By Franklin Paul NEW YORK, May 10 (Reuters) - Satellite TV service Dish Network posted stronger-than-expected quarterly profit and subscriber additions, and brisk demand for premium services overshadowed higher programming and legal costs. Dish, which competes with local cable operators, phone companies and its larger rival DirecTV Group, added 237,000 net new subscribers in the first quarter, bringing its total to 14.3 million. The Englewood, Colorado-based company, which lost 94,000 subscribers in the same period a year earlier, said it benefited from efforts to rein in cancellations. By comparison, DirecTV said last week that it had added 321,000 subscribers in the first quarter, although only 100,000 were in the United States. It also cited a boost in revenue from subscribers who sign up for high-definition service or use digital video recorders. Shares of Dish were up 2.4 percent at $21.81 in afternoon trading on Nasdaq. Analyst Craig Moffett from Bernstein Research said he expected Dish to add 185,000 net subscribers, which was about 20,000 more than consensus. He was also impressed at Dish's ability to add 833,000 gross subscribers in the quarter. "Gross additions speak directly to customer choice and suggest that Dish is indeed gaining traction versus DirecTV," he said in a note to clients. Dish, headed by entrepreneur Charlie Ergen, said net income fell to $230.9 million, or 52 cents per share, from $312.7 million, or 70 cents a share, a year earlier. But the profit beat the analysts' average estimate of 50 cents a share, according to Thomson Reuters I/B/E/S. Revenue rose 5.2 percent to $3.06 billion, slightly better than Wall Street estimates of $3.05 billion. Dish's programming costs rose 5.8 percent from a year earlier after it renewed some contracts at higher rates. "JOINED AT THE HIP" WITH TIVO Legal expenses from a long-running patent dispute with TiVo Inc over digital video recording technology were $30.2 million in the quarter, compared with nil a year earlier. TiVo sued EchoStar Corp, Dish's sister company, in 2004 for patent infringement of its DVR technology. A jury found that EchoStar's DVR technology infringed TiVo patents. The U.S. District Court for Eastern Texas imposed contempt sanctions against Dish and EchoStar last year for violating a permanent injunction to stop making and selling DVRs. In March, a federal appeals court affirmed the contempt finding. While the court battle continues, analysts speculate it will probably end with a licensing pact that calls for Dish to pay TiVo for each of its DVR-using subscribers. Others have speculated that Ergen may attempt to buy TiVo, rather than incur the persistent legal costs and licensing fees. On a call with analysts, Ergen shrugged off, but did not dismiss, the takeover chatter. Instead, he praised TiVo's legal strategy, and said it is in the best interest of both companies to reach some kind of amicable agreement. "We are joined at the hip in the sense that if we don't get a deal done, those fees will go away for them, and obviously we'll lose customers," he said.
"A strong Dish Network is probably beneficial to TiVo if we're utilizing their technology." As for buying TiVo, Ergen said: "I haven't really thought about it too much, but I guess those are always options. It's not something that I've thought a lot about." TiVo shares rose 4.2 percent on Monday to $16.28. The stock has jumped more than 50 percent this year on optimism about a favorable licensing deal with Dish. (Reporting by Franklin Paul; Editing by Lisa Von Ahn, Derek Caney, Leslie Gevirtz) Keywords: DISHNETWORK/ (Franklin.Paul@thomsonreuters.com; +1 646 223 6195; Reuters Messaging: Franklin.Paul.firstname.lastname@example.org) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved.
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