Dish Network Must Open Its Wallet To Catch DirecTV
Dish Network (NASDAQ:DISH) is the second largest pay-TV provider in the US after rival DirecTV (NASDAQ:DTV). The two companies have competed fiercely for subscribers in recent years. DirecTV is ahead in this race, largely because the company spends more on an absolute basis to acquire subscribers.
Yet Dish and DirecTV spend comparable amounts on a per-subscriber basis. This suggests that Dish could catch up by simply raising its absolute subscriber acquisition spend. Our analysis follows below.
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Dish vs. DirecTV: The Money Race
Dish Network’s subscriber acquisition costs for 2009 were close to $1.5 billion. The company reported gross additions of more than 3.1 million subscribers. By contrast, DirecTV reported acquisition costs of just under $2.5 billion and gross additions of 4.2 million subscribers.
If we also account for leased equipment costs (which are capitalized by the company), Dish Network’s acquisition cost per subscriber (SAC) was close to $700 in 2009. Similarly, DirecTV’s SAC cost was around $712 last year.
AdWeek magazine reports, citing Nielsen research, that Dish Network’s advertising spend increased by $100 million in 2009, to $310 million. DirecTV’s 2009 advertising spend was $420 million, up from $370 million in 2008. Advertising spend per subscriber was similar for the two companies: About $99.4 for Dish Network and about $98.3 for DirecTV.
Dish Network’s advertising spend per subscriber rose sharply from $71 in 2008, indicating that the company has geared up its advertising campaigns in an increasingly competitive environment.
Dear Dish: Spend More!
These figures show that DirecTV is spending more on an absolute basis and gaining more subscribers as a result. So could Dish Network catch up by spending more in return? Probably so, assuming that Dish targets its spending to ensure that it has the same impact on subscriber acquisition as its spending to date.
You can drag the trendline in the chart below to see how Dish Network’s pay-TV market share impacts the company’s stock price. If Dish can increase its share by an additional 1% over our current forecast, its stock could see an upside of 7%.
Caveat: As competition heats up in the pay-TV market, subscriber acquisition costs are likely to rise, which would limit the upside from Dish’s potential market share gains.
You can see the complete $26.55 Trefis price estimate for Dish Network’s stock here