Altice USA said it will accelerate its fiber-to-the-home buildout efforts, planning to pass 6.5 million homes by 2025 with the state-of-the-art network, after a year where it saw broadband customer additions creep into negative territory.

Altice USA lost about 2,000 broadband customers in Q4 and shed 3,000 for the full year, not including numbers from its most recent acquisition, Morris Broadband.  If Morris Broadband subscribers are included, Altice USA said it would have added 27,000 broadband customers for the full year.

The broadband slide helped drive revenue down 0.6% in the quarter to $2.52 billion, while adjusted EBITDA fell 5.9% to $1.1 billion. For the full year, revenue rose 2% to $10.1 billion and adjusted EBITDA was relatively flat (up 0.3%) at $4.43 billion.

Altice USA stock fell about 3.5% in after-hours trading Wednesday to $13.59 per share. So far this year, the stock is down about 16%.

The company has struggled with broadband subscriber metrics over the past few quarters as it has competed with aggressive promotions from Verizon’s Fios product, losing about 13,000 customers in Q3. Late last year it announced a change in its strategic direction, speeding up fiber deployment, shifting several management positions and planning to rebrand the company under the Optimum name. 

Also: Did Altice USA Cut Costs Too Much?

"We are pleased to conclude 2021 having made progress on our growth strategies by accelerating the enhancements of our network, product and customer experience,” CEO Dexter Goei said in a press release. “We see customer trends improving as we continue the expansion of our sales distribution channels and recently launched our planned competitive converged internet and mobile offerings. Today we also announce a new plan to bring 100% fiber broadband, delivering multi-gig speeds, to more than two thirds of our entire footprint over the next four years, reaching a total of 6.5 million FTTH passings by the end of 2025. We are confident in our strategy and that our focus on these key initiatives will drive long-term sustainable growth and value.” 

Altice had said earlier it had to scale back its fiber rollout in order to adhere to pandemic related protocols. Now that many of those restrictions are being lifted, it can step up its efforts to build out the network. 

Also: Analyst Makes Case for Altice USA to Go Private 

Altice USA said the new fiber expansion should allow it to cover about two-thirds of its total footprint in the next four years and will include about 2.5 million additional passings in its Suddenlink markets and 4 million in its Optimum locations. Altice began building out its fiber network in the Optimum footprint mainly in New York, New Jersey and Connecticut several years ago and currently passes about 1.2 million homes with fiber in those areas. In its Suddenlink markets, construction is expected to begin this year in six communities in Texas -- Abilene, Amarillo, Bryan-College Station, Lubbock, San Angelo, and Tyler -- expanding later into parts of Arizona, California, Louisiana, Missouri, North Carolina, New Mexico, Oklahoma, and West Virginia.

“Altice USA is proud to announce plans to invest further in our fiber deployment strategy by accelerating the build of a 100% fiber broadband network capable of delivering multi-gig speeds across our Optimum and Suddenlink footprint,” Goei said in a press release. “Fiber is the future and given the progress we have made at Optimum with our fiber expansion, we’re excited to build on that success and break ground later this year at Suddenlink to bring our advanced network to more customers and communities.” ■ 

By now the news that Netflix actually lost domestic subscribers in Q2 has spread like wildfire throughout the investment community, with pundits and analysts equally taking doomsday and “What me, worry?” stances on what the decline means for the future of the company and for subscription video on demand. But the intensity of the reaction equally rides on whether the pundit is on the debt or equity side of street.

Netflix stock was down as much as 11.6% July 18 to $320.50 per share -- it gained back some of that ground later in the day, trading at $322.11 each, down 11% per share -- after it said it missed its Q2 subscriber targets badly, reporting a gain of 2.7 million new customers versus analysts’ consensus estimates of 5.1 million additions and its own prediction it would add 5 million customers. Perhaps more telling is that Netflix lost about 130,000 U.S. subscribers (compared to guidance of 300,000 additions), the first time it has showed a quarterly loss of domestic customers.

Netflix blamed the shortfall on a number of factors -- a weaker content slate, a price increase during the beginning of the year and a pull-forward from Q1 -- but investors mostly honed in on the price increase. Netflix shareholders have been a fickle bunch -- the stock actually went up nearly 7% on Jan. 15, the day it announced the price increases and fell 13% in after-hours trading when it missed Q2 2018 subscriber growth expectations last July. So far this year, even with today’s declines, the stock is up 20%.

Related: Netflix Shares Tumble Amid Missed Q2 Forecasts

Equity analysts for the most part said that while the domestic losses are a concern, the company continues to dominate the SVOD space -- it has 60 million customers in the U.S. and about 152 million globally -- and should rebound in the third quarter when a stronger slate -- led by season 3 of Stranger Things, released on July 4 -- is expected to boost customer growth.

In a note to clients, Wolfe Research managing director Marci Ryvicker wrote that the Q2 subscriber loss was “unfortunate, but not a disaster,” adding that Neftlix beat estimates on cash flow and average monthly revenue per unit.

As far as the price increases, those are behind the company now -- Netflix said in January it would have all of its customers under the new rate card by the end of the May billing cycle. And while in the past it has low-balled guidance in quarters following a miss, this time the company said it would add 7 million paid customers in Q3, an almost 15% increase over the 6.1 million additions of the prior year. Domestically, Netflix said it would add 800,000 new paid customers in the U.S. in Q3, about the same as the prior year.

Sanford Bernstein media analyst Todd Juenger, who continues to rate Netflix “outperform,” wrote in a note to clients that even though the miss doesn’t change his thesis on the stock, it does make him more nervous, given pending SVOD launches from Disney (Disney+), AT&T (HBO Max), NBCU and Apple (Apple TV +).

“We don’t think the Disney+ launch will have anything to do with Netflix's success or failure,” Juenger wrote. “But if Netflix misses subs in the quarters after Disney+ launches, the market will make the correlation anyway, and we expect the downside effect on Netflix stock will be several times more than usual.”

At Canaccord Genuity, media analyst Michael Graham wrote in a research note that he was concerned about the subscriber miss, but pleased about the revenue and cash flow gains, adding that although the customer losses “will likely weigh on the stock in the short term and pricing power may be in question for now, we still see a strong content strategy and room to add large numbers of international subs as key strengths going forward.”

But the outlook is decidedly darker on the debt side, which is appropriate because debt analysts’ focus on a company’s ability to meet its leverage payments. Fewer customers, even those that are paying more, can sometimes affect a company’s ability to meet those obligations.

At credit ratings agency Fitch, director Patrice Cucinello noted that weak subscriber results could point to bigger problems in the SVOD sector.

“Fitch believes these weaker-than-expected results could point to potential saturation in the U.S. subscriber video on demand market,” Cucinello wrote, adding that the results were likely the product of the price increases. “But more notably (and potentially more troubling) it illustrated an apparent cyclicality driven by the weak content release slate.”

That, she said, could be troubling because of the sheer size of Netflix’s annual original programming investment, estimated to be about $15 billion this year. While Netflix’s size has helped it weather past storms, it “won’t be able to maintain that lead without quality of content (not just quantity). A weak content slate runs the risk of subscriber losses rather than just slower subscriber growth going forward.”

Cucinello has warned about this before. Back in April, she worried that Netflix wouldn’t be able to maintain its subscriber growth momentum into Q2. She was right.

There is a sense among some people that at 60 million domestic customers, Netflix may be hitting the wall in U.S. subscriber growth -- as one twitter poster with a handle not fit for a family publication asked, “Netflix has 60M domestic customers. Add in password sharing, doesn’t everyone who wants it, already have it?”

That may be a bit simplistic, but the password sharing concern is not limited to random tweeters.

MoffettNathanson senior analyst Michael Nathanson estimated in a July 15 research note (prior to earnings) that about 14% of Netflix streamers are using someone else’s password. That is compared to 11% for Hulu and 6% for Amazon Prime Video. Nathanson used data from a Total Communications Survey conducted monthly by HarrisX, which asked about 8,500 consumers aged 18+ about their video consumption habits. 

[embed]https://twitter.com/Harris_X_/status/1150850012542373888[/embed]

But Netflix also had stronger shows -- its two top shows are Orange is the New Black and Stranger Things, each of which have July season premieres. In contrast, Amazon Prime customers in the survey listed 36 titles in their top 100 list of shows that were carried by other streaming services, not Amazon. While Nathanson wrote that could mean brand confusion is increasing as streaming services proliferate, he noted that all of the titles were available for purchase at the Amazon video store.

“So consumers might be confusing the video service for the Amazon video store,” Nathanson wrote. “Perhaps this might be Amazon’s strategy, to use the Prime Video Service as a barker channel to upsell consumers to rent or buy titles they want to see.”

Moody’s Investors Service SVP Neil Begley was also concerned about the subscriber miss, adding that it was “symptomatic of 1) a maturing U.S. market for the company; 2) a pattern of seasonality and continuing positive and negative volatility of additions; and 3) the growing importance of steady cadence of hit content releases.”

Begley was confident that Netflix would continue to grow customers year over year and predicted it would reach 200 million paid streaming subscribers by 2021.

Cucinello also was more concerned about the threat of four new streaming services that are expected to launch in the coming months -- Disney +, HBO Max, Apple TV + and NBC Universal. While other analysts don’t believe the services will put much of a dent in Netflix’s subscriber base -- most believe the services will be able to live with each other -- Cucinello believes that they “could place pressure on Netflix’s domestic subscriber growth moving into 2020, irrespective of the strength of the content slate.”

And though Begley still expects Netflix to gain customers both domestically and globally this year, he added that the lower priced competitors -- Disney + is the cheapest at $6.99 per month, compared to $12.99 per month for Netflix -- could be a factor.

“[W]e believe that initial low-priced new streaming entrants such as Disney+ will garner subscriber attention, which could limit Netflix’s future pricing power until those new entrants reach parity in price and new content,” Begley wrote.

Which begs the question: can Netflix keep spending heavily on content to keep up?

Reportedly, Netflix chief content officer Ted Sarandos has told executives to spend more carefully on content -- no more throwing dollars at the wall to see what will stick. Netflix has denied any changes to its spending strategy. 

Netflix has had good luck with its originals -- it said original movie Murder Mystery (released in June and starring Adam Sandler and Jennifer Aniston), was watched by more than 73 million households in its first four weeks; and Always Be My Maybe (starring Ali Wong and Randall Park) was viewed by 32 million households in its first four weeks.

But maybe it isn’t such a bad idea to rein in some of the spending. Netflix has prided itself on the past on having at least one new content offering per week -- Sarandos boasted last year that the SVOD pioneer would have more than 1,000 original shows and movies on the service by the end of 2018. The loss of two highly watched series in the next few years -- WarnerMedia will take back Friends in 2020 and NBC will take back The Office in 2021 -- is expected to free up more money for Netflix originals, the company said in its Q2 letter to shareholders. Let’s hope they spend it wisely. 

Dish Network said it lost about 259,000 net new subscribers in the first quarter, nearly three times the 94,000 customers it shed in the prior year.

According to its 10-Q quarterly statement, Dish shed about 266,000 satellite TV customers -- up from a loss of 185,000 in Q1 2018 and gained just 7,000 Sling TV customers, compared to a gain of 91,000 subscribers in the prior year. The company ended the period with 9.639 million DISH TV subscribers and 2.424 million Sling TV subscribers.

The decline -- which may have been driven in part by the ongoing blackout of HBO which began in November, helped drive down revenue by 7.8% to $3.19 billion from $3.46 billion in Q1 2018. Net income also dipped 7.6% to $340 million (65 cents per share) in the period, compared to $368 million (70 cents per share) in the previous year.

As if there were any lingering doubts, the two largest cable-network groups confirmed what many analysts have been saying for months (and years): Cord-cutting is real, pay TV subscribers are declining at a faster pace than expected and content providers aren’t really sure what to do about it.

21st Century Fox was the last major programmer to release results last week, and they showed that having the most-watched network in the country — perennial ratings winner Fox News Channel — isn’t enough to stop the bleeding.

Fox is losing about 1.5% of its pay TV subscriber base to cord-cutters, cord-nevers and skinny bundles, compared to about 3% for peers such as The Walt Disney Co. and Time Warner Inc.

Overall, pay TV networks had been losing about 2% of their subscriber base in past quarters.

Fox echoed what other big programmers have said in the recent past: the losses could have been worse if not for deals with over-the-top providers like DirecTV Now, Sony PlayStation Vue and Sling TV, which (depending on who you listen to) have either already taken over the pay TV distribution business or are about to.

The reality lies somewhere in between. 21st Century Fox CEO James Murdoch told analysts the impact of over-the-top providers such as DirecTV Now and Sling TV has been small so far, mainly because they have only been in existence for a short period of time. As other OTT services emerge — Hulu Live has just launched and YouTube TV debuted in April — Fox believes they could have a broader impact going forward.

Murdoch was light on details, though, saying it’s still “early days” for OTT carriage and that Fox’s success with new distributors can be tied to continued investment in its brands.

FOX’S HIDDEN EDGE
Not every analyst was convinced Fox had the solution to subscriber declines. In a research note, Sanford Bernstein media analyst Todd Juenger said it was more likely that minimum subscriber clauses in its distribution agreements are propping up Fox’s numbers.

“It’s a head-scratcher how Fox claims to have lost only -1.5% subs from their fully distributed cable networks, about 125 [basis points] better than Disney — unless Fox is benefitting from minimum guarantees that Disney is not,” Juenger wrote. “But minimum guarantees aren’t sustainable without subs.”

In a client note, Morgan Stanley media analyst Ben Swinburne said Fox’s younger-skewing networks such as FX, national sports channels FS1 and FS2 and its regional sports networks, “which have very high carriage minimums,” helped to temper losses.

Juenger said ratings at the Fox networks outside of Fox News are nothing to cheer. Overall, household rating were up 6% in the period but ratings among persons 2-plus rose 5% almost solely on the back of Fox News.

On the analyst call to discuss fiscal third-quarter results, Fox chief financial officer John Nallen said the most interesting aspect of the new OTT providers is that they are finding different segments of the audience to serve.

“So between DirecTV Now and Sling TV, YouTube obviously Hulu, and PlayStation Vue they all very different services and we think this is incredibly important because … many of them are designed to replace traditional MVPDs’ subscriber numbers and losses, but they’re targeting entirely new segments of U.S. households, segments that have broadband now but potentially don’t have traditional MVPDs,” Nallen said, adding that inspires confidence that the services will help stem declines and “will actually grow the universe quite significantly over time.”

At Disney, where the falloff in subscribers was first evident at flagship sports network ESPN in 2015, chairman and CEO Bob Iger also said OTT has helped temper customer losses, emphasizing again that it was still early on that front.

Iger was encouraged by the trend — ESPN plans to launch its own direct-to-consumer offering later this year, using content and rights currently not being exploited on the ESPN linear networks — but stopped short of saying the solution lies in bypassing traditional distributors all together.

RISKY SPENDING ON SPORTS RIGHTS?
On the Disney earnings call, Iger pointed to Disney’s direct- to-consumer offering — which some analysts have said is too narrowly focused to make a meaningful dent in sub losses — and its foresight in identifying the problem two years ago.

BTIG media analyst Rich Greenfield, a frequent critic of Disney and ESPN, said just identifying the problem isn’t enough. Despite the declines, he said, “their seemingly reckless spending on long-term sports rights” does not seem to be in sync with those comments.

Greenfield blogged that Iger’s apparent dismissal of emerging skinny bundles that exclude sports — the Disney chief said launching a new platform without ESPN would be “very challenged” — could be a dangerous move.

Greenfield noted that the fastest-growing package in the largest virtual MVPD (Sling TV with an estimated 1.3 million total customers) is one without live sports. And more are expected to come.

“With ESPN sub losses increasing and without meaningful rate increases, it is not hard to see ESPN’s revenues entering secular decline in the not too distant future,” Greenfield wrote. “On top of accelerating sub losses, it will be hard for ESPN to maintain high-single-digit rate increases as existing distribution deals come up for renewal given the rapidly deteriorating MVPD landscape, unless they enable far greater packaging/tiering flexibility (which we do not see happening).”

After taking it on the chin regarding subscriber declines at its flagship ESPN sports network, The Walt Disney Co. says new deals and technologies will help drive growth in a segment that hasn’t had it for years.

“We have taken a more bullish position on the future of ESPN’s sub base,” Iger said. “We think that while we were candid a year ago on sub losses, we believe that to some extent the causes of those losses have abated, notably the migration into smaller packages. But we also believe that new entrants to the marketplace, particularly digital MVPDs are going to offer ESPN opportunities that they haven’t had before to reach more people. We think those offerings, because of their pricing, the user interface, their mobile friendly nature, are likely to cause more millennials to either stay in the multichannel ecosystem as subscribers or to enter it when they might not have in the past.”

Disney first admitted it tasted subscriber losses in the summer of 2015, when it said basic subscribers of its ESPN channel had declined by about 3 million in the prior 12 months. That news sent its stock and those of fellow cable programmers into a tailspin from which the sector still hasn’t fully recovered.

And on Oct. 28, Nielsen drove another nail in to Disney’s subscriber coffin, announcing November estimates for ESPN that were down by 621,000 subscribers, double its previous estimates and a new record for the company.

Disney disputed the Nielsen results at the time they were released and still does. Nielsen has said it stands behind the numbers.  Iger said Disney refuted the Nielsen numbers because it had received lower loss estimates from reliable third parties and that Nielsen does not count digital subscribers, a growing segment that Disney believes should be included in the mix.

“We’re realistic about what we’ve seen with recent subscriber trends,” Iger said. "We think the long-term prospects for ESPN are good.”

Disney also has the ability to go direct-to-consumer – it will offer an ESPN direct-to-consumer offering in early 2017 – and its recent investment in MLB BAMTech will only improve that.

Disney plans to launch a direct-to-consumer ESPN product fueled by MLB BAM technology early in 2017.

Iger also hinted that Disney is interested in getting into the acquisitions game, but stopped short of naming any targets. Disney had been rumored to be in the hunt for social media pioneer Twitter a few months ago,  and speculation about a Netflix-Disney pairing has been rampant for years. Earlier today, deal legend Liberty Media chairman John Malone speculated that Disney could spin-off ESPN as a separate company to make itself more attractive to a suitor like Apple. 

Iger again wouldn’t name names, but said that any purchases would have to be centered on improving the customer experience, along the lines of its recent investment in MLB BamTech.

“We think there are some really interesting opportunities, given what’s going on from a technological perspective, to improve our business and to improve the consumer experience by selling directly to consumer,” Iger said. “We are considering and exploring various ways to accomplish this. We think it is something that is important for us to do.”

Iger also commented on recent ratings declines for National Football League games, adding that several factors have contributed to the decline, including the World Series, the Presidential debates and less than compelling matchups.

“It’s a little too soon to jump to conclusions,” Iger said. “We’re being patient about it. We’re going to look at the trend lines and continue to watch it. It’s far too early for us to suggest that we’re concerned. It’s still the highest rated sports programming that’s out there and we’re think we’re lucky to have it licensed on a long-term basis.”     

Dish Network reported a loss of 116,000 net new video customers in the third quarter, its sixth consecutive period of losses, as gains at its over-the-top Sling TV services were again not enough to stop the traditional pay TV bleeding.

Revenue for the quarter was flat at $3.75 billion, compared to $3.73 billion in the same period last year.

Dish has lost net subscribers in the past six quarters – its last period of growth was 35,000 additions in the first quarter of 2015 – and some analysts noted that the losses to the satellite business are likely heavier given that Dish combines subscribers for both Sling TV and satellite TV.

In a research note, MoffettNathanson principal and senior analyst Craig Moffett estimated that Dish’s satellite business shed about 320,000 net subscribers, about even with the second quarter. On the bright side, Moffett estimated that Sling TV added 204,000 subscribers in the period, up from the estimated 15,000 additions a year ago. Overall, Moffett wrote the satellite TV business has shed 949,000 subscribers over the past year, or about 8.1% of its legacy subscriber base.    

Comcast is expected to reverse the trend of video customer losses in the third quarter, with analysts predicting it will end the year in positive territory, the first time the nation’s largest cable operator has flirted with that milestone in about a decade.

Comcast has been on track to finish the year with more video customers than it started with, adding 58,000 TV subscribers in the first quarter and losing just 4,000 in the second.

Positive growth has been a trend in the past year for the big cable operators. Charter Communications did it in 2015 with 11,000 video additions, as did Time Warner Cable (purchased by Charter in May 2016) with 32,000 additions. For both, it was the first year of positive video customer growth in more than a decade.

Q3 NUMBERS THIS WEEK

Now Comcast, which has toyed with full-year video subscriber growth in the past, is expected to join the party. Comcast has turned in several recent quarters in the black, but it hasn’t had a full-year of growth on the video side since 2006, when it posted a gain of about 100,000 customers.

That should change this year, according to several analysts, starting with the third quarter. Comcast is scheduled to release Q3 financial results on Oct. 26.

Comcast might stand alone on the video growth podium this year: most analysts predict Charter will have a small video subscriber loss in 2016 — ranging from 32,000 to 65,000 — as it integrates TWC.

Altice USA, which purchased Suddenlink Communications and Cablevision Systems in the past 12 months, has improved losses but isn’t expected to enter positive territory just yet.

For Comcast, the growth estimates for the year range from about 50,000 subscribers from Credit Suisse media analyst Omar Sheikh to 130,000 from Morgan Stanley media analyst Ben Swinburne.

Pivotal Research Group CEO Jeff Wlodarczak estimated in a September research note that Comcast would report flat third-quarter video customer growth, rallying to end the year with 109,000 more video subscribers than the year before.

With companies the size of Comcast, a loss of 30,000 customers, a gain of 30,000 customers or no growth at all is basically a rounding error, Wlodarczak said, although positive growth should help with investor sentiment.

Comcast has been working hard to reduce video customer losses for about five years — it first spoke of efforts to reduce video churn in 2011.

OPERATIONAL GAINS

During that time, Comcast has made big strides to improve the video customer experience, whether it be pushing for full-season stacking rights for shows or launching its state-of-the-art X1 platform, currently available in about 40% of its homes with the goal to be in 50% by the end of the year.

X1 has been a differentiator, offering an elegant user interface coupled with greater functionality and features. Last week, the company added to those features, including a “Team Reminder,” which notifies customers of live games, pre- and post-game shows and other programming featuring their favorite sports team.

Wlodarczak said that X1 has been a factor in video customer improvements, but he added that the competition has helped, too.

“Yes, the churn benefits of X1 help,” Wlodarczak said. “It also helps that AT&T is focused on marketing DirecTV and Comcast can lever their best-in-class data product to get consumers to sign up for video services.”

AT&T issued its third quarter results a little early, given its plan to purchase Time Warner in a $108.7 billion deal is likely to occupy most analysts’ calculator fingers for the near future, and offered some insight into why it’s so bent on adding content to the mix – it continues to bleed video customers.

AT&T lost about 3,000 video customers in the third quarter, generally a strong one as college students reconnect after being gone for the summer, with a loss of 326,000 U-verse TV customers outpacing a gain of 323,000 subscribers at DirecTV. What’s more, AT&T said about 70% of DirecTV gains came from U-verse subscribers transitioning to the satellite service.

It was the sixth consecutive quarter of overall video customer losses for the telecom company, which began shedding TV customers in the second quarter of 2015. Since that time, AT&T U-verse has lost nealry 1.5 million video subscribers.

AT&T has said it expects overall video subscribers to turn positive in the second half of this year, driven by increases in DirecTV’s NFL Sunday Ticket out-of-market football package. Given the third quarter losses, that means AT&T would have to add more than 100,000 total video customers in the fourth quarter.  

The telecom giant added about 156,000 U-verse IP broadband customers in the period, but that too was offset by a loss of 161,000 DSL customers, bringing its total broadband subscriber losses to 5,000 for the period.

AT&T said about 100,000 pending video customers had the ability to receive TV via their mobile devices at the end of the third quarter, but they were not included in subscriber figured because the service had not yet been activated in their homes.

On the wireless side, revenue dipped 0.7% to $18.2 billion as the phone company lost about 268,000 mainstream wireless subscribers, generally smartphone users. Including other devices like tablets, and the company added about 212,000 mainstream customers.

AT&T released results about three days early – it had originally planned to make them public on Tuesday, but the Time Warner deal accelerated that schedule.

AT&T says it expects the Time Warner acquisition to be completed by the end of the year and expects Time Warner chairman and CEO to stay  on with the company at least through a transitional period. The telco said it also would wok hard to keep top execs like Turner chairman and CEO John Martin, Warner Bros. chairman and CEO Kevin Tsujihara and HBO chairman and CEO Richard Plepler on board with the combined company.

Analysts were still trying to get their heads around the deal. Telsey Advisory Group media analyst Tom Eagan wrote in a research note Sunday morning that although there is an argument for vertical integration (Comcast-NBC Universal), paying an 11-times to 12-times forward looking cash flow multiple for Time Warner doesn’t reflect “tremendous industrial logic.”

Dish Network chairman and CEO Charlie Ergen’s vision of a declining satellite business inched closer to reality in the third quarter, even as its Sling TV over-the-top service continued to gain momentum.

Officially Dish network lost about 23,000 net subscribers in the third quarter, almost double the 12,000 lost in the prior year, but that figure was a combination of satellite-TV losses and Sling TV gains. In reality, the satellite losses were much worse.

While OTT appears to be Dish’s future — Ergen said that he hoped its OTT customers were worth as much or more than a linear TV subscriber — he also fi red a warning shot to programmers who devalue their content by selling it to less-responsible OTT competitors.

In the past few weeks, two top content executives, Time Warner Inc. chairman and CEO Jeff Bewkes and The Walt Disney Co. chairman and CEO Bob Iger, have said they would consider holding back content from subscription video-on-demand companies such as Netflix, Hulu and Amazon Prime.

Content providers sometimes forget to consider the long-term implications of short-term gains, Ergen said.

LONG-TERM PAIN

“It’s easy to get to the end of the year, end of the quarter, and sell some content out of the back door and [not] think it’s going to hurt your core business in the short run, and you’ve got kind a one-quarter gain or you make your bonus,” Ergen said. “There’s always in a company a risk of short-term decisions.”

Dish doesn’t break out the numbers, but several analysts estimated that the satellite business lost between 115,000 and 178,000 net customers, while Sling TV gained between 90,000 and 155,000 subscribers.

Dish launched Sling TV in February, its answer to millennial customers who have resisted the costly pay TV bundle. For $20 per month, Sling TV customers get about 20 channels (including ESPN) that can be streamed to a single device. Other genrebased programming packages, such as News and Information, Movies and Sports, are available for an additional $5 per month.

For the most part, analysts were encouraged by the Sling TV results, while at the same time disappointed in the rapid deceleration of the satellite-TV business.

MoffettNathanson principal and senior analyst Craig Moffett, after an early glitch when he pegged gains at a paltry 24,000 customers, estimated that Sling TV added 155,000 new homes in the period, giving it a total of about 395,000 subscribers. The third-quarter growth was below that of Sling TV’s initial first-quarter signups, but ahead of the second-quarter pace of 56,000 additions.

But Sling TV’s gains mean that satellite-TV losses were even heavier than first expected: about 178,000 by Moffett’s estimates, 115,000 to 123,000 by other analysts’ extrapolations.

Moffett said a 178,000 net subscriber decline would mean Dish is losing customers at a 3.7% annual rate, a pace he called “shocking.” In contrast, cable’s third-quarter losses implied a decline of 1.4% annually.

“The idea that Dish could be shrinking at that kind of pace is extraordinary,” Moffett wrote.

On a conference call with analysts and reporters, Ergen explained that the OTT business is a little different than linear TV because customers tend to move in and out of plans. “I think the future is probably pretty bright for OTT in general, and hopefully for Sling,” Ergen said.

On the wireless front, Ergen said Dish still has several options regarding the re-auctioning of spectrum it originally won through its relationship with so-called “designated entities” in the recent AWS-3 spectrum auction. Dish and its DEs had won about $10 billion worth of spectrum, but the Federal Communications Commission ruled that the bids were invalid and demanded that the entities either surrender the spectrum or pay $3.3 billion in discounts it received during the process. The DEs opted to return the spectrum.

EYEING RE-AUCTION

“We plan to participate in the re-auction of those licenses,” Ergen said.

But Dish’s stance on partnering with another carrier to build out a wireless network or licensing the spectrum to another carrier has appeared to change.

Ergen said the FCC’s decision to rescind the DE discounts and its intense focus on competition in the wireless market haven’t helped “the competitive side” of things. “And it makes us worry a little bit about where the government is going on decisions, because obviously, that decision was very beneficial to the two big incumbents.”

Time Warner Inc. stock was down as much as 10.4% ($8.03 per share) to $69.27 each in early trading Wednesday after the media giant lowered earnings guidance and said it was considering curbing subscription video on demand windows, triggering a similar fall-off in other stocks in the sector.

 Time Warner stock ralled later in the day to close at $72.20 each, down 6.6% or $5.50 per share. 

AMC Networks fell the hardest, down 6.8% ($5.24 each) to $71.76 per share, followed by Viacom, closing at $47.92 each, down 6.6% ($3.37 per share). Viacom was followed by Scripps Networks INteractive down 2.7% ($1.67 each);  Starz, down 2.6% (90 cents each);  Discovery Communications, down 2.5% (78 cents each); and Disney, down 2% ($2.29 each).

Time Warner lowered its 2015 earnings per share guidance from $6 per share to $5.25 per share, citing the impact of a stronger dollar and  subscriber declines. While Time Warner did not specifically identify the amount of the declines, it said that subscription revenue was down by about 1% in the quarter.

Suddenlink Communications lost about 34,800 basic video customers in the fourth quarter, its first to show the impact of its decision to drop about 24 Viacom channels on Oct. 1, and about four times higher than the 8,600 video customers it shed in the same period in 2013.

Suddenlink dropped the Viacom channels on Oct. 1 after what it said were Viacom’s unreasonable pricing demands. Suddenlink was the second mid-market MSO to drop the channels – Cable One dropped Viacom on April 1 – and has signed on a slew of smaller channels like The Blaze, Sprout and Revolt TV to replace the lost networks.

In a statement, Suddenlink said that net video losses in the fourth quarter attributable to the loss of Viacom networks were approximately 2.0% to 2.5%, in line with its expectations. Adding that most customers that disconnected video because of Viacom, chose to keep other, non-video services.

For the quarter, high-speed data customers increase by 11,600 (compared to 20,600 additions during the same period in 2013) and phone customers decreased by 800 customers (compared to 9,600 additions in Q4 2013).

"The decision regarding Viacom reflects our commitment to protect our customers and offer them the best value we can," said Suddenlink chairman and CEO Jerry Kent in a statement. "We're confident we made the right business decision as we adapt to changing industry dynamics."

For the quarter, revenue rose 5.6% to $592.1 million and commercial revenue increased 12.6%. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA), after the impact of non-recurring expense mainly associated with Suddenlink’s telephone platform migration, was $233.5 million, up 6%.

"We're very pleased with the performance of our business,” Kent said in a statement. “We gained new customers at a record pace last year and maintained existing customer relationships during a period of significant change. These results are a remarkable accomplishment by any measure and reinforce that we continue to make the right, long-term strategic decisions for our customers and company.

"We took a stand on run-away programming costs and rejected the notion that content providers are entitled to unjustified cost increases,” Kent continued. “Viacom attempted to impose such cost increases for content that has suffered significant ratings declines. We said no and the results since then show that it was the right decision. We retained 99.7% of customer relationships in the fourth quarter. Video customer losses were in line with expectations and, overall, we've performed better than expected. As a result we believe we have successfully challenged the current video business model, proving that our programming partners must deliver value to our customers in line with what they charge.”

Kent added that Suddenlink also made its first investments in Operation GigaSpeed, its plan to bring next-generation broadband to rural and suburban communities in its footprint in the fourth quarter.

"We believe Operation GigaSpeed will help us retain our strategic advantage of providing a superior broadband service for many years to come," Kent said in the statement