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Investment Overview for Dish Network (NASDAQ:DISH)
Below are key drivers of Dish Network's value that present opportunities for upside or downside to the current Trefis price estimate for Dish Network:
Fee per Satellite TV Subscriber: We estimate this figure will increase from about $62 in 2013 to about $85 by the end of our forecast period. However, there could be an upside of a little under 10% to our price estimate if this fee were to rise to $115 instead. This could be possible if programming costs rise too much making it unfeasible for Dish to absorb them and it passes on a significant portion of these costs to the end consumers.
Dish Network Pay-TV Market Share: We estimate this figure to be around to 12.1% by the end of our forecast period compared to about 12.9% in 2013. However there could be about 5% upside to our price estimate if Dish Network can lift its market share to over 14% by end of our forecast period. On the other hand if this figure were to decline to 10%, there could be downside of more than 5% to our price estimate.
Dish Network Gross Profit Margin: We estimate that Dish Network's gross margins will be slightly better than 44.7% in 2013 to about 45.7% by the end of our forecast period. There could be an upside of about 10% to our price estimate if Dish can get back to 50% gross margin levels seen in 2008, by continuing to focus on quality subscriber base and increasing its prices.
For additional details, select a driver above or select a division from the interactive Trefis split for Dish Network at the top of the page.
Dish Network is the third largest pay TV provider in the U.S. after Comcast and DirecTV. The pay TV market includes cable providers such as Time Warner Cable, Comcast and Cablevision, satellite providers such as DirecTV and Dish Network, and telecom providers such as AT&T and Verizon that offer fiber optic TV services. More than 90% of the TV households in the US subscribe to Pay TV services. Dish is the second largest satellite TV provider in the U.S. after DirecTV.
Dish makes money by charging digital TV subscription fees to customers, selling digital TV boxes, selling premium services like HD and DVR, and by charging advertisers to advertise on some the channels it carries.
Dish Network acquired DBSD North America and TerreStar in 2011. These were strategic investments by Dish in which the company got access to valuable spectrum that could help it in building a wireless network. Dish also made a successful bid for H-Block spectrum in 2014, taking its total spectrum holdings to 56 MHz. Dish currently has 50 MHz of downlink spectrum, the pre-tax value of which is over $20 billion, according to our estimates.
The majority of Dish's value comes from its spectrum holdings and its core satellite TV service. Although the company offers customers additional services like HD and DVR service the value contribution of these services to Dish's overall value remains limited due to the lower fees charged for these services and the limited number of Dish customers that opt-in for these additions. Below is additional detail on the two primary reasons why Dish's core satellite TV service is the most valuable segment:
High Fees for Satellite Service
The Fee per Satellite TV Subscriber for Dish's core offering was about $62 per month in 2013. Although we forecast slight declines, we estimate that Dish will charge less than $8 per subscriber per month for DVR service and less than $10 per subscriber per month for HD service.
Limited Number of HD and DVR Customers
At the end of 2013, Dish had about 12.9% market share in the US Pay TV market, representing about 14 million subscribers. We expect Dish's market share to remain around current levels. The total number of subscribers to Dish's satellite service is the upper limit on the number of HD and DVR customers that the company can have. Currently, approximately 60% of Dish subscribers opt-in for DVR service and we expect this figure to rise to about 80% by the end of the Trefis forecast period. Similarly, HD service is used by less than 40% of Dish customers today and we expect this figure to rise to more than 65%.
Bundling of services (TV, internet, phone) and increased competition from telcos (AT&T, Verizon) are the primary trends impacting Dish.
Competition rather than Cooperation with Telcos (e.g. AT&T and Verizon)
Before AT&T's U-verse and Verizon's FiOS fiber optic TV services were launched, telcos and satellite providers would team up to provide bundled TV, Internet and phone services to compete with triple play offerings from cable operators like Comcast and Time Warner Cable. However, telcos now compete with satellite providers in certain areas, and the level of competition will continue to increase as telcos continue to roll out their TV services.
Fiber-based providers represent one of the fastest-growing sector in Pay TV market
Several large telcos are upgrading old copper wire lines with fiber optic lines in their markets. The fiber optic lines provide high capacity bandwidth, enabling these companies to offer increased HD content and ability to bundle services.
Alternative platform threat
Dish Network in particular, and pay-TV service providers in general, face threat from emerging online video platforms like Netflix and Hulu. Although these platforms mostly provide content that is not running live on TV, they are now slowly penetrating into pay-TV provider's core turf. Netflix's entry into original programming with the success of its show 'House of Cards' is an example.
Content owners demanding more money
Dish Network has engaged in conflicts with content owners in recent times over the issue of their demand for higher carriage fees. We believe Dish Network's periodic price rise is a response to cope with such demands so that channel interruptions do not occur. Dish has blocked 10 channels in the last six months of 2014, amid carriage disputes.
Trefis Forecast Rationale for Advertising Revenues
This refers to Dish Network's annual advertising revenues.
Dish Network, like other cable and satellite operators, gets a share of advertising time from some of the channels it carries. Dish Network can then sell the slots to advertisers at negotiated prices.
We have estimated historical revenue figures by assuming advertising revenues to be proportional to the number of subscribers and comparing it with competitor data. We expect revenues to continue to grow with improving economy.
We considered the following three factors for this forecast:
Back to Company Overview
- Improving ad marketplace with emerging opportunities
- Advertisement market has in general witnessed an improvement in 2012. Automotive sales have gone up and these companies are willing to spend more, thus boosting ad pricing.
- Apart from general improvement, Dish Network are opportunity to boost its advertising revenues by focusing on local advertising and interactive ads that are likely to bring it more business.
As opposed to initial fears, DVRs are in fact helping advertising
- With DVRs into the marketplace, customers have options to skip the ads, which initially became a cause of concern for advertisers
- According to Nielson, a market research firm, about 46% of the viewers of major TV networks in the US that belong to age group of 18-49 tend to avoid skipping commercials during playback on DVR. This is especially beneficial since most commercials are targeted at this age grou
- Thus DVRs are in fact, helping increase TV ratings of shows that reflects in ad price increments.
How Does Trefis Modelling Work?
How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
See more on: DCF Methodology
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