DISH Network Corp (NASDAQ:DISH)’s first-quarter earnings fell 40 percent on higher costs.

The satellite company was hit by various factors including the effects of a price increase, rising programming costs, and the continued downturn at Blockbuster.

Dish network

DISH Network Corp (NASDAQ:DISH) has struggled to combat subscriber losses amid a maturing U.S. subscription-television market and the growing popularity of online entertainment. The company launched a Blockbuster-branded streaming service last year and has attempted to attract more affluent customers who are less likely to cancel their service.

DISH Network Corp (NASDAQ:DISH) had about 650 domestic stores at the end of March, down 150 in the quarter, and says it will close another 150 this quarter. The deconsolidation of Blockbuster UK and closing of U.S. storefronts resulted in a 46 percent drop in the operation’s revenues to $180 million, while operating income fell to $1 million from $14 million.

DISH’s earnings at 47 cents a share were six cents short of the consensus forecast.

In its today’s report, Morgan Stanley felt DISH Network Corp (NASDAQ:DISH)’s first-quarter results were modestly behind its expectations, largely due to higher operating expenses. Its PayTV and broadband operating expenses were higher than expected pulling down EBITDA by $60 million.

Morgan Stanley feels, in general, DISH’s ability to grow subs while implementing a significant price increase is encouraging. However greater marketing, more expensive in-home equipment, rising programming costs continue to rise in the highly competitive PayTV sector.

Benjamin Swinburne and his team feel the Hopper+ Sling launch drove higher marketing spend besides leading to higher dealer equipment subsidies and higher capitalized set top costs. DISH’s broadband gross margins were below expectations, possibly highlighting DISH’s wholesale agreements are less favorable than the team had assumed.

DISH reported it has 249,000 broadband customers, showing an increase of 66,000 in the last quarter as against an increase of 6,000 in the period last year.

Morgan Stanley feels while today’s results will likely weigh on expectations for the core business, the primary equity value driver remains in DISH Network Corp (NASDAQ:DISH)’s spectrum assets and potential entry into wireless through either its outstanding bids for Sprint Nextel Corporation (NYSE:S) and Clearwire Corporation (NASDAQ:CLWR), or other potential acquisitions or partnerships.

Morgan Stanley (NYSE:MS) assigned ‘equal-weight’ to DISH.

The satellite-television operator’s former Echostar Corporation (NASDAQ:SATS) unit posted a 97 percent decline. EchoStar, the maker of set top boxes that was spun off from DISH in 2008 reported a profit of $3.46 million down from $126.6 million, a year earlier.

Class A shares of DISH Network Corp (NASDAQ:DISH) closed Wednesday at $39.61 while Echostar Corporation (NASDAQ:SATS) closed at $39.93.