UPDATE 4-Dish beats on subscribers, sets special dividend

* Gains 241,000 net subscribers

* Sets special dividend of $2 per share

* Shares rise 3.8 percent

* Q3 EPS 41 cts ex-items, missing Wall St view of 43 cts

* Q3 rev $2.89 bln, down 1.5 percent, vs est $2.93 bln (Adds CEO quotes, updates share move)

NEW YORK, Nov 9 (Reuters) - Dish Network Corp (DISH.O), the No. 2 U.S. satellite TV provider, beat Wall Street forecasts by posting a gain of 241,000 subscribers in the third quarter and surprised investors with a plan to pay shareholders a special dividend of $2 a share.

Shares rose 3.8 percent in afternoon trading.

Analysts at Bernstein Research had forecast that Dish, which has been losing subscribers in recent quarters, would lose 9,000 subscribers while analysts at Kaufman Bros had expected Dish to add 30,000.

Bernstein's Craig Moffett said Dish had managed to achieve the growth through a combination of greatly reducing the rate at which it loses existing subscribers and by increasing its gross additions of new customers.

Still, the Englewood, Colorado company posted a worse-than-expected 13 percent decline in third-quarter profit, hurt by higher costs in winning subscribers and also by legal expenses from its patent fight with TiVo Inc (TIVO.O).

Dish Chief Executive Charlie Ergen said on a conference call that improving market conditions and increased confidence in the company's ability to execute its business plans had made a cash dividend possible.

He also said an impending change in the U.S. tax environment was another factor.

"I think for a lot of our investors, this will be the last chance -- this will be the lowest tax they might pay on a dividend for a long, long, long time," said Ergen.

He said paying regular dividends would not be the first choice for Dish, as the company would rather use its cash internally to grow the business.

Bernstein's Moffett said the special dividend payment is a positive for investors.

"While a far cry from a recurring dividend that would clearly be better, the return of cash to shareholders is nevertheless a very welcome development," Moffett said in a note to investors.

"If only because Dish has been a reported suitor for any number of acquisitions (most recently Sirius XM (SIRI.O) earlier this year) and has been reticent about buying back stock in the past."

Dish, which faces stiff competition from cable companies and larger satellite TV rival DirecTV Group Inc (DTV.O), said net income fell to $80.5 million, or 18 cents a share, from $92 million, or 20 cents per share, a year earlier.

Excluding special items, including $132 million for TiVo litigation, the profit was 41 cents a share. That fell short of the analysts' average estimate of 43 cents, according to Thomson Reuters I/B/E/S.

Revenue fell 1.5 percent to $2.89 billion, missing the analysts' view of $2.93 billion.

Average revenue per subscriber was $69.51.

In a long-standing legal battle, TiVo is suing Dish and sister company EchoStar Corp (SATS.O) for patent infringement of its DVR technology. In September, a U.S. district court awarded TiVo nearly $200 million in damages, bringing the total it has received so far in the patent technology dispute to $400 million. [ID:nN04180323]

Dish has appealed the case, although the judge warned that the company could face enhanced sanctions.

Shares of Dish rose 72 cents to $19.87 in afternoon trading on Nasdaq. (Reporting by Franklin Paul and Yinka Adegoke; Editing by Gerald E. McCormick and Dave Zimmerman)