Dish Network (NASDAQ:DISH) reported its Q1 2012 earnings recently, and after a long time, surpassed its prime rival DirecTV (NASDAQ:DTV) in terms of net subscriber additions. While DirecTV added 81,000 subscribers, Dish Network added 104,000. After losing subscribers last year, Dish started its turnaround with the acquisition of Blockbuster and that has worked so far. Even though the gross subscriber additions came down, Dish managed to reduce the churn which is reflective of a better overall service and increased customer loyalty. The reduction in gross subscriber additions seems to be a broader trend that affected Dish’s rival DirecTV as well. The pay-TV industry is getting saturated and the cable companies such as Comcast (NASDAQ:CMCSA) and Time Warner Cable (NYSE:TWC) are getting more competitive, thus making it difficult for satellite companies to gain new subscribers.
Although Dish Network’s earnings were down compared to Q1 of 2011, it must be noted that last year’s results included a positive boost from litigation. If we exclude the impact of litigation, the EBITDA margin still declined due to higher programming expenses as well as higher marketing expenses.
Dish has resorted to a price freeze in order to improve its subscriber trends and therefore, might witness some margin decline in near term. At this point however, the company should focus on improving the overall experience of its current subscribers. Streaming offering from Blockbuster is going to be a big and ongoing part of this effort. Given that other pay-TV companies are expanding in this arena, Dish will need to maintain a lead in terms of quality and quantity of the streaming content that it offers.
The important take away of the earning is Dish’s capability to gain and retain subscribers. Even though margins may have suffered currently, Dish’s focus on higher quality subscribers and opportunity to promote additional services such as HD, DVR and Blockbuster will help it in longer term.
Our current price estimate for Dish Network stands at $30.88, roughly in line with the market price. We are in process of reviewing our price estimate in light of recent earnings.