DISH Network Corp (DISH) 2013 Q3 法說會逐字稿

Good afternoon, my name is Shelly I will be your Conference Operator today. At this time, I would like to welcome everyone to the DISH Network Corporations' Q3 2013 earnings conference call.

(Operator Instructions)

Mr. Robert Olson, Chief Financial Officer, you may begin your conference.

Thank you, Shelly. Thanks for joining us, everybody. This is Robert Olson, I'm the CFO of DISH Network. Jason Kiser, our VP of Treasury and Investor Relations, is out of town today so I will handle the introductions. I'm joined today by Charlie Ergen, our Chairman; Joe Clayton, our CEO; Tom Cullen, Executive Vice President; Bernie Han, our COO; Paul Orban, Controller; and Stanton Dodge, our General Counsel. Before we turn it over to Joe to begin our prepared remarks, we need to brief you on our Safe Harbor disclosures. For that, I will turn it over to Stanton.

Thanks, Robert. Good morning, everyone, and thank you for joining us. 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 and from any future results expressed or implied by such forward-looking statements. For a list of those factors, please refer to the front of our 10-Q. 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 over to Joe.

Thanks, Stanton, and good afternoon to those of you on the East Coast and good morning to our West Coast participants. I'll focus my remarks today on our commercial and operational performance in the third quarter. As Robert said earlier, Charley and Tom Cullen are also here to take your questions on our spectrum status, a little later.

First, Blockbuster. Last week we announced that DISH would close its remaining domestic stores, headquarters operations and by-mail service in early January. We also reported that our wholly owned Blockbuster Mexico subsidiary is held for sale. Now, it is a fact that the American consumer today is receiving his or her content electronically as opposed to physically. And the original Blockbuster business model was predicated primarily on the physical distribution of video. Now DISH will retain all of our licensing rights to the Blockbuster brand, as well as other key digital assets, including the Company's significant video library and digital technology. We continue to see value in the brand as we expand our digital offerings. Our Blockbuster at Home streaming movie service is a good example.

The third quarter also saw the expansion of several of our commercial activities. Our Apple iPad offer with the Hopper is the ultimate consumer bundle for both in home and out of home viewing. And the Southwest DISH promotion provides us with a direct traveler linkage to our Hopper with Sling product. Both of these marketing programs attract high-value, potential customers, affluent, frequent travelers and those likely to own a mobile device. Our Hopper product today offers the buying public simply the best viewing experience. We also had several victories on the legal front as we continue to fight back the broadcasters' attempts to stifle technological innovation in terms of our Primetime Any Time, AutoHop and DISH Anywhere features. Again, the courts came down on the side of the consumers' rights of choice and control.

Now let's move on to the third-quarter numbers. As is typical of a mature industry, we faced fierce competitive pricing pressures and aggressive promotions. Despite the headwinds, we gained 35,000 new net subscribers in our satellite pay-TV business. Now that's an improvement of 54,000 compared to last year's third quarter. This takes our pay-TV customer base to nearly 14,050,000. We also celebrated the one-year anniversary of our broadband satellite business by capturing 75,000 DISH net subscribers. This improves our customer count to slightly over 380,000. In total, we continue to grow our base of high-value customers, increasing the percentage of activations with HD, DVR and IP connections. We're also pleased that our churn results came in at 1.66%, 1 basis point better than our second-quarter number. This was one of our better third-quarter churn performances and it came on the heels of our first quarter price increase. Now to provide you all with additional details on our financial performance, here's are CFO, Robert Olson.

Thank you. As Joe noted, we continue to make solid progress in growing our core businesses. Our pay-TV customer base increased by 35,000 net subscribers in the quarter. Gross activations were up sequentially, due to normal seasonality and just slightly below last year. The improvement in net adds year over year was largely due to lower churn rate which is 14 basis points better year over year. We continue to make improvements in our retention efforts. Our broadband business also experienced solid growth. Gross activations of 101,000 in the quarter were up significantly versus third quarter last year and also higher than we recorded during the first two quarters this year. Since many of our broadband customers are new pay-TV subscribers, our third-quarter performance benefited from the seasonality in pay-TV activations. We ended the quarter with 385,000 broadband subscribers.

Subscriber-related revenue was up $199 million, or 6.1%, in the third quarter compared to last year. This growth was largely driven by pay-TV ARPU, which was up roughly $4 year over year. We saw a slight sequential improvement in ARPU in third quarter due to higher pay per view revenue. Our broadband business accounted for $36 million of the year-over-year subscriber-related revenue increase. Subscriber-related expenses increased by 9.3% in the third quarter versus last year. Excluding the impact of our broadband business, pay-TV subscriber related expense increased 7.9% year over year. This increase was largely due to higher pay-TV programming expense, primarily driven by increases in our contractual rates.

As we announced last week, we will be shutting down the roughly 300 remaining domestic Blockbuster stores by early January. We currently estimate that we will incur future losses between $15 million and $30 million associated with the shutdown of the domestic business. We also reported that our Blockbuster operations in Mexico were deemed to be held for sale as of September 30. We took a $21 million charge in the third quarter to adjust inventory and property to their estimated fair market value less selling costs.

Pay-TV SAC for the quarter was $842 per activation, which was up $45 year over year, largely due to the increased take rate of our Hopper receiver system. As we had forecast previously, SAC was down this quarter versus the first half of this year, primarily due to lower brand advertising expense. Due to the higher Hopper take rates, we expect SAC to remain in the mid to upper $800s for the next several quarters.

Administrative expenses were down $83 million year over year in the third quarter. This reduction was the result of fewer Blockbuster domestic stores and the deconsolidation of Blockbuster UK business. G&A expenses for the DISH pay-TV business were roughly flat year over year. Interest expense was up $46 million year over year driven by an increase in long-term debt levels, but down sequentially $25 million due to the redemption of debt associated with the Sprint offer. We recognized $106 million of other income largely due to gains associated with the sale of Sprint and Clearwire equity and gains on our derivative positions.

We recognized a one-time reduction in taxes of $102 million in the third quarter. This was associated with the reserve we had established due to our DBSD purchase in March 2012. This reserve was deemed to no longer be necessary based on tax rulings we received in the quarter. There was minimal cash impact of this change in the third quarter as the impact will be recognized over 15 years.

Net income in the third quarter was $315 million, which was up $473 million year over year. The year-over-year comparison is obviously impacted by the Voom settlement last year. Free cash flow was $82 million in the third quarter, this was lower than net income due to a few one time and seasonal factors. The gains on Sprint and Clearwire equity were investing activities, so they were not included in our definition of free cash flow. Also, seasonally high pay-TV and broadband activations drove up CapEx in the quarter.

Looking at the balance sheet compared to the second quarter, cash was up $700 million, and other current assets declined by roughly the same amount. This was driven primarily by the settlement of the Sprint derivative positions. Let me now turn it back to Joe before we start the Q&A.

Thanks, Robert. Our plan remains the same, to grow high-value customers and to increase revenue while at the same time making the strategic investments for our future. Thanks for joining us today for our third-quarter earnings call, now we'll open it up for your questions. We'll start with questions from the financial analysts and when we are finished with those, we'll open the line up for questions from the media. Okay, Operator.

(Operator Instructions)

Marci Ryvicker, Wells Fargo.

First question, with churn down so much, can you talk to us about what the driver of this was? Do you have any specific promotions in the quarter and does your retention spend go up significantly because of this?

This is Bernie. I think there are a number of factors. First of all, when you compare to the second quarter, the biggest difference was the roll off of the price increase impact that we saw in the second quarter. Typically the third quarter we'd see a bump in churn rate somewhere between 7 to 10 points and this year we didn't I think because of all the price increase. The price increase impacted us in the second quarter a little bit more than we had anticipated. When you look year over year, there were a few things that happened. One is we had a fairly -- even though we had a takedown in the quarter, it was relatively clean compared to last year at this time and some of the previous years in the third quarter.

When it comes to third-quarter promotional, football promotions, I think we saw less of an impact this year than we did in the past several years. I think some of the customers that were more attracted to football promotional offers were lost the past several years and we lost a little bit less this year. Outside of that, it's continuation of some improvements we've making in the customer service and improvements we've been making in retention practices overall.

And in the product.

Ben Swinburne, Morgan Stanley.

I had two questions that are both around programming costs. Robert, can you talk a little bit about the year-over-year growth you saw this quarter? I know you were comping the AMC dispute last year, but 9% I think is higher than we've seen. The kind of organic programming growth did you see in the quarter and what should we expect going forward? And along those lines, maybe for Joe or Charlie, (audio difficulty) discussions obviously really important programing for the product that you have this Hopper lawsuit, I'm wondering how you're thinking about juggling those two variables as you try to move forward with Disney as a partner?

So Ben, this is Robert, I'll take that first question on programming expense. As I noted, our subscriber-related expenses was up 9.3% year-over-year, but if you exclude broadband, which is growing quite rapidly from that number, the pay-TV subscriber-related expense is up 7.9% a year. Now obviously that's still more than we'd like, and largely driven by programming expenses. As you noted, AMC slightly distorts the year-over-year comparison. We had virtually no AMC programming expense in third quarter last year. So we've talked about this before, programming expenses growing far faster than inflation, it's a challenge for the entire industry.

Yes, and this is Charlie. On Disney, I mean, I think that we continue to be cautiously optimistic we'll get a deal done. We obviously have been in active negotiations for many, many months. And some of the issues are, there's always economic issues but because Disney contracts tend to be long, relatively long term in nature, I think both sides are trying to look at where the technology is going and what the world might look like in several years. And to try to craft an agreement about where the marketplace might look is difficult because for a long-term contract, we don't want to have to go back to Disney and ask permission to do something and they don't want to come to us and ask permission if there's different forms of distribution for them.

So -- and Disney as it turns out, is one of the more -- is a little bit further along on the technology curve. They seem to have a bit more of a focus on that than many programmers today. So in that sense, their thinking about things that maybe other programmers haven't thought about and so all those things are part of the discussion. So it's a great negotiation because it's forcing us to think about what the future looks like. And obviously it has to be a fair deal for Disney, it has to be fair deal for our customers and I'm again cautiously optimistic that we'll get there. But there's not a particular timeline on it. It really just have to be done right, it has to be done right long term.

And the fact that you didn't mention the Hopper, should I take that as a point that that's not necessarily a deal breaker or something that's going to get in the way from a constructive agreement?

Well I mean I think the Hopper was a bit more -- this is just my opinion has nothing to do with negotiations. But the Hopper, our timing wasn't particularly great on that, but it's more of an emotional thing I think than reality thing. Obviously everybody's got a DVR that can skip commercials so -- and I think the fact that we really are trying to get broadcasters to think about is if people are going to skip commercials, isn't there a better way -- let's recognize that fact. And if you recognize the fact that people are going to skip commercials when they play things back on a DVR, is there a better way for us to go about monetizing that is fair to the customer but actually monetizes that in a way for you, the broadcaster who needs a dual income stream. So we are a big believer in the dual income stream because otherwise broadcasters just have to raise their rates more.

But you have to understand that the world has changed. And the world has changed, you got two choices, you can put your head in the sand or you can go out and try to do something about it. And the Hopper, as it turns out, has built-in technology that can target commercials to customers in a better way and give the customer a better experience. And I think, this is my personal opinion, long term will give the broadcaster more revenue. And to the extent that we have conversations that can show that technology to people and they have an open mind about it, I think they're going to come to that conclusion. It's not a proven concept yet, we're going to have to experiment with it. We won't get everything right to begin with, but the Hopper was designed to maintain a dual income stream for broadcasters just in a different way when you play advertising off the DVR.

Thank you.

Doug Mitchelson, Deutsche Bank.

A couple questions, but first a clarification on the Disney deal. Will DISH start accruing what Management anticipates to be the new Disney rate card as of October 1?

Yes.

Yes, okay. Charlie, reading the 10-Q I just noted the number ways EchoStar and DISH are still working together beyond just receivers and the deeper you go into wireless and satellite broadband, I'm wondering if this construct with DISH and EchoStar being separate publicly traded Companies is starting to become inefficient. Any thoughts on that?

I think based on -- it depends a lot on what the world looks like, but as of today I think it's an efficient -- efficient way to do things. And I think that again just in a basic thing really what EchoStar does is they're wholesale, they don't deal except with minor exceptions with consumers, they do deal with consumers in the broadband business. But other than that, they don't deal with consumers and their business is in fact focused on a lot of international opportunities. DISH on the other hand is very retail consumer focused, doesn't do things internationally. And so I think there's a good split of resources.

We'll see, time will tell and there's certainly areas where DISH and EchoStar work together, there's certainly areas from a technology point of view where it makes a lot of sense for DISH to contract for that technology whether it be from EchoStar or some other company, and rather than do it ourself when our focus really has to be on the consumer. So far, it makes sense today but obviously they're both public companies and their boards can come to conclusions differently than that at some point in time. But at least from my personal perspective, it seems to be the right split.

Understood. And then last question, Charlie and/or Tom, would be interested in hearing how you feel DISH's wireless strategy has progressed since investors last heard from you in August?

Hello, Doug, this is Tom. The developments since August are probably on two fronts. One is the developing bankruptcy proceeding on the Light Squared spectrum where we have been deemed the stalking horse bid since the last call. And the second is the multi-element negotiation that we entered into with the FCC and other industry players around the interoperability agreement. And I think most people on the call probably understand the details of that where we agreed to lower the power limits on E Block, we got an extension on our build out, we have an option to convert the AWS4 to all downlink, and in exchange, in the totality of that package, once approved by the FCC, which is scheduled for approval by December 22, than we would also be agreeing to bid the reserve price of $1.56 billion in the H Block auction, which is scheduled for January 22. So those are the significant developments from the last call and I think time will tell how each of those two events play out.

Thanks very much.

Phil Cusick, JPMorgan.

Two if I may. One on the potential for consolidation on the satellite space, it looks like the airline deal is progressing. Charlie, can you update us on any thoughts there? And second, on broadband, it seems like the business is accelerating but costs are ramping. Are we getting to a point where churn is starting to become material in that business? You been in it for over a year now. And should we look for it to slow down here as churn starts to catch up with you or do you think it can accelerate further? Thanks.

Phil, first on industry and consolidation I think Mike White on his call summed it up pretty well. T There's obviously a business case that makes a lot of sense for consolidation in the satellite industry. I think you're going to see consolidation maybe first in the cable industry and then obviously you're seeing it on the government's part that they do negotiate things within airline side. So it makes a lot of sense, whether that ever comes to fruition it's another story, but I think both DISH and Direct realized that can make a lot of sense.

The broadband, satellite broadband side of it has not been particularly profitable yet, it hasn't reached its potential for a bunch of reasons. But in part, the satellite broadband is a great product when people have -- but it's not an alternative to cable broadband or even in most cases to phone DSL. So we probably need to do a little bit better job of screening our customers and that in itself would reduced churn. And you might want to go a little bit slower because not all customers are equal.

And so our distribution is fairly spread out between DISH, EchoStar, ViaSat, DirecTV, dealers, distributors, Internet providers, and so you end up with not a great system in terms of control of getting initial customers. So we've got to do a better job of that, and I think there's some ways to make more sense out of that business and Joe and his team are certainly -- Joe may want to comment on that. But certainly the broadband side of the business has been a pleasant surprise from a demand point of view, but we had -- the financial side of it hasn't caught up with it yet, in part because we're learning as we go. And I think, Joe you want to comment maybe on what your plans are for that?

First of all we have to remember that this is a new business. We're still learning, I believe there's operational efficiencies in front of us from an installation standpoint. We must do a much better job at the beginning of the sales process in qualifying the customer, are you in a cable intensive market? Do you have fiber to the curb available to you? In our efforts to be successful, we probably weren't as stringent in terms of the qualifications when we started this. So I fully expect us to have some improvement as we ramp up the volume and get better with our processes and procedures.

It sounds like you're implementing those a little more stringent standards now and we might see a little bit of a slowdown before the business picks up again?

A slowdown, a reduction in churn or slow down in the business -- in the sales?

I would say --

We are hoping for the latter, a reduction in the churn. And the sales were a little higher in the third quarter but that was seasonally driven. We're going to see the same seasonality, I believe, in DISH Net broadband satellite as we see in the pay-TV business today.

That's helpful. Thanks, Joe.

Bryan Kraft, Evercore.

Thanks this is (inaudible) for Brian. My question is on the promotional and new customers received either iPad 2 or programming credits. First question is, how has that free iPad offer performed relative to the programming credits? And then two, how much did that promotion impact SAC by this quarter?

Okay, I'll try to take that. In terms of the free iPad offer, we do believe that it indeed is attracting a more credit-worthy customer, higher income, higher educated so from that standpoint, we're pleased with that. We do know from our market research that the higher category of customers most likely taking the iPad churn less and have a better customer experience. Because, as I said earlier in my prepared remarks, that Hopper today with a tablet provides simply the best video experience available today. So we're pleased with where it's at and we look forward to helping our business as we move into the holiday selling season.

This is Robert. I believe your second question was on the impact of the iPad to SAC? And just so you understand, the iPad is offered to customers as an alternative to programming discount. The iPad is part of basically a multiple element sale which also includes a 24-month contract for programming at retail price. We've assessed the fair market value of each component, both the fair market value of the revenue from the iPad sale and the equivalent cost are amortized over the life of the contract. So to answer your question, it really didn't have an impact on SAC.

Okay, thank you.

Vijay Jayant, ISI Group.

A couple questions please. You extended your buyback authorization, can you really talk about is that still an opportunity given your cash balance? And then more for Charlie, you're moving forward on your wireless plans in terms of getting spectrum and probably the partnerships. Can you talk to us in your mind what's the business model that makes the most sense on a risk-adjusted basis for you?

First on buyback, yes we extended the buyback. Obviously we look at -- again we look at everything as Management and we hope that we can use our cash more effectively in buying back our stock. But buying back your stock is sometimes a very good way to return value to shareholders. So we always want to have that as an option. And so we continue to do that but it's never -- it hasn't been our first choice of ways to use our money.

And then with tax laws, dividends are less likely because buyback would be more likely the dividends so -- because tax laws have changed and made that less attractive. So we continue to look for ways to use the money. Historically the last few years has been in wireless investments and spectrum investments.

In terms of strategically, the -- I think we have a lot of optionality. I think what you try to do strategically is put yourself in a place where you have of optionality. I think that the latest agreement with the FCC, assuming that happens and we get the ability to go with [Doll downlink] gives us optionality we wouldn't have had before because it frees up some impaired spectrum for us and gives us a greater potential value there. Downlink spectrum is also, as you guys know, more valuable than uplink spectrum because consumers use a lot more downlink spectrum and so forth. And because our focus in wireless is our main focus is on video, we think that's the best way for us to go. Obviously on the video side you use most of that, most of that is downlink spectrum. So in terms of -- and we'll see where we come out, as Tom said, if next year we see we come out with the H Block auction and LightSquared. And I think then you're going to have a pause of where industry is until possibly the AWS3 auction, which may be another year later or so. So when you have that pause then I think you can look at what your optionality is and I think that -- and the H Black auction will be over, which means you can start talking to people again. Realize that you shouldn't expect a bunch of things happening in the industry for those people who participate in the H Block Auction because -- starting when?

Friday.

Starting this Friday anti-collusion rules go into effect. So that has to wait then for the -- end of the H Block auction. So that's where we are. And obviously, I'll repeat myself, obviously at the end of the spectrum we could build out the spectrum all by ourselves and the other end of the spectrum we could just sell the -- other end of the goal post, we could sell the spectrum. Neither one of those is high probability but they're possible.

And in between that is to partner with somebody who is already in the business and that partnership could take any number of forms of things going forward. And so I like strategically to have a lot of optionality and it's easier to make good choices when you have options. And normally when you have, if you really do your homework, events happen, the world changes in a certain way and the strategic place you should go ultimately becomes pretty obvious.

The extra year to build out that we think we are going to get from FCC will be very helpful, will give us a little bit more time. The technology continues to change, there's a certain point in time when you -- the way that you would do towers and core and handsets, that technology is changing dramatically and so you want to hit the right timing on that. And I like where we are.

And it's an asset I think that continues to increase in value on our balance sheet and I think it helps us potentially transform the Company going forward because we know we're in a mature business. We know our core business is a mature business. And while Joe and his team are doing a good job of continuing that business and it doesn't have dramatic places they can go as a standalone current business. It has to do some things differently to take it to the next level.

Just like when we were in -- when the big DISH business to transform the Company we had to go in the little DISH business. And now that we're in the little DISH business, we're going to have to transform the Company and one way to do that is in the wireless side of the business. That's a long-winded answer that probably didn't say much other than I like where we are and we have optionality and we'll see how it plays out.

Great, thanks so much.

Matthew Harrigan, Wunderlich Securities.

I was curious the discussion about Intel and On Cue and various people looking at that. I presume an OTC side out of market for cable, can you talk a little bit more about your own intent in that area since we hear a lot about that in the context of the Disney discussions? Thank you.

Yes this is Charlie again. We're not in any discussions with Intel on their OTT On Cue product. And we've talked to virtually every programmer about OTT and it's -- I would say it's going to happen at some point in time and I don't know whether that's a 1 month schedule or 10 year schedule. But it's going to happen at some point in time, but most programmers have been hesitant to embrace that kind of dramatic change. And so in the short term, it's unclear that that's going to happen. I don't know whether Intel has contracts and is ready to go or they just have a -- and my gut feel is they have more of a platform than they do programming rights only because we haven't seen programming rights being issued. But it is possible that people are doing it without our knowledge so that's where it stands. But I only say sometime OTT will happen and the timing is unclear.

Thank you.

Frank Louthan, Raymond James.

Over longer term can you give us idea on aspirations looking at Latin America and possible entering that market in a larger way? And then with the SAC up in the near term, when do you see that levering -- leveling off? Any particular promotions that have driven the near-term impact with the Hopper on SAC?

I'll take the first part. Okay. In Latin America, we don't have any plans at DISH for Latin America. And to be clear, EchoStar has -- is in Mexico today and has announced plans to potentially enter Brazil.

So this is Robert. With regards to your SAC question, we do eventually see SAC leveling down perhaps even slightly declining in the future. The driver of that will be when we start remanufacturing Hoppers. Right now we remanufacture very few because very few of those customers churn. Somewhat depends on the churn rate which -- of the Hopper which we think will be lower. And so when we do start remanufacturing those receivers, we'll start seeing a lower SAC.

Okay, great, thank you.

(Inaudible), Barclays.

Charlie, you spoke about potentially partnering with some of the telecom operators and so on. Wanted to understand what that model looks like in the online in terms of partnering and what are the different options available on that front for you?

Well, there's a lot of options and I guess I probably not going to go into detail on all of them because a lot of those things are going -- some optionality will increase or decrease depending on what happens with the H Block auction and LightSquared, so we'll see where we are early next year. But we have the ability to sell the spectrum, we have the ability to lease spectrum, we have a build out we need to do by 2021, all those things factor in.

Most of what we would look out strategically, ideally, would be to enhance the current DISH business. So we've got 33 years in building DISH Network, it doesn't make as much sense to me personally to go out and enter a new business and not do that in a way that would enhance what we've already done for 33 years. And so by that I mean that we would be most interested in the wireless business we're most interested in the video side of it. And less interested in the voice and data and texting thing that the wireless guys all do pretty well today.

And so the video side takes a lot of capacity which we have today. So it takes a lot of downlink capacity. So you can imagine any number of scenarios on the video side where you might partner with one or more than one of the current providers, going forward. And now whether anybody in the wireless business today is interested in video, is unclear. But I would be, I think it makes sense.

I think -- I watch people watch video on tablets and phones in a wireless way. If you play with Google glasses, you're watching video on Google glass but you need -- how do you get the signal there if you're not in a Wi-Fi area. So all those things come into play with spectrum. And so that would ideally be the right way for us to go about it because it enhances the DISH value when we do that in addition to maybe open up another revenue opportunity for us as well on the video side. So we have to make our video ubiquitous, so that's our focus. That doesn't mean that we wouldn't do other things but ideally it would be video centric.

All right, thank you.

Tuna Amobi, S&P Capital IQ.

I was trying to understand on the Blockbuster at home service, how do you plan to monetize that going forward? And in terms of the content plans, should we assume that that should -- that that plays into your programming negotiations as you renew your contracts? Any color on that would be helpful.

Well first of all, let's define what Blockbuster at home is. It's a movie service, and 15 linear channels and also a large number of digitally streamed movies. Think of it as an add-on service, not too dissimilar than HBO, Showtime, Cinemax, Starz, of that ilk. We charge $10 a month for it, and we give it away free for 90 days when you purchase a Hopper and one of our better programming packages. So it is an important part of our programming mix. And we'll look to improve upon that service as does every provider, as we go forward.

Okay. Switching gears, Charlie, in your comment about the talks with Disney, I was wondering I know you have a pending matter on ESPN, some of the Disney channels, the HD [feeds] which has been out there a few years now. So is that something that is, you would view as separate or should I assume that that is part of the resolution process as you look to resolve all of those issues? Is that something that's part of the current negotiations?

Well I don't really want to get in the parts of the negotiation but I'll give you the big picture part of it which is Disney historically has been -- for me personally not one of our best relationships and most of that's been my fault. And if we go forward with -- we're prepared to go either way with relationship either not having an agreement with Disney, which strategically puts us in a different direction, which I think would be unique in industry and while it would be short-term problem I think long term it could make a lot of sense. Or the alternative to that, which is what I think we're focused on and that I think Disney -- we would want to make Disney our best relationship.

I'm not interested in a long-term relationship with Disney unless we can go into that by making that our best relationship in programming. Otherwise it doesn't make sense because I'm getting too old to do business with people that we don't have a good relationship with and just to make $1. And that's the way we're approaching it which is how do we make this the best relationship that we have and the programming side of the business and if we do that, if we can do that on both sides let's move forward. And if we can't do that, both Companies will do fine and Light will move on and we just weren't compatible. You don't marry everybody you date.

So similar how you approach -- I'm sorry, go ahead.

No that's it. I was going to say, Disney is a very pretty girl.

Okay I understand. So it's kind of how you approached the AMC deal where you made a deal that also resolved the litigation. I guess I'm trying to understand, you wouldn't make a deal unless it was a comprehensive scenario that resolves all outstanding matters is what I'm trying to understand.

Yes, I would just say that I can't anticipate -- I don't anticipate if you're going to try to make some -- you're going to try to make your relationship your best relationship -- I can't -- I don't know why you would want to be in court either now or in the future.

Okay that make sense. Lastly --

And I make lots of mistakes in business and I try to -- I just try not to continue to make stupid mistakes.

Understood. Last question, so when I look back several years, some of the best growth that DISH Network has had has been when you guys positioned yourselves as a low-cost provider. And when I think about how your shifting the last two years I think you're talking a lot about going after high-quality [SOGS] and et cetera. I'm trying to understand if that's a systematic shift in strategy of who your target customer is and if that's the case, what's the underlying reason for that? Is that due to programming, cost environment? Is there any other -- or maybe technology? Why the sudden shift in your strategy of who your target customer is or is that a function perhaps with the mature market and the promotions out there? It would be helpful.

I'm going to -- Joe can take this one, but I just briefly comment. Everybody -- it's interesting, everybody talks about going after high-end customers, but there's only a minority of the people in United States who are high-end customers and so you have to be across the board. But I think the shift really I'm going to say historic, when Joe became the CEO, Joe made that shift because Joe has made somewhat of a shift because the Hopper really is the best product on the marketplace. And you can read any independent review of the Hopper, but it's a four star product that continues to outrank, it named best product in the world, in the European trade show, best product of the CES.

And so that experience is the best. And so if that experience is the best, that's going to appeal to a higher-end customer. And so I don't know if it's so much of a focus to high-end customers other than we have a product that's the best in the industry right now in terms of the experience that you have. And we didn't have that two or three years ago and Joe and his team have made that the best product and hopefully will continue to keep it the best. Joe?

I think it's pretty simple, in a mature market you got that part right that we need to sell a better mix and the new product, the Hopper, it gives us a higher ARPU, for example. We get a better customer service experience. It's lower churn. Now we got to that because the Hopper product, we've differentiated it from, I'll call it a [CSA miss] in terms of the other set top boxes in the business today. Other providers, pay-TV providers don't have Primetime Anytime, they do not have AutoHop, they do not -- they cannot record six programs at one time. They do not have something as simple as a remote-controlled finder and most certainly they don't have the extensive mobility capabilities we have with DISH Anywhere. We think that's our competitive advantage and that's why we're communicating that message to the buying public today and, it's helping moving the needle in the right direction.

Thank you so much.

Craig Moffett, MoffettNathanson.

Charlie, I wonder if we could go back to your conversation about video and wireless? Can you comment a little bit about how you think about the differences between a mobility wireless network and a fixed wireless broadband network? You're doing your test with nTelos and intuition would say it would be cheaper to build a fixed wireless broadband network or a nomadic network, if you will, and may serve the need better for competing in the broadband market. But everything I hear you say talks about mobility as the necessary requirement. I'm wonder if you could talk about for us?

Yes. I may throw the fixed broadband over to Tom, but let me tell you how I think of it. We're in a fixed wireless business today which is called broadcast from satellites. So we go to every square inch of the United States and we send that signal out and that same signal goes to every customer. So when you're watching the football game, everybody gets that signal whether they choose to tune to that channel or not. When I look at -- so we already do that today we do that as -- we think we do that more economical than anybody else in the United States today. So that's a really good base of business for us.

But if you look at the wireless side of the business, but the problem with that business is as soon as you go somewhere outside your house or if you go in a room where you don't have a TV set, you can't do it by wire, you can't do it by cable you have to ultimately have some other way of means of communication. So when you go outside your house, it means you're also going to have a video experience and that video experience is going to change. It's going to be in some case broadcast. So our E block capacity is very good for that. So there's -- in some cases everybody may be watching a football game, so on Sunday everybody in Denver is going to be watching the Broncos and in Chicago some people are going to be watching the Bears. So you can broadcast something differently but everybody in Denver gets the same thing.

But most of where video, where I think video is going that we're not -- well we're well positioned with our spectrum but we don't have a business yet is really a unicast video where you go to Netflix and you watch a particular movie, and your wife goes and watches a different movie, that becomes a unicast. And if you're somewhere outside your home or you're on the back patio, that's going to be a one-to-one relationship and that's going to take spectrum to do it. And we want to make sure that you have that total experience with DISH so you can do whatever you want to.

And the other piece, reason I like that unicast business is, and I'll go back to my Hopper advertising thing, is that is going to be a unique advertising opportunity for another revenue stream for the content owners. Because now that -- you're watching something uniquely to you and you're watching it on a smart device. And that smart device knows who you are, it knows who you call, it knows your -- it has your credit card information, it's probably a smart wallet, it knows where physically you are through GPS, it knows what you buy, so it's smart. And once it's smart, the advertising opportunity is really, really magnified compared to the broadcast mode that we have today.

So you can imagine the content owners being able to give you a unique advertisement based on your physical location or based on your demographic in a way that they can't today. And by the way, that advertisement is also interactive. So if you wanted to purchase something, or request information, you could do that while you're on your device. So when you put that whole ecosystem together, you're going to do what we're doing.

Craig, this is Tom. To answer a little bit more on the fixed broadband side, I guess the short answer is if you're going to use the spectrum in its highest and best use in different geographic areas based on competitive broadband as well as demand on the wireless network.

So, said differently, we'd be crazy to deploy fixed broadband in a large metro area where there's already fiber to the curb or DOCSIS 3.0 or 3.1 because it simply won't be able to compete. Yet there are a lot of geographic areas in this country where there's still inferior fixed terrestrial broadband, I should say, where we think there is a fixed opportunity. Again that depends on the spectrum depth that we're ultimately able to achieve. And then in those areas obviously that's where there's less stress on the mobile network and so you have the luxury of using more of your spectrum depth to support fixed broadband rather than mobility.

But again, that's why we like hopefully achieving optionality of having more downlink capability because in either event more downlink will support mobile video as well as fixed broadband because that's where the demands are. And the other -- as you know the fact that there is no legacy equipment or technologies on the spectrum and makes this a new build or a new deployment opportunity, the latest technology obviously you'd have to put a different lens on that spectrum when it's not occupied versus when it's already encumbered. So, Operator, I think that will wrap up the financial analyst portion of the call and --

Question.

Oh I'm sorry, you want one more, Joe? Okay, one more question.

(Operator Instructions)

Gerard Hallaren, Janco.

Yes I noticed that Globalstar is out promoting ATC and the FCC seems to be constructive about that for conventional satellite for low power Wi-Fi use. Does that open anything up for you or enhance your value at all?

This is Charlie, I think they are -- I think it's good -- I think in general it's good public policy that you use spectrum in its best and most efficient manner. And Globalstar has nation -- worldwide frequency that's not particularly economic, or hasn't been particularly economic, just using for satellite. And so they file for ATC to use it terrestrially as well. You can certainly do -- use it terrestrially without interfering with your satellite operations. So I think the FCCs got to analyze that, people will comment on that. But in general, my opinion is that makes a lot of sense because that puts more spectrum out there for use. That doesn't necessarily enhance our value one way or the other, but it certainly opens up more opportunity for spectrum for people.

Great, thank you very much.

Okay that concludes our Q&A portion of the financial analyst and we thank you all for joining our call today. Now we've got some time for questions from members of the media who are on the line.

(Operator Instructions)

Liana Baker, Thomson Reuters.

T-Mobile just said today that they're considering buying some spectrum from a private party. Charlie or Tom, wanted to confirm that's not from you guys at all, any idea where that spectrum would come from?

We just wouldn't comment on that.

Got it. So another one for Charlie. I was wondering if you would ever consider doing anything in the future outside of DISH?

Would I personally? I have never thought about it, doing anything. I barely -- I don't know what I could do, I'm barely doing a decent job here. In fact most everyday, people tell me how bad I'm doing.

If there was anything else you could do, what might that be? I guess I'm asking if you could ever see yourself doing something outside satellite or wireless down the road?

I mean as soon as we develop people, I mean Joe and I both are focused on this, as soon we develop people that can run DISH better than Joe and I, we're going to fire ourselves. I already fired myself as CEO and I'm prepared to fire myself as Chairman. And then yes, I think there's other things that Joe and I can do and -- but they may not be business related it might more philanthropic or something else. Joe may just go hunting around the world.

We can rule out pro golf thing in both cases. (Laughter)

I wouldn't mind owning a distillery. (Laughter)

Thanks so much.

Yes, but I -- not to be -- but I think we have one big project left in us and I think that's something in wireless. And that's -- it's not something we thought about yesterday, we've been really focused on for five or six years now and I think we can do -- we can make better wireless experiences for customers and I think we'd like to do that. Just like I think we've done a better job for video experience for customers and held down cable rates. And I think we've been a good influence on the productivity and the competitive nature of video and innovation and I think we can do the same thing in wireless.

Scott Mortiz, Bloomberg.

A question for Charlie on spectrum. As you look ahead, how should we think of DISH? Are you an acquirer of spectrum or more of a seller of spectrum going forward?

I mean I think we're -- I think we are a -- hopefully a user of spectrum to make a better experience for consumers and make us more productive society. I think that's what we'd like to do with our primary focus being on video. And I think the way that people should look at DISH is we're a satellite TV Company on part of our value and the other part of our value is a spectrum position that can be -- that will transform itself into a product or series -- sets of products in the future. And it's like an oil company having oil reserves. You got -- they may get in the refining business, they may get in the retail gas station and convenience market, but it's all predicated on the fact that they've got their reserves in the ground even though they're not -- even though they got to go drill for them and invest first.

And maybe to follow on that, you've indicated that you're not necessarily interested in building a new national wireless network. So how would you become the driller in that scenario?

We may not. I mean you have the reserves, you don't have to -- you can hire -- you can do something with somebody else to drill for it. So I think people are putting -- are getting ahead of their skis on exactly trying to figure out what DISH will do of this spectrum. Because we have a lot of optionality in that spectrum today and we have three big processes ahead of us in the next several months. One is the LightSquared bankruptcy where we're a stocking horse bidder. Second, we have an H Block auction where we're going to be a participant and bid a minimum of $1.5 billion. And third, we have a waiver request in front of the FCC to convert -- give us the option to convert all of our spectrum to downlink.

And those three things, all three may happen, one of those things may happen, none of those things may happen. And that will give us -- if each one of those things, if it happens will give us some more optionality and may send us down a different course. So to try to determine what course we're on today is just a waste of time because you -- strategy, in my opinion is all about putting yourself in a position that you have optionality. And if you put yourself in a position you have to have optionality, then as things develop you'll know which path to go on.

Where you don't want to -- the worst strategy is -- Blockbuster was a poor strategy on our part. We couldn't develop optionality, we didn't get the optionality in like Netflix did, we didn't get optionality like Redbox did. And so we didn't -- we couldn't get optionality, so ultimately became a business that we needed to shutdown. That's not where you want to be. And I think that where we are with DISH and where we are with wireless spectrum gives us optionality going forward. And when we know which path we're going to go on, you guys will be the second people to know.

All right, thanks.

Shalini Ramachandran, Wall Street Journal.

Charlie a question for you. You and Joe at different times have talked about how it's important for DISH to pursue or slim down over the top offering and you talked about how you tried but didn't get anywhere with the biggest programmers. Can you give us an update on how important you think that is now I guess in light of the fail to DirecTV, Hulu bid and what you've said about Blockbuster, what do you want to have to offer over the top to your pay-TV customers or to new core [and evers], if you will?

Joe may jump in, this is Charlie. I don't want -- it's not something we're trying to drive. We're not trying to drive OTT. It's something that we thought if it was going to happen, we wanted to be in front of it if it was going to happen so that we could help set some of the rules. So you got a couple of options where you can lead the way, which means you get to set the rules. Or you could be a close follower and which means you're going to except somebody else's rules. Or you can be a slow follower and suffer the consequences of that. And so OTT is something that from Intel to Google to Amazon, a lot of people have talked about it and so if it was -- if content owners were going to pursue that strategy, we wanted to be on the front end of that.

But our discussions really ultimately haven't led anywhere with major programming groups. So as far as we know there's not an active imminent OTT product that's going to be on the marketplace. That's not to say that certainly other people may be having discussions we're unaware of, but is not -- it's not something we're -- we want to see happen in a short period of time because it affects, has a negative effect on our current business. Having said that, we're not afraid to change and if things are going to change, then we want to be involved in it. And so from an intellectual point of view, curiosity point of view, we're pretty intellectually curious about it. And Joe, do you want to add to that?

I'd say that we're intrigued by the market. It's basically maybe 18 to 34-year olds that we're not attracting today, they are not going to pay $100 a month for their content, they're not going to watch 250 channels, they may watch 20 to 30 and they are not going to watch it on a 60-inch flat-panel display, they're going to watch it on their smart phone, their tablets or their PCs. Both Charlie and I both have five kids and that ranges from about 17 to 28 and they are not your typical customers that we're selling satellite television to today.

So fair to say you guys are you still pursuing that or is that on the table and not something you're actively pursuing right now?

Look, we've talked to every CEO of every content company. We gave them the pitch, we were 0 for 50. They know our phone number, they know why we think it might be important or not be important and at some point if they decide to get in that business we hope that we'll be able to participate, but we don't control that.

It's not something we can do, we can't go knock on somebody's door and say do an OTT product. We can knock on their door and say here's how we think you make more money and that's what we do. Here's how you guys make more money, here's how we make more money, let's go try it. And so far I think for a variety of reasons most content owners have made the choice not to pursue that so far. Doesn't mean it won't change tomorrow, but so far that's where we see it. And we haven't seen any changes the last probably 1.5 years on that subject.

Okay, thank you.

Jimmy Schaeffler, Carmel Group.

A couple quick questions. Could you speak a bit to Sling? Where's the technology, the marketing, the growth, could you give us a little bit of an update? And then follow-up question would be commercial and the MDU side seems to be getting a lot more attention lately. Any updates on its status vis-a-vis, DISH technology marketing growth?

Jimmy, it's Joe, and I'll try to take the commercial business, the MDU. Just like we've seen a transformation from digital to the high definition in the consumer space, the residential space, we have yet to see that major transformation take place in business-to-business or the commercial side. We have invested significantly in the right caliber and experienced type of people from that space, MDUs, hospitality. And we've also invested in new technology, it's more cost-effective in the new digital space and that was just recently introduced, internally we call it Big Red. And we expect to see that to pay dividends for us as we move into the next 12 to 24 months.

Yes and this is Charlie. I think Sling as the technology is more of an edge technology in the sense you're having to process in real-time video signal which is hard to do. But it certainly has major implications for our Hopper customers primarily because they get TV anywhere in their house. So when you have a Hopper, most people use Sling, actually in the house they just use it through their Wi-Fi system to watch TV on their tablets and their phones throughout their house or in their backyards. I think it's a piece to the puzzle, video puzzle and those are the people that use Sling as they travel or of course they love the product. But it's a little bit complicated, it's a little bit harder to use because of the way it processes real time.

And obviously to the extent that OTT happens in the future and to the extent that you put video on servers, you can do a lot more and make the customer experience a little bit easier to navigate. So Sling is an EchoStar product, we license it here at DISH for the Hopper and our customers really like it. But it's not like everybody is going to have Sling, I think it's more of -- it's a little bit bigger than a niche product but it's not an everyday product.

Charlie can you give some kind of idea of what kind of use it has relative to Hopper with a word or two?

It's got a high degree of use in the house. So when a customer gets a Hopper and assuming that they have broadband and Wi-Fi in the house, and assuming they set it up, then it gets high use in the house. It doesn't get that much use outside the house, believe it or not, but it does get a lot in the house.

Great, thanks a lot, guys.

Greg Avery, Denver Business.

I'm curious, Charlie talking about the Disney relationship and how you want to make that your best relationship is altering the Hopper as Prime Time Anytime functionality part of that discussion? Are you willing to go there if that's what it takes to make the Disney relationship better?

I don't know why they would want to alter that. I think that's the things when you get to have discussions. So the fact that we actually record ABC Primetime, Disney's ABC Primetime for them and the fact that viewers can -- that if they're watching Sunday night football but they want to watch the ABC channel later and they had the ability to do that without having to record it or delete their recording, we know that their viewership goes up because of Prime Time Anytime. They know their viewership goes up because of Prime Rime Anytime so that really shouldn't be -- I mean that's a win-win situation. So they should be happy --

Because the ad skipping feature clearly bothered them.

What's that, the ad skipping?

The ad skipping feature clearly troubled them otherwise they wouldn't be in court with you, is that up for negotiation?

Well I think with -- I think that's a better example. So AutoHop is not necessarily a good thing for Disney. And so when you -- but you have to combine it with the Primetime Anything where people watch more Disney product and with AutoHop they may skip a few more commercials. And that's a wash in the relationship. The key would be, can we get a relationship where we can go experiment with the Hopper so that we can improve the viewing experience for the consumer from an advertising perspective that makes Disney more money. That's the relationship you want to have. And that's really what we're trying to achieve which is people have DVRs, I guarantee every executive at Disney skip commercials. They know consumers skip commercials. Some of the advertisers haven't figured it out yet, but the executive all know it. And so the key is to go together and figure out a better experience for consumers. And that's really what we're trying to do.

So we're likely -- are we likely to see some kind of settlement emerge the way over AutoHop the way we did over AMC and boom litigation? Are we likely to see the Disney situation resolve itself like that and take care of litigation too?

One of two things is going to happen. We'll have a relationship with Disney, and if we do, it will be a fair relationship for Disney and a fair relationship for DISH or we won't have a relationship. That's -- there's -- I don't think there's any particular one thing that anybody's going to be hung up on I think it's really the totality of the deal. We are a huge customer of Disney and they're going to want to maximize their profits long term with companies like DISH. And they have to look at that in its totality. And that's the way we look at it. So whatever -- if we do have a relationship, but I'm again cautiously optimistic that we will, it's going to be a good relationship for both Companies and it's going to be -- is going to get the right product to the consumer as well. Because we're not going to negotiate on giving up customer experience that we think is important. All right, I think -- is that it? Two more -- we have time for two more questions.

Mike Farrell, Multichannel News.

I had a quick question or a couple quick questions about retrans. You guys -- your Media General dispute is still going on and there I guess if they haven't already, they're set to close their Young merger today. Wondering how that's going to affect the negotiations?

And in a broader sense, wondering what you guys -- what your feelings are regarding all the consolidation that's going on in the broadcast group side? Is that going to make the next cycle even more hairy than the previous ones?

Well I'll talk about the -- you may talk about Media General, but retransmission is a broken process. Used to be that negotiations were a fair fight. Now the broadcaster has all the leverage. And so you're starting to see we recognized it probably before most companies did, but now you're seeing almost every video provider having takedowns, the latest being Time Warner, of course. The Media General is strictly a negotiation where we do hundreds of these retransmission sent deals, so we know where the market price is and we're not going to pay more then the market price for their product. But we will pay a fair rate for their product and certainly a big increase to what we've paid them in the past.

The merger, we have an agreement with Young today that has -- so the merger may end up with some opportunity on our side to get that settled. But it's -- Media General is looking out for their shareholders, we're looking for our shareholders and you have to have discussions to come to a common ground and if not, we won't carry their product. And hopefully the FCC and Congress will take a look at how they're affecting consumers both on the rate increases, which are going up now at three and four times the rate of inflation every year on all of the video providers, and look at what they're doing in terms of empowering the broadcaster in a way that I don't think was intended by the law. So -- and we'll fight for that, we'll fight for the consumer and Congress, and that's all we can do. In the meantime, I think across the industry you're going to see takedowns of product because there's a price that -- there's a point at which the price doesn't make sense. Joe?

We're having discussions as we speak.

Great, thanks, guys.

Alex Sherman, Bloomberg.

Two quick questions. First, Charlie, have you rolled out at this point an acquisition of T-Mobile?

Alex, I don't ever rule out anything.

So that's still on the table, that's still part of the optionality?

Well, yes I think -- look, I think acquiring a company, selling our Company, merging, partnering, those are all on the table, those are all part of optionality.

Second question has to do with Aereo. What we've talked about it before, and Charlie you've mentioned that you predict that the broadcasters themselves will come out with some sort of Aereo product, I want to take the other point of view. Is it possible that the operators, including DISH, would come out with some product that replicates what Aereo does if the courts deem it illegal so that you offer your own Aereo type service?

I think from my perspective, my -- everything that we're doing today is try to work with our current content providers and try to get -- we think Aereo's a good product and we give them a lot of credit for the technical innovation. But we'd rather work with our current content providers, the broadcasters themselves to come up with a similar product that they could do because they really control the rights, they're the right people to do it and we're just a distribution Company.

Having said that, if broadcasters decide that's not something they want to do, or they go too slow, then yes, I think you will see either Aereo becoming very successful or becoming part of a bigger group. Or you could see the industry do something absent any kind of congressional look at all these kind of things. So I think there's a lot of options there, but our -- we're not -- our only discussion today is with broadcasters themselves which says if you're going to do something like this, we'd like to participate and we're willing to pay you a retransmission fee. We think that ultimately leads to the most efficient way to deliver broadcast programming over the top like Aereo does today.

All right, all set. I think that we're finished for today. Thanks for everyone who joined the call and we'll talk to you all next quarter.

This concludes today's conference call, you may now disconnect.