Unlike its rivals Comcast (NASDAQ:CMCSA), DirecTV (NASDAQ:DTV) and Time Warner Cable (NYSE:TWC), Dish Network (NASDAQ:DISH) reported a 0.5% decline in pay-TV revenues in Q2 2012 compared to same period last year despite having comparatively lower subscriber losses. This implies that the growth in Dish Network’s ARPU (average revenue per user) has not been able to compensate for subscriber declines. Even Comcast, which has suffered more subscriber losses, has been able to grow its pay-TV revenues with help of increasing HD/DVR penetration and price increases.
So why is Dish not doing so and risking revenue and margin declines? See our complete analysis for Dish Network
Focused On Improving Customer Base
Dish Network is in a transition phase of making its subscriber base higher quality and stickier. This means that customers are less likely to cancel their service and more likely to have additional premium services. In the last couple of years as telcos ramped up their fiber optic services and DirecTV continued heavy marketing, Dish Network’s business slipped. The company lost subscribers quite frequently with only occasional gains. Its appeal to value-conscious customers was not being enough. Consequently, Dish was involved in a series of acquisitions that enhanced its assets with wireless spectrum and Blockbuster’s brand. This has helped the company in improving its subscriber trends and the decision to halt price increase is an add-on strategy to attract subscribers. Dish Network is focusing on quality subscribers now and that suggests that price increase is quite possible. Despite this, the company has resorted not to do so in order to have a competitive edge and build a base for future.
Dish expects to launch wireless broadband soon and sell it as a product bundled with pay-TV service. Cable companies have utilized broadband strategy to grow profits even though pay-TV performance remains dismal. Perhaps it’s this vision that Dish Network holds in its mind and that is why it does not mind keeping pay-TV prices flat. When Dish launches wireless broadband, it will be able to price the whole bundle thus making its components opaque. Effectively it could still say that it has kept the pay-TV prices flat and the additional price is for broadband, even though the combined price could reflect actual pay-TV price increase.
Our current price estimate for Dish Network stands at $33, implying a premium of more than 10% to the market price.