Dish Plans Second Half Ad and Marketing Blitz in Campaign for Higher Class Subscribers

Calling Q2 financial results “murky,” Dish Network CEO Joseph Clayton, former Frontier Communications and RCA executive, said in an earnings call that results were clouded by startup operations for Blockbuster, accruals against possible litigation settlements, financial payments resulting from the TiVo settlement and the “destructive discounting” taking place in the video market. The increasingly saturated pay TV market has “slowed dramatically,” Clayton said, and growth rates will be slower even as the economy and new housing markets rebound. Dish lost 135,000 subscribers during Q2, which Clayton called “likely-to-churn” customers the company deemed “low-margin” subscribers it chose not to chase. Dish dialed back on marketing and advertising dollars in Q2, he said, calling it a “possible overcorrection” strategy, but said that “won’t be the case as we move into the second half of the year."

Clayton said Dish in Q3 will spend money “a little smarter” and focus on moving customers “up the food chain.” He doesn’t believe the company should “loosen up” credit standards but should instead look for a “better class” of customer that will buy higher margin packages.

In the company’s Securities and Exchange Commission 10-Q filing, it said closing of the TerreStar transaction may not occur until 2012, but Dish expects “all necessary conditions for funding $1.276 billion of the purchase price will be met” during Q3. CFO Robert Olson said TerreStar could close in Q3. The final date depends on FCC approval.

Regarding reports that Dish could end up spending $1 billion incrementally in turning Blockbuster around, Clayton said, “I don’t have any concerns about spending $1 billion for Blockbuster ‘cause we're not.” He defended what he called a “tarnished image” Wall Street might have for a “Blockbuster brand that to mainstream America represents movies and families.” Olson, meanwhile, confirmed that Dish spent $233 million to buy Blockbuster and acquired $110 million of cash, bringing the “net impact” to around $120 million. “We purchased those assets at a very good price,” he said. He said Dish has “a lot of flexibility” with store leases and negotiated “kick-out clauses” for more than half of them Most of the remaining stores are on fairly short-term leases, he said. Dish is re-negotiating studio agreements for Blockbuster, which Olson called a “very important part of the equation.” He wouldn’t say whether it’s negotiating for an all-you-can-eat bundle or a more traditional pay-per-view model.

Dish’s Q2 profit was $335 million, or 75 cents a share, up from $257 million, or 57 cents a share, in Q2 2010, the company said. Revenue was up 13 percent to $3.59 billion, it said. Dish closed down 6 cents to close at $22.58.