DISH Network Corp (DISH) 2014 Q3 法說會逐字稿

Good afternoon. My name is Nicole, and I will be your conference operator today. At this time, I would like to welcome everyone to the DISH Network Corporation Q3 2014 earnings conference call.

(Operator Instructions)

Thank you. Mr. Dodge, you may begin your call.

Thanks, Nicole, and good morning, everyone and thank you for joining us. Jason is out today, so this is Stanton Dodge. I am the General Counsel here at DISH.

I'm joined today by Charlie Ergen, our Chairman; Joe Clayton our CEO and President; Tom Cullen, EVP of Corporate Development; Bernie Han, our COO; Steve Swain, our CFO; and Paul Orban, our Controller.

Before I turn it over to Joe, we need to do our Safe Harbor disclosures.

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 we make during this call should be understood as being applicable to any forward-looking statements that 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.

Given that the AWS3 anti-collusion rules are in effect, we will not be talking about wireless today, and we will not answer any questions about wireless. I suggested that you refer to our prior earnings calls and public filings for information related to our wireless plans. With respect AWS3 auction itself, all we can say is that DISH filed an application to participate as a potential bidder for those spectrum assets, and that the FCC on October 30 found that DISH is a qualified bidder for the auction.

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

Thanks, Stanton.

Good afternoon to those of you on the East Coast, and good morning to our West Coast participants.

Our first order of business today is to introduce our new Chief Financial Officer, Steve Swain. Steve has been with DISH for nearly four years. His first management position was as our Vice President of Corporate Financial Analysis and Planning. Most recently, he served as our Senior Vice President of Programming.

He has all the proper education and experience to be successful in his new Senior Executive role.

Now, after discussion with Steve, we thought that we'd try something different on today's call. Since most of you all have undoubtedly read our third-quarter 2014 financial results Press Release or 10-Q, we will immediately open up the phone for your questions.

The first part of the Q&A session will be for our Wall Street analysts, and then time permitting, we'll have some time for the press.

With that, we'll get started. Nicole?

Marci Ryvicker, Wells Fargo.

Thanks. I have two questions for Charlie.

Charlie, you've always provided a really honest assessment of the core business. So can you speak to the health, I guess of the pay-TV business, and then in general, and then to your satellite business specifically.

And then the second question is, we're reading about Lightsquared and your potential interest. Should this plan go through, how do you think about monetizing your investment in Lightsquared if you get it?

Marci, this is Tom. Let me jump in here.

As you and I think everyone on the call knows, that DISH is not a party to the Lightsquared transaction. Charlie has a private investment in Lightsquared, and so I don't think this forum is appropriate for the Q&A regarding Lightsquared, and I'd appreciate everybody's understanding about.

This is going to be a great call. We can't talk about a few things, because of the auction and other things.

But on the core business, I don't think anything has changed in terms of what we've been saying for the last three or four years, which is the pay-TV business, as you know it from an MBPD linear kind of businesses, is a mature business. It continues to in a way, surprise us that it has held up as well as it has, and continues to be a solid business for DISH and continues to hold up pretty well.

There's certainly some variations quarter-to-quarter, depending on what other people do in the marketplace, or what we do whether successful or unsuccessful. But it's been really, really pretty steady for the last four or five years for us. With some pressure on margins, obviously.

What's different maybe, than five years ago, or four years ago is now, there's, for us, we think there's a pretty clear path to actually grow the Business. So instead of a mature business or maybe even a slightly declining business, we think we can actually be in a growth mode, and there's a couple of ways that we can do that that we can talk about today.

One is the advent of OTT, where I think we're well-positioned, and that and it will enable us to go after customers who aren't paying for TV today. So working with our programming partners, we go after people who aren't in the pay-TV universe today, and we know that's growing by 4 million or 5 million a year probably will continue to grow and accelerate.

The second thing is broadband in general. Satellite broadband first and foremost, where that's been a pretty good business. And where we've made a transaction that we think positions ourself to take some of those economics and some of those efficiencies with EchoStar, which you may have other questions about.

And don't get too surprised by the lower number this quarter, the lower trend the last couple quarters, because there is various reasons for that, and those will be when the new satellite launches in the industry in the next year and a half, you're going to see some acceleration there.

And maybe Tom will talk about later, we think that the fixed broadband business, where we're trialing with both Intellus and Sprint, we're cautiously optimistic that that's a real business as well.

So, we think we have an opportunity to grow the Business beyond wireless and just in our core business and, our linear business will be mature. We'll be under some margin pressure, but it's pretty steady. We're fortunate that most, a lot of our customer base is rural, and they're not as effected as perhaps some of the urban dwellers by the competition in the market place.

I have a follow-up on the satellite broadband, because as you said subs came in later. Is this a function more of capacity, or you're just not marketing the product as much?

Joe, you want to take that?

First thing, in some of the geographic markets, we are capacity constrained. Places like Texas, even my home state of Kentucky. In that instance, we have pulled back on some of our promotions.

Especially on promotional discounts, and indeed trying to raise the credit score since we are limited in supply. So those are the basic factors kind of throttling back some of our broadband growth that we saw last year, when there was a great deal of pent-up demand.

This is Charlie. I would just add that what happens with satellite broadband is you end up about half your beams fill up pretty quickly, and about half your beams don't fill up. In some beams, there's very little demand at all. And so we've gone through the stage of filling up -- literally filling up the beams both from [Biaset and Hues]. Of most popular, which we had two or three or four times as much capacity in those markets, so you saw pretty good trends there.

Now we don't have the luxury of selling to those beams. Although we're getting a cash flow from those beams, which is great and the sooner you fill them up the better, but we're more focused on those 50% of the beams that aren't full, and that takes a little bit more effort, and there's just not quite as much demand there.

But we can improve the product with speed and the amount of capacity that people get, and so we're going through that stage from a marketing perspective of not treating all customers equal, and going into those beams that aren't full and giving people actually kind of more bang for their buck, so to speak. So we're going through that and that will help.

But, what really will help will be the launch of the next Hughes satellite, which is just over a year away, and the next Via satellite which I think is about year and a half away, because they're going to triple or quadruple the capacity that we have in the beams that are full, which will open the market back up for us.

So it's, we're fortunate that there is demand for satellite broadband, that it is a product that has niche in the marketplace. It is a product that has several million customers in potential, and it is a business that has pretty good cash flow.

Great, thank you.

Jason Bazinet, Citi.

A question for Mr. Ergen. Your investors today that own your stock have a mature cash generative business, and then a raw asset in the spectrum. And my question is, as you migrate towards doing something with the wireless spectrum to turn it into something cash generative. Do you give deference to what that would do to your stock in the near-term?

Or, as you're thinking about making decisions, do you sort of say look, either you're with me over the long run or you're not, and I don't really care what happens to my stock price in the near-term. We're just going to do what's right?

And if you do care about what happens, the way the Street reacts to whatever decisions you make, are there certain principles or guideposts that you can share with us of things you could pursue to make that transition less painful for your investors? Thanks.

I don't think I'm going to say anything different to surprise anybody, but obviously as probably the largest shareholder of DISH, we look at things and we look at things long-term. And we certainly do care about the price of the stock.

And we like to make good business decisions, but we're fortunate as a company that we can make the longer-term decisions that maybe perhaps the street doesn't see or investors don't see initially but that people see the value in longer-term, because we can see things.

Obviously we have a bit more information in terms of how our business runs than perhaps people on the outside looking in. So, we care about the stock, we care about the consumer, we care about our employees, we probably first look at consumers, we then look at employees, and we think that's good for our shareholders. And then we look long-term.

And so, all I can give you is the history that the stock has -- since we've gone public, has appreciated at more than -- compounded more than 20% a year since 1996 or whenever we went public,1997.

1995.

1995. So 19 years. That's a pretty enviable record.

We don't see that changing, although there will be some years we go down or we go up, we don't really cater to the fund that wants to make a quarterly profit. We more cater to the person that are long-term investors, and so I think we've rewarded our long-term investors well, I think we'll continue to do that. But, it would be incorrect to say we don't care about our stock price. And It would be incorrect to somehow say our stock hasn't done well.

Understood. Thanks.

But just at big picture, I like where we're strategic -- I like where we're positioned. We have a nice, solid business. It generates a lot of cash. But we had -- we made a strategic decision five or six years ago that there was -- that that business led to other businesses that were video dependent. And we had a core competency in video, why not expand that into things like wireless and broadband? Why not do that?

And so, we've done that, and so we're not a one-man band. We're not a company who's only got one asset. We're not a company -- we're not a one trick pony, and so I think we're well-positioned for what I see happening, which is video being a huge consumer of data, both on a fixed and wireless basis, both inside and outside the home. And, I think working with our programming partners, we're in a different situation today.

Where we're working with -- where for the first time, we can talk to programmers about how they can make more money, as opposed to what price we pay them on satellite. So suddenly, you start working on things where both of you can make money that you're not making today, that's a better conversation.

Very helpful. Thank you.

Phil Cusick, JP Morgan.

Hello guys. Can you give us, Charlie, an update on your over-the-top efforts? How is it going getting content for that, and is that still something that could launch at the end of this year?

And then help us think about the impact, the, I guess, early impact of turning off the Turner channels. Is that similar to the Zombie's last year, better or worse? Thanks.

First on OTT, we still plan to launch a product before the end of this year. We continue to have several major programmers signed up and a lot of interest with some others. We won't sign up everybody, because it's kind of a skinny down package, so we want to make sure we can meet a price point for consumers.

We are having some technical issues on our end and some on our programming partners' ends, in terms of now that we're getting the signals, to put all those signals together and to be able to insert dynamic ads is a fairly complex project even though we've working for it for a long time. We're now actually doing it, and when you start doing it it's not theory anymore it's actual practicality. So we are running into a few snags there, but we still plan to meet the year-end -- our self-imposed year-end deadline. But whatever we do, we are going to do it right.

I think it's going to be a good product, I think it's going to be a good product for our programming partners, and I think -- I don't think it's going to change the world in the first few months, but I think it's something that has a long-term path trajectory. And, we don't have all the answers quite frankly on how the best way to do it is, and so that's why we spend a lot of time with our programming partners to discuss what might work. We also see other strategies out there in OTT.

So, you see Sony taking a materially different strategy, which is pretty much sign-up is to give the whole programming package to people, so it's very similar to what we do today, except do it through OTT. That's a different strategy.

HBO has talked about a different strategy, CBS's talked about potentially different strategies. So, some of those are going to make sense. Some of those are going to work, some of those aren't going to work. We hope that our strategy works, and it's not easy to do.

It's a lot more than just putting a package out there. There's a lot of technology, there's intellectual property, there's the devices, there's operating system and ease-of-use for consumers. There's billing, there's encryption, There's ad insertion.

So, there's a lot of pieces to it, but it's very similar to what we did years ago on satellite. A lot of complex things have to come together on that.

Then the second part of the question was -- oh, Turner. We're disappointed that Turner did not extend the contract -- our contracts. So, they did come down. Obviously, when we take something down we're prepared as a Company to leave it down forever.

And fortunately, or unfortunately, things like CNN are not quite the product that they used to be.

You can imagine CNN down on an election night would be a disaster 15 years or 20 years ago, but now there's plenty of other places for people to get news. In fact, a lot of people get news not from TV anymore, they get it from their devices. So, it's not had a major impact on our business yet. I do expect we would ultimately lose some subscribers without Turner programming.

We certainly would prefer to get a deal done. But we have a timeframe that we look at, and their becomes a point in time certainly during this month, where if we don't have a deal we just make a long-term decision to go a different direction. I think you've seen other people do that. I think one of the cable companies did that in relation to Viacom.

It's not -- this is not -- I think the industry is changing. So I'm going to give a long-winded answer here, but the industry is changing in the sense that because of the different methods of getting content today, there's about ten big programming groups, right, the four networks and there's certainly Time Warner, certainly Scripts and Discovery and Viacom, Univision, A&E, and I'm probably leaving some other people out -- AMC.

So, there's about ten groups. I don't anticipate that the cable companies, satellite companies, and phone companies are all going to carry the same ten groups like they did -- it's not going to be a marketplace where everybody has exactly the same thing, and it's just about a price. I think some people are going to say well, they'll gear more towards families and kids, some people will gear more towards sports, some people will gear more towards entertainment. And you're in a situation now, for example with Turner, do you not do -- if Turner -- if we're not going to be in a relationship with Turner, we would not have to raise our prices next year.

And, that would be slightly cash positive for us from a cash flow perspective. And yes we'd lose some customers, but we'd save a big, big check from a cash flow perspective. And for those people who don't really care about news or cartoons, where we have other news shows and other cartoon shows, would they rather save the money?

There's a pretty good chance that they would, and so I think in regional sports at some point somebody's not going to carry regional sports, because everybody in the marketplace doesn't watch regional sports. And so you'd have a price advantage if you didn't carry regional sports.

So I just think there's going to be more diversity, particularly when you can get cartoons from Netflix, or you can get news from the Internet, or you can get a TV show a week later. Or you can binge view all the shows in a way that you can't do easily on TV as we do it today. So, the world is changing and some people are going to change with it, and some people are going to be fast followers of the people are just going to do -- just figure it out after somebody tell them what they should be doing.

And, Disney has been the leader, right? You saw another announcement today where they are doing something really smart, which is you buy a movie from Disney, it will work on Android and it will work on Apple. So you can watch it on all your devices, whether Apple or Android, without having to pay for it again. Well, that make sense for a consumer. That is real technology, that is real smart stuff.

And I would anticipate that other content people will do smart stuff. And, we're going to work with those people who want to do new things and want to try new things. We hope Turner is going to be one of those.

This might be a little --

I'm sorry for that.

That's all right. This might be a little early, but we think you have CBS coming up toward the end of this year, how does broadcast fit into that ecosystem of must have or options?

We don't talk about particular contracts unless it's something like in Turner's case it's down so everybody knows about it. But certainly, we've had a good relationship with CBS. Certainly, CBS is a core product when it comes to -- CBS for us, it's owned and operated station, so it's not something that has the impact of Turner that Turner would have, where it effects our consumer base across the whole country.

And it's interesting, because one of the dynamics there is CBS channels are now available over the top. So there's an alternative for customers. So on the one hand, that's an interesting business plan, on the other hand it makes that product less interesting for MBPD's because customers have a choice to get it somewhere else, and not everybody watches that channel.

Having said that, I think CBS from a network perspective I think has the highest ratings. They certainly have I think that they've done a marvelous job with content creation. I think they're the best at that, have been the best at that, and certainly are a valued partner. So I would certainly think that you'll see them on DISH.

Thanks, Charlie.

Amy Yong, Macquarie.

Thanks. Two quick questions. One just following up on Jason's question and talking about your stock.

You've had a $1 billion share repurchase plan out there for some time. What other factors would make you want to exercise it?

And my second question is just on the regulatory changes around broadband and net neutrality, and how that might impact your streaming opportunity going forward? Thanks.

Yes, we have a stock purchase plan for $1 billion. It's really out there in case the market were to look at things in a way that we think might be short-term or -- we went buyback -- we would only buy back our stock if we couldn't find something else to do with our money, or if we thought the stock was severely undervalued. We wouldn't want to buy it back when it was overvalued.

So that's why it's out there. I don't anticipate that we're going to buy back stock given the many, many things I think we can do with our capital today that I think we'll return a greater benefit to our shareholders. But certainly to the extent that you get to a point where you don't have other things to generate value for your shareholders, this, certainly, it could make sense to buy back your shares under those conditions.

And, that's why we have a buyback plan there. But, I don't think we've done anything on it in two or three years because I think we've seen other areas to invest in.

Regulatory certain net neutrality is an important -- I think it is important to think about it for all consumers, it's certainly is important when you think about over-the-top business. It certainly an important thing when you think about how we might compete in the market place out there.

I think it is probably the one thing that would probably change our thinking a lot if the Internet wasn't open and that a company like Comcast -- we openly are against Comcast Time Warner. And, the reason is they will control over a majority of the high-speed broadband pipe in America if that merger goes together. That's a national product, and they certainly could be a lot of mischief.

And it's been shown that conditions just don't work with Comcast. We're still waiting to try to get regional sports in Philadelphia. We're still trying to get OTT right, even though those conditions that they have to give those things to us.

I think Bloomberg just wanted to put their channel by the news in Comcast. Was a condition of the merger. I think it took them two or three years of fighting and scrapping just to get a fair placement in the news category.

You just don't want one company to control -- have that kind of power over the Internet. And so, I think that is something that would keep us up at night if something like that were, if there would be an unregulated marketplace for broadband.

Thank you.

[AJ Fan], IFI.

-- about the need for possibly segmentation, whether you want to do sports or something else, can you really talk about what your personalized subscription service is really targeting? I know it's a skinny product, but you've got some of the most expensive channels like ESPN on there. So, is there a niche that you're targeting with that product apart from the fact that it is the (inaudible) or cord cutters. Is there a target segment that you could identify?

Then, just on your comments on the Turner channels, obviously TBS and TNT were not part of that. How would you sort of characterize those channels, and is that sort of connected to the cartoon and the CNN channels being off air? Thanks.

So, on OTT, we really target the 18 to 35 year-old who is not paying for TV today. It's going to skew higher, it is going to skew, short-term, more male. It's going to skew more urban, it is going to skew more apartments as opposed to homes, and it's certainly going to skew towards sports enthusiasts.

And it's going to be a really good product, and there's going to be some advantages to OTT, it's going to be a media product, you don't have to wait for an installation. It's going to be a product that you don't have to worry about recording things, and things are going to be available in the cloud, so --from the cloud so it's going to be a little bit more user-friendly I think for consumers and it's going to tie into your devices. So, these are all things we have to learn, right?

We have kind of theories about how it all works. My experience has been that some of our theories will be right, some will be wrong. Where we're wrong, we've got to change it and overcome the consumer's objections and then see whether we can grow the pay-TV market in terms of revenue and subscriptions and number of people participating. And, that's really objective.

We don't see it going after -- we're not going after the guy who paying $100 a month and got a house and four TVs and three kids. I mean, he's 55 years old. That is not the target market.

On the TBS, TNT -- certainly to -- I'm just going to guess, that if I were Turner, that if you're not going to carry my CNN and cartoon network that I'm not real excited when your contracts up for you to carry TNT and TBS. They typically try to package -- bundle all of those things together. So, I think we have to be prepared that those channels will come down as well.

And again, those will be more painful. In fact, I mean Joe, you're the guy that's [getting the call for really, really has been almost a non-event at this point.

Yes. So far we haven't had any major churn aspects, but I do believe that the popularity of TNT and TBS would force that to change. Think about the NBA on TNT, it is much more popular with our rank-and-file consumers. So far not an issue, going forward it would build -- TNT and TBS would cause a major hiccup.

But a lot of their programming is available elsewhere. It would be a little bit tougher if their original programming was a success like AMC. But I don't know of an original program that they have that's in that category, and so a lot of the rerun stuff is available in other avenues. Even the NBA's going to be majority of it on ESPN and NBA network.

So even things like the final four are on the Internet now. So, that's what I mean when you start having your product being available in a lot of different sources, customers don't want to pay for it twice. And sometimes they're willing to watch it the next day or the next week in a more convenient structure, because young people aren't watching stuff live now -- so, except ESPN.

So it's -- here is the way I would look at it. Mathematically we're probably not going to be able to carry all the ten major people long-term, because we just don't want to raise prices to $100 a month. So when you do that, somebody is going to drop off. We don't want any of our programming Partners to drop off, but they'll self select, and somebody's going to drop off or we'll keep our prices lower. We'll lose some subscribers, but we'll net-net be cash flow positive on it, which is how we look at it.

I hope it's not Turner, because Turner was the very first company who signed with us and DBS. So that's like the last -- it's one of the easier ones to take down, in my opinion, but it's like the last one I personally want to take down, because they're the guys that helped us get in business. And, I'm a pretty loyal guy. I would bend over backwards for Turner, because they helped us get in business, all right.

But we have a responsibility to our shareholders not to do stupid deals, and it's hard when people's view -- we realize we have real viewership, so we know how many minutes people watch CNN. And, we know how many minutes they watched CNN five years ago. And, it's hard when somebody wants a price increase, double-digit price increase for something that people are watching half as much as they used to watch. That just doesn't make sense.

And it's not -- it's Turner's job to make their product better, not ours. Ours is to make their product more convenient for the consumer at a fair price, but they have got to make their product better. When they make their product better, they get more money for it. If your product's not as good as, you can't expect to get big increases because that model doesn't work. And I don't want to pick up Turner, I think everybody's got that same issue.

Thanks, Charlie.

Lee Cooperman, Omega Advisors.

Yes, thank you.

Just for the record, Charlie, I say that I wish I had more guys I could invest in like you. So, I'm fully prepared to put my clients money and my money in your hands.

My question relies around tax efficiency. We have no idea how spectrum will ultimately be used by DISH, or whether you sell some, keep it all, whatever. But have you thought about putting spectrum into a separate vehicle where if a transaction occurred that it would be much more tax efficient for DISH?

Yes. That's as far as I can go. I'm looking at the attorneys, they're giving me the axe. But the answer is yes.

Well, good. I assume that you did, and you are, and again I'm more than happy to let you figure it out and do all the heavy lifting.

This is Tom. I guess I would just say we believe OTT spectrum and the core DISH business belong together at this point. But of course we evaluate various structures that we could entertain depending on how the market breaks.

I may be off my rocker, but I think the spectrum you have could be worth as much as the entire market value of the Company, presently.

We can't comment on that one. I know I can't comment on that one.

But, I do think that if you go back to our last conference call -- which was August? What month are we in now? August, whenever that was.

I think we articulated where we think things go.

Good luck and thank you. Appreciate it.

Thanks for your support, Lee.

Ben Swinburne, Morgan Stanley.

Thanks. Not to turn this into a Time-Warner call, but I wonder if you had any thoughts on HBO's plan to go over-the-top, and how as a distributor of that product? And it's a different product than the basic cable network given that you participate in the revenue. How you feel about that move, and what DISH's response, if anything, might be there?

And then on the PSS over-the-top service, Charlie or Joe, do you have a return target in mind? Or maybe even qualitatively, can this be as bit of an IRR business as the DISH TV business?

Because, when we look at the gross margin at an attractive price point for the millennial, sort of hard to see a lot of gross profit dollars in the OTT space. If you look at Netflix, their churn is probably double yours monthly, and make a lot of money on a gross margin basis. At least today, how are you thinking about the return profile of that asset?

This is Charlie. When you look at total return, we'd look at it and would anticipate that it would be as good or better than our core business. You're right, the margin will be less. I think that's true. The churn will be higher, I think that's true.

The counterbalance from that is that you're not going to have $800 a [sack]. In fact, your sack will be very low to get a customer. And most of what will be done there will be on the Internet, so your actual variable cost per month to service a customer is much less.

So, you've got kind of a different financial model, where you're ARPU margins are a little bit less but your sack is materially less when you run all the numbers. To the extent that you're getting incremental subs, it makes sense.

Second part of it is that the advertising opportunity I think, is immense in OTT. Not in 2015, but as you go forward. Because we can stream a personalized ad to everybody.

So, again working with the programming partners and working with the data that is available and working with the event that we can send everybody on this call a different ad when they're watching, means that we can start moving into some of the categories that the Facebook's and the Google's of the world are taking advantage of today. So, I think that's another dynamic.

I think the advertising piece of OTT is materially higher than it is than linear TV, where in the advent of DVR's, we've said from day one people do skip commercials. And so rather than fight rather than swim upstream with that, we would rather come up with a different dynamic that attacks it in a different way.

Any comments on HBO?

Oh, yes, HBO. Joe may want to pipe in here.

I mean I think everybody's searching for how they can monetize their content, and I certainly don't blame HBO for taking a look at that. As far as -- we have to wait and see what they are -- obviously what their plans ultimately will be, and when they're going to do it. And again, the way we would look at it is if they're just going to compete with us, then that's probably not that attractive to us, if they want to work -- we want to work with all those people who want to work with us.

If they want to work with us, we think we add a positive to that dynamic, because it's not just about putting -- it's not all about just putting your product out there. It's a lot of other things that go into it. So, we think we can be value additive as we move forward, but I'm sure we'll have those discussions, and I'm sure they'll go whatever route they think is best for their Company, and we hope that DISH and our industry is involved in it, because I think -- I personally think that's the best way to do it. But I think people will go different directions and do different things and some will work and some won't.

I mean when Stars went in a different direction with Netflix way back when, I think it hurt them in the long run. Wrestling has gone in a different direction. I think it's hurt them in the short run, I don't know if it hurts them in the long run.

But I also know that management has to do what they think is right for their shareholders and their company, and I'm sure they're well-managed. I'm sure that Time Warner will make good decisions.

Thank you.

Tuna Amobi, S&B Capital IQ.

Thank you so much.

My first question is on broadband churn. I think you alluded to capacity constraints, I wasn't sure if that was also a factor in explaining churn. If you can provide some color as to where the customers are churning to, and if the changes, the new satellite launches that you mentioned earlier, would also be expected to reverse the churn, that would be helpful? I have a follow-up question.

Okay, this is Joe. I'll try to handle that.

I'd have to say, when we first started with the launch of DISH Net Broadband about 15 months, 16 months ago, we probably didn't do the best job of qualifying our consumer base. For example, if you're passed by fiber right in front of your home, or cable, this is probably not going to be the best product for you. It is much more attuned to rural America, where there is slow speed Internet or no Internet capability at all.

So I think we contributed somewhat to the churn ourselves by taking on some customers who indeed had better alternatives available to them. We have since started tightening that requirement in qualifying a person when they call up to our call center. and then also, in terms of being a little more operationally efficient in terms of the install, on the locations of where the customer base is at.

Those productivity improvements have been in place, and it has contributed to our churn higher than we had expected. But indeed it is starting to come down with the initiatives that we have put in place, and we expect to be lower by this time next year. And when the new high-powered satellites are up in about a year as Charlie said, it will free up a lot of the capacity constraints, which is also holding back our sales growth.

So I think it's the combination of two things. Capacity constraints and churn. Actually some of it precipitated by our not qualifying the consumer properly at the outset. I hope that helps.

That's helpful. Just on that second point, just to be clear. Are you suggesting that there might have been some quality of service issues, when you talk about customers that have better alternatives that you didn't pre-qualify the right way?

Somebody -- If the customer is going to be get 250-gigabits and all we can offer them is 20- or 30-gigabits, and he's going to be a streamer, he's going to downloadable lots of HDTV movies. He's going to be a gamer, he's going to have better alternatives than what we offer.

Okay that's helpful.

Satellite broadband is a more limited product. It's a product that probably the best thing for maybe 5 million or 10 million homes out there. It is not the best product for 100 million homes out there, and so we have to do maybe a bit better job of explaining that to consumers on the front-end.

They're happy with the speeds. What they're not happy with the amount of capacity, where they may only get 20 gigs or 40 gigs of product, there are customers who use more than that.

There's plenty of customers who use just one or two gigs, particularly in rural America, but there's people who use more. And we have to do a better job -- that would be the number one complaint, which is I love the products except I run out of capacity on the sixth day of the month. And, that shouldn't be a surprise to people. We can do better job up front about that.

Okay.

The second thing is just, you so know where to go strategically.

Tom may want to talk about this, but the other piece of it, to the extent that we can do fixed broadband. And again we don't have a major initiative out there other than the tests that we have today, but to the extent we can do fixed broadband, those customers who want increased data that's a really good place for them to go. And that also fits kind of in small-town America, where there's not -- where they're not getting super high-speed fiber broadband today.

And that's a pretty efficient place to go. When you put fixed broadband with -- fixed terrestrial broadband with satellite broadband, the same marketing is done for both of them and you can rightsize the customer put in those products. Tom do you want to?

Again, cautious about the auction, so I'm somewhat limited in what I can talk about regarding the wireless trials. But I was as I think most of you know, we have a trial going on with both Intellius and Sprint.

I was out in customer homes about ten days ago, meeting with people that have had the product now for a few months, and they're very pleased with it. They're pleased with the speed, there pleased with the service and the choice. So the experience is good, we're optimistic about the efforts and we're still learning.

As I've said on previous calls, it will take us a while to load up the networks and pistol whip the Business models and understand the marketing and installation challenges. But those are things that we've seen and tackled before. At this point, we're not sharing numbers, but I will tell you that we are training more installers and we're sending more installation resources into both of those markets. We're seeing some positive attachment rates in terms of DISH bundling, and we're learning things.

For instance, we know that the CPE can be improved, both from a cost standpoint and from a design standpoint, where we can make a smaller unit that will give us more installation options. So, I guess at this point I would say we're encouraged by where we're at. The customers like it, and we have a very good relationship with both partners.

And hopefully we'll get -- since this is Steve's first rodeo as a CFO, hopefully I'll get a financial question, because I'd like to see if he can answer a question.

(laughter)

A lot of things we do here is train people, right?

Okay. Just a quick follow-up, Charlie, I think you said your OTT offering is going to secure a little bit of sports when you were kind of talking about that in the earlier question. And, given the environment of the sports programming in the context of some of the recent deals that was signed recently, I was wondering if you can comment generally on the sports offering and your strategy there?

I think you've, in the past, you've passed on a lot of the deals. So, I'm wondering if how you see the current environment for sports and how that might play to your strategy there, especially on the OTT side?

Well, I think for sports, where sports is recently priced, we're going to carry it. Realize that that's a relative term, reasonably priced, because sports is an expensive product for the content providers to pay for, right? So, everything in sports is going up.

But, because we have real viewership measurement, right, we have a feel for what sports is worth for our customers, right? And that may not always coincide with what somebody paid for the rights, and if somebody pays too much for the rights and then comes in and says we've got to cover our rights fees.

So the Dodgers is a good example, right? There is no way the Dodgers are worth more than the Yankees. Next question, right? There's no way.

So if somebody comes in and says we want more of the Yankee prices for a product that less people watch, nobody on this call will do that deal, right? And the only way you would do that deal is if you own the team, right? So, I just think we have to make hard choices with real economics and math and real data that says this is about the value of what that is.

And we're not -- if we lose some subs next quarter because we don't carry a product, but it's the right thing to do and increases our earnings and our cash flow, right, that's the decision we're going to make. We're not going -- it's not like Joe's not going to get a bonus if he does the right thing on subs. Right, that's not the way we operate.

So we're advantage in that, and so look, I think Disney is the most important company in sports. And, I think that's -- you start with that. And then I think there's other people around Disney that are important, but if Disney wants a sports product if they want the Olympics in 2020 they can afford to pay it. If they want the NFL on Thursday nights and Sundays, they can afford to do it, so they can get first choice at everything, and because they have the highest revenue from the distribution, they're fully distributed.

So, you start with Disney, and then you fill that in with whatever your strategy is.

Alright, operator, we have time for one more question from the Wall Street community.

Hopefully it's a financial question.

Then we'll move on to the press.

Thom Eagan, Telsey Advisory Group.

Great, thank you very much.

Last month, a federal judge ruled in favor of DISH in the auto [hops] service case versus FOX.

If you could just share with us what's next here? How does that help DISH negotiate with CBS, and how does that help you guys negotiate with programmers regarding the OTC service? Thanks.

I think it's pretty irrelevant. I mean its -- I think there was a lot of emotion about that product when it came out. But people realized that people skip commercials, they skip on our service, they skip equally on everybody else's service. I don't think that -- I don't think -- I think there's a lot of emotion around that when it came out, but I think the practical effect of that has been overestimated, I guess.

At this point, look, we're going to fight for consumers, and if we don't fight for consumers nobody else will, and we're probably one of the few people in this industry who fight for consumers, whether it spending three years in Congress to get local-to-local when everybody was against us. Or whether it be for the right of consumers to watch TV in a good manner or watch multiple shows or watch shows on a tablet or skip commercials. We're going to fight for those things.

But we're also cognizant that we are in a dual revenue stream model. If advertising revenue is severely hampered they've got to raise their rates somewhere else, and so what we've argued since day one is we're not against the advertising model. But the model that we're doing today doesn't work, and it's painful for consumers, and so they skip commercials.

Why don't we do a different model where the consumer actually gets a targeted ad that's more meaningful to them, that you actually make money on and they actually watch. That seems like a better model, and that's what we work with the content people who want to work with us, we have technology that does that. And we're working with them with very, very good results, and so I think that's a better mousetrap. And we might not have done it exactly the right way, but I think we're on the right path as it comes to an advertising model with our partners.

In early to mid-2015 with the Comcast and deals with Direct potentially closing, there should be a huge amount of systems that are going be transferred between operators. So wondering, is this going to be further ground for DISH to be able to poach customers, and if you give us some sense of how DISH is going to be positioning itself for that? Thanks.

Well I think that mergers are always opportunity for -- they're obviously distractions for companies, right? So I think in that sense, we should be advantage, and I think there's also an advantage -- if I'm a programmer, I'm scared to death of those two mergers, and because the dynamic changes, right?

The dynamic changes from the programmer coming in saying we want a double-digit rate increase to those really big guys coming in saying we want to double-digit price decrease, because you can't afford 30 million people going down. You can't afford, if you are a network, you can't afford 60% of your customers going down in Philadelphia.

And so the dynamic will be much, much different. And so that sense, forward thinking content people are going to make sure that DISH is successful. They're certainly going to want to work with us, I would think, right? Because if you don't want to work with us, God forbid, I know it's just human nature if you have 30 million subscribers you're a third of the Business, your hammer is a little bigger than if you got 15% of the business. I mean, it's some kind of inverse relationship, but I assume your hammer is about eight times bigger.

(Laughter)

Probably what the math works out to. So I think the dynamic is interesting, and hopefully we can take advantage of things.

Alright. I think that was the last one, even though we didn't get a financial question, and maybe the press will ask you a financial question, Steve.

If the press is not queued, we can do one more. Where do you stand? Operator?

We will now take questions from the members of the media.

(Operator Instructions)

Liana Baker, from Reuters.

Hi everyone. Thanks again for letting the press ask questions.

I was wondering if someone can talk about how EchoStar and the technology coming out of that side of the Business and that Company helps the wireless vision or efforts at DISH?

This is Charlie. That's a good question for their conference call later in the week, but essentially, EchoStar as a company, has tremendous engineering capabilities, right? And, those engineering capabilities, they virtually have invented every communication with the satellites. So all the protocol to go up to the satellites and the modulation schemes to go to satellites is an EchoStar product.

Those same modulation schemes and technology are very similar to what you do terrestrially, so there's good expertise there. Certainly RF experience is necessary, so it's good expertise there. Certainly there's things like intellectual property that's important, where they certainly hold a number of -- hundreds of patents and so forth.

So -- and they also are world-class when it comes to digital design. So, I think they have, regardless of DISH, they have a bright future in the wireless business. And, certainly things like OTT -- you can probably talk about OTT better than I can, Joe?

You asked the wireless question, Liana, but in terms of the OTT business, which we're getting ready to launch, Charlie said it earlier that it is a complex business. The streaming and the ad insertion capability.

EchoStar bought a company called Move Networks about four years ago, which I'll call it has the secret sauce that provides a smooth Internet streaming capability for customers. It's called adaptive bit rate technology. Of course, they have patents and intellectual property capabilities that came with that. That will help us have a first mover advantage from a technological standpoint, when we launch our new service here shortly.

Great, thanks so much.

[Shawnee lanamachantove], Wall Street Journal.

Hey, Charlie, hello Joe, everyone. So I just want to make sure crystal clear, how much did HBO's recent streaming announcements factor into why you guys decided to drop the Turner networks, if at all?

This is Charlie.

None. In fairness to Turner we've got a new team, since Steve was head of programming is now the CFO, so we're at limited resources here. And Turner themselves has a new team in terms of executive management and so forth. So you ended up with a different set of dynamics than you might have in a normal negotiation, but the HBO announcement, really, has -- I think they run those two companies separately, and we look at them, our customers look at them separately.

They're apples and oranges for our customers, so if our customers look at it apples and oranges, that's how we look at it.

Okay and one more thing, if it's an answerable question about LightSquared. I just want to make -- understand, is it possible for DISH to use the spectrum, whatever spectrum you acquire personally through LightSquared? In any way?

It's Tom, same answer as earlier. It's not appropriate to talk about LightSquared on this forum, and we're very limited on we can say about spectrum, period.

Okay, fair enough. Thank you.

Alex Sherman, Bloomberg.

Hey, guys thanks as always. Two questions, first one's really quick. In terms of an OTT price point, are you guys still thinking about $30 a month?

Alex, this is Charlie, we haven't decided yet, but that sounds in the ballpark. I think something -- I think something along $1 a day is kind of what the marketplace -- that limits how many channels you can put in it, obviously, when you got some sports channels in there that are pretty expensive.

Okay, good, thanks.

Second question, Charlie. Talk about the M&A landscape around you as you see it going into 2015? The sort of alluded to it on the last analyst question there, but if Comcast Time Warner Cable goes through and AT&T, DirectTV, do you expect more programming consolidation on the next six to nine months, or do you see more international competition coming into the US in either wireless or content?

Every strategy, there's a counter strategy. I think that as M&A -- I think those two big transactions that are in front of the government today, depending on what happens with those, will drive other things. And I don't know whether those mergers will be approved or not.

I would say that Comcast Time Warner is more problematic for consumers for sure, I've never seen as many consumer -- not complaints but consumer opposition to that. It's control of the broadband business in the United States. So that one's got definite -- definitely more issues, but that would drive other things. Certainly, even AT&T DirecTV will drive other things.

We probably won't, Alex, we probably won't be able to participate since no banker wants to work with us. (laughter)

Well, thanks for reading, Charlie. Appreciate that. I think you guys will find your way.

It was a great article, but next time Alex if you really want a good article, talk to our bankers because our bankers will talk on the record. They don't gossip, they will talk on the record. Bob's here, he is going to be pissed at me for saying anything to you, but you've always written good articles, Alex I was disappointed that you spent more time gossiping and less time taking quotes from our bankers.

Well, not all your bankers will speak on the record.

The ones I gave you will. (Laughter)

There you go.

Anyways you've always written good articles, Alex. I have always appreciated what you write, and I do read what you write.

Thank you. I appreciate every time I get to speak to you too, thank you.

Mike Farrell, multichannel.

Hi, just have another question about OTT. Charlie, Earlier, I think on the analyst call, you kind of mentioned that you envision kind of a landscape where not everybody will have the same kind of group of networks.

Do you kind of foresee a future with all these other guys and yourself included kind of specializing in different niches? Where DISH to be like entertainment OTT Company or somebody else could be the sports entertainment OTT Company?

I'd say a couple things. One is DISH wants to work of those people that want to work with us, and we'd have a feel for what the value is of things. So maybe there could be honest disagreements where somebody thinks something is more valuable than we would, and while we might both want to participate, the business deal can't be done.

There'll be some cases where people want to go direct or don't want to participate with DISH, and then there's people who do want to participate with us. And we think we bring a lot to the party in terms of the technology, and all the things that we've worked on to put in place, and so I think that's one way that it's going to happen.

And so I think you'll see different strategies for the content providers. And sometimes the content provider will sell it to a third-party who will put it in an OTT package, and that's what happens with Netflix, right? Somebody sells movies to them, and they put it in a package.

I think you'll see varying degrees of content strategies, and again we don't have all the answers. We're just trying some things based on our judgment that will work.

We've already seen Suddenlink -- I think we've seen instances where Suddenlink is -- looks to me, I don't want to put words in Suddenlink's mouth, but it looks to me like they may have permanently dropped Viacom from their networks. Certainly, there's been talk of DirecTV and AMC in a contract dispute. Obviously we're missing CNN today on our network, so you're starting to see those rumblings.

And, I think that if you can go get content if you can go get news somewhere else, it -- 20 years ago, CNN was a must have. It's not a top ten network today anymore, right, and unless they find the plane -- the Malaysian plane. So, you just have to see how those dynamics change.

I like working with people I like to work with. I like working with people and companies who want to try to go the same direction that we want to go. And it's not very much fun at my age to work with people who just want to have a contract and follow you around with their contract all the time. So, we're still trying to invent stuff, and make products better still trying to use technology and be in the 21st century, and those people who want to be there I hope we have good relationships with.

Just a quick follow-up. Are you seeing in any -- I know you can't talk about specific negotiations, but are you saying programmers in general being a little more open to unlocking the bundle for OTT? Or are they digging their heels in, saying we've got 20 networks, you're going to pay for 20 networks?

They'll have different strategies, but in answer to your, in question there's -- most programmers are pretty open to trying some new things.

Could that translate to your satellite business?

It could. I mean look, I think business ultimately is about -- I think you have to innovate and try things to move forward as a company. And, we're in a mature, the regular linear MBPD Business is a mature business.

So you can't just go back every day and say I'm going to raise my rates to make my budget. You're going to have to figure out other revenue streams, and get other people to pay for your product and watch more minutes of your product.

And I'm going to get off the subject here, but the minutes that people watch cable television and the networks today this year is less than the minutes last year, and less than the year before, and less than the year before that. And it's a little bit because people cut the cord, but it's a lot because people are watching Netflix or YouTube or Amazon with the available minutes in their life.

And if you have five hours a day that you can watch TV, and you watch Netflix for 45 minutes of that, then you're only watching 4 hours and 15 minutes of TV, and that's what -- that's happening. And the landscape of what you can do in the mature business is different, So you've got to think about it differently.

And, some companies -- I don't think there's any -- It wasn't a coincidence that Disney went first in OTT. They're just more creative, there. They're willing to try -- they're not scared of technology, and so they're trying some different things. Again, I said I thought that the announcement today was brilliant on the movies between Apple and Android, it's just brilliant.

Whereas everybody else just fights -- and doesn't take into consideration the consumer. There's just -- it's a pleasure to work with companies who want to try some things.

Great, thanks.

Aaron Stanley, Financial Times.

Hi, thanks for taking my question here.

Just in the spirit election day, I wanted to touch base quick on how addressable advertising revenues have sort of fared into the past two months of this third quarter? Obviously this is one of the new trends in political advertising, and I just wanted to see how big of an impact this is had? What type of success has there been, especially since 2012? And, where do you see this going over the next two years?

This is Joe Clayton, I'll try to take that, and any of the rest of the guys can jump in. Our ad sales business or media sales business has got a great boost this year from our political advertising, if you will, with the interactive ads. To the point that here in Colorado, we can't even take any more advertising. It's already saturated to 100%.

This will be a growth initiative for us going forward, not just in the political season, but in tailoring ads to the proper consumer base. But this will help our numbers significantly in the fourth quarter this year.

By the way, this is Charlie, just add to that. It's not a hugely material kind of number -- political advertising, I mean we realize we're doing that in conjunction with DirecTV as well, so it's the satellite industry. But what it does do is prove conceptually that you can do targeting ads that will generate a lot more income.

And that should be good for our programming partners, and that should be good for us going forward, because we've got a real wide case study of materially more advertising dollars in the political arena this year than by a large factor that I don't know what the exact numbers are, but we probably don't disclose it, but it's many x numbers higher.

That's right.

Okay Operator, we have time for one more from the media.

Scott Moritz, Bloomberg.

Hello guys, thanks. Mobile video, Charlie, during the Spring you outlined sort of your goals for what the future of mobile video would look like? And I'm wondering now that Sprint's not available, and maybe that's a good thing, if you still see things the same way? Do you still have some options to maybe bring that sort of service to the market?

Can I answer that? )

We still -- I don't think we see things differently, I guess is what I would say but I'd probably go a lot more detailed if I didn't have the anti-collusion rules in place, so I think I would just leave it at that.

So, thanks, everybody.

Thank you all for joining the call today we look forward to talking to you all next quarter. Have a good day.

This concludes the call. You may now disconnect.