said of SoftBank. "We gave our best shot to get it. And sometimes, your best isn't enough, but their best was better than ours. Well, I like those kind of people, right? I like people that are better than us. I want to hire people that are better than us, and I'd like to work with people that are better than us." Dish's net loss was $11 million, or 2 cents a share, compared with net income of $226 million, or 50 cents, a year earlier, the company said today in a statement.

Charter's net loss widened to $96 million, or 96 cents a share, from $83 million, or 84 cents, a year earlier, the Stamford, Connecticut-based company said in a statement. Charter gained 40,000 broadband Internet subscribers, more than the 33,000 average analyst projection. Dish's average revenue per user rose 4.3 percent to $80.90, compared with analyst projections of $81.11. Dish also added 61,000 net satellite broadband subscribers, bringing the company's total Internet customer base to about 310,000. Bloomberg

Fullscreen, a digital media company that has built one of the largest network of channels on YouTube, has closed a round of Series A funding with backing from heavy hitters in the traditional entertainment world - the Chernin Group, Comcast Ventures and WPP Digital. The parties refused to disclose the size of the investment, which is believed to be in the "eight-figure range." "We think there's tremendous opportunity in the digital media space to build a truly next-generation global media business," said Fullscreen Founder and Chief Executive Officer George Strompolos. "We raised this round for the purposes of really trying to go after that opportunity."

Strompolos said the infusion of cash will allow Fullscreen to increase its investment in original programming, expand its presence outside of North America in markets where it sees opportunities, such as Brazil, India, Japan, Mexico and Russia, and invest in technology and sales. "We feel that the media company of the future ultimately won't be built on a satellite in the sky, it'll be built on software," said Strompolos. "There's so much we can do to empower this next generation of creators." Strompolos founded Fullscreen in January 2011, after spending more than five years at YouTube building and nurturing its partner program - which is designed to help the site's content creators to improve their skills, build a fan base and earn more money. He launched Fullscreen to assist this budding creative class with a range of services, including cultivating audiences, making money and collaborating with other online creators.

Fullscreen's online network has grown to more than 10,000 channels with more than 150 million subscribers and 2.5 billion monthly views. It also assists major brands, including NBCUniversal and Ryan Seacrest Productions, with their YouTube presence. "Fullscreen is a company that embraces both creators and technologists and is influencing how people across the world watch video every day," said Chernin Group President Jesse Jacobs. "We first got involved with the company pre-launch two years ago, and our conviction around the power of what Fullscreen is building has increased every day since." Los Angeles Times