Dish Network (NASDAQ:DISH), the second biggest satellite pay TV provider in the US, competes with other satellite and cable providers like DirecTV (NASDAQ:DTV), Comcast (NASDAQ:CMCSA) and Time Warner Cable (NYSE:TWC).
The company has actively promoted the use of digital video recorders (DVRs) amongst its customer base since it earns additional fees for this service. Dish’s DVR service accounts for about 13% of the $27 Trefis price estimate for Dish’s stock.
We estimate that Dish’s DVR penetration was about 50% by end 2009 and is expected to climb to 75% by the end of the Trefis forecast period. Increasing use of DVRs, or time shifted TV viewing, has worried the TV industry. DVRs provide viewers the opportunity to skip ads, reducing ad impressions and effectiveness.
Below we discuss some of the recent findings that negate this conventional belief and how Dish will continue to benefit from TV advertising.
DVR Users Continue to Watch Advertisements
- 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 group.
- DVR viewing helps increase ratings for TV shows which helps to increase ad pricing for those shows
- According to another study, even by fast forwarding commercials, users are likely to retain commercial brands that are positioned close to center of the TV screen. This is because viewers tend to focus more at the center of the screen while fast forwarding ads.
DVRs Not Likely to Impact Dish’s Ad Revenue
In addition to the TV channels that primarily showcase the TV advertising shown, pay TV providers are also allotted some advertising spots of their own which they sell to advertisers. Additionally, advertising is also being showcased in the digital guides and other on-demand content provided to subscribers of digital cable and satellite services.
We estimate that TV advertising is the third most important division for Dish, and constitutes about 10% of $27 Trefis price estimate for Dish’s stock. This amounts to about $1.3 billion in value.
We forecast that Dish Network’s advertising revenues will reach $1.5 billion by the end of the Trefis forecast period. You can modify the forecast above to see Dish’s stock price could be impacted if the company’s ad revenue were to exceed our forecast.
For additional analysis and forecasts, here is our complete model for Dish Network’s stock.
