(AP) – Dish Network Corp. reported on Monday a 26 percent drop in first-quarter net income as the nation's second-largest satellite TV company stepped up promotions to reel in customers.
Dish has positioned itself as the low-cost option in subscription TV, and its aggressive discounting snagged 237,000 net subscribers in the quarter. That's a solid turnaround from a year ago when it lost customers to DirecTV Inc. and phone companies that offer video.
But that turnaround has been costly. Dish's earnings have fallen for four quarters in a row as promotions and higher advertising costs took a big bite. Its promotions included offering one year of free service in a few cities to customers who switch from DirecTV.
Dish earned $230.9 million, or 52 cents per share, for the January-March period. That compares with $312.7 million, or 70 cents per share, a year ago. The cost to acquire subscribers rose by 41 percent to $412 million.
Revenue rose 5 percent to $3.06 billion from $2.91 billion.
Analysts polled by Thomson Reuters had forecast a smaller profit of 50 cents per share on revenue of $3.05 billion.
Shares of Dish rose by 26 cents, or 1.2 percent, to $21.56 in morning trading. The stock rose as high as 6.2 percent in earlier trading Monday.
Dish Network's latest results show that it is gaining some ground on its rivals.
DirecTV, which has about 18.7 million subscribers to Dish's 14.3 million, added only 100,000 U.S. customers in the first quarter. Cablevision Systems Corp. gained just 900 video subscribers in the first quarter, while Comcast Corp. lost 82,000 and Time Warner Cable Inc. lost 42,000.
But there's trouble looming. Dish is in danger of having to shut down 7.3 million digital video recorders if it loses a patent-infringement case brought by TiVo Inc., according to Sanford Bernstein analyst Craig Moffett.
TiVo, a pioneer in DVR technology, sued Dish in 2004 for infringement of its real-time TV pausing and rewinding features. A three-judge federal appeals panel in Washington sided with TiVo in March. Dish, which is based in the Englewood, Colo., has asked the full appeals court to review the case. But Dish has acknowledged that a review is unlikely.
"Shut down and replacement costs alone would run close to $3 billion," Moffett said in a research note.
Moffett noted that $3 billion is significant given Dish's market value of $10 billion. He also said that Dish could lose millions of customers in weeks if the DVRs were disabled.
Moffett doesn't believe Dish will agree to pay TiVo "modest monthly fees" of $2 to $3 per subscriber to settle the case.
In a Securities and Exchange Commission filing on its earnings Monday, Dish acknowledged that if it loses the TiVo case, "the adverse effect on our financial position and results of operations ... is likely to be significant."
– Associated Press Writers Michelle Chapman and Andrew Vanacore in New York contributed to this report