UPDATE 4-Dish Network pays dividend, shares rise

Mon Nov 7, 2011 3:15pm EST

* Rare $2.00/shr dividend pleases investors

* Dish needs to expand beyond pay TV-Ergen

* Dish lost subscribers to DirecTV - CEO

* Shares rise as much as 7 pct

By Liana B. Baker

Nov 7 (Reuters) - Dish Network Corp lost more subscribers than expected because of a promotion by its main rival, DirecTV , but the satellite television provider paid shareholders a rare dividend, which sent its stock up as much as 7 percent.

The company said on Monday it would pay a one-time dividend of $2.00 per share, which analysts said placated investors who may have been worried about the cash strategy of Dish's billionaire chairman, Charlie Ergen.

"(It) signals Chairman Charlie Ergen isn't going to hoard cash to build his wireless field of dreams," said Bernstein analyst Craig Moffett.

Ergen has been buying up a diverse array of assets over the past year, from bankrupt movie store chain Blockbuster to companies with wireless spectrum including DBSD and TerreStar.

In May, the 58-year-old Ergen resigned as the company's CEO but kept his post as chairman. He said the change would give him more time to focus on the company's long-term strategy.

On the conference call on Tuesday, Ergen told investors his strategy involves data, video and voice services, and while it is still in its early stages, it is clear that Dish will not remain just a pay TV company that long.

"Strategically, we believe we have to be in something other than a standalone video business as a company and we're in the transition of being able to do that," he said.

"We hope we're going to get the mobile voice and data and video business, and we probably are likely to do that in some kind of partnership or partnerships," he said.

Analysts have speculated that Ergen may want to build a national wireless network that could be used to deliver video to customers.

During the question and answer session on the conference call on Monday, Ergen addressed everything from mergers and acquisitions to the regulatory climate and Dish's rivals.

He said that now was the time to implement major changes at Dish "because the economy is not cranking along too good."

Dish, along with cable competitors including Cablevision Systems Corp and Time Warner Cable , have been blaming the weak economy for stunting housing growth and hurting businesses. If people are not moving into new homes, they will not sign up for new TV services.

Moffett, the Bernstein analyst, said Ergen's master plan and its possible cost are still perceived as murky by investors, who are worried about Dish spending too much on its Chairman's wireless ambitions.

"Ergen's grand strategy, whatever it is, isn't going to be cheap, and it's not clear who is going to fund it," Moffett said.

Dish on Monday said it paid Sprint Nextel Corp $114 million in November as part of a settlement over a dispute related to Dish's acquisitions of DBSD and TerreStar.

Before Monday's dividend announcement, Dish last paid a one-time dividend of $2 a share in 2009.

Brean Murray analyst Todd Mitchell said Dish occasionally rewards stockholders with a payout because its share structure would not favor ordinary shareholders if the company bought back stock, since most shares are owned by Ergen.

The No. 2 U.S. satellite TV provider lost 111,000 subscribers in the third quarter, bringing its total base to about 13.9 million, down 2.4 percent from a year earlier.

Analyst Mitchell was expecting a loss of 25,000 subscribers.

ONLINE MOVIE SERVICE

Last week, DirecTV said it had gained more than 327,000 customers in the United States, its highest in seven years. The company, Dish's biggest rival, attracted new subscribers by heavily promoting its NFL Sunday Ticket package of out-of-market football games as a free service for a year to new customers who switched from a rival.

"Dish just didn't go to market against the Sunday Ticket promotion," Mitchell said. "It wasn't a focus."

On the conference call, Dish's CEO Clayton singled out "heavy free Sunday ticket advertising and aggressive discounting by DirecTV," as a factor that hurt the company last quarter.

Instead of going after DirecTV, Dish put its marketing dollars into promoting a new online movie service to compete with Netflix > from its Blockbuster brand, which it acquired last April, he added.

Dish posted net income of $319 million, or 71 cents per share, up from $244.9 million or 55 cents per share a year earlier.

The results missed Wall Street expectations of 73 cents, according to Thomson Reuters I/B/E/S.

Revenue rose 12.3 percent to $3.60 billion, slightly below analysts' expectations of $3.65 billion.

Dish shares were up 5 percent at $24.59 on Monday afternoon, off an earlier high at $25.15.

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