Dish Loses 63,000 Pay-TV customers in Q4

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Dish Network (NASDAQ:DISH) recently reported its Q4 2014 earnings. The company’s revenues grew 4% to $3.68 billion while net income came in at $409.9 million, or 88 cents per share, compared with a profit of $283.2 million, or 63 cent per share, in the prior year quarter. [1] Dish also announced that founder and chairman Charlie Ergen will be the company’s new chief executive officer (CEO) from March 2015.

Looking at the two important trends, pay-TV subscribers and average revenue per user (ARPU), the company lost 63,000 video customers while ARPU (as reported by Dish Network) grew 3.6% to $84.17 for the quarter. [1] The subscriber base at the end of 2014 stood at 13.98 million. Dish lost 79,000 subscribers for the whole year in 2014, whereas the company had added net subscribers in the 2 years before. The company lost subscribers largely due to programming interruptions which stemmed from disputes with content providers. Dish was involved in a three week dispute with 21st Century Fox before signing a new distribution agreement in January that put Fox programming back on Dish’s service. [2] The company also temporarily dropped 8 of Time Warner’s (NYSE:TWX) cable networks including CNN and Cartoon Network. [3] All these disputes are part of a larger fight with content providers to limit programming costs and such instances can continue to occur in the future.

See our complete analysis for Dish Network

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Pay-TV Operations Remain Steady

Dish’s pay-TV operations contribute close to 40% of its value, according to our estimates. The business saw steady growth in the third quarter, driven by higher ARPU. The subscriber-related revenues increased over 4% to $3.65 billion during the quarter. [1] Subscriber-related expenses had a negligible increase of 0.07% in the quarter versus the prior year period. This is an encouraging sign as increase in expenses means higher pay-TV programming costs. Dish’s pay-TV subscriber churn rate increased to 1.61% as compared to 1.53% during the prior year period.

The ARPU for Dish’s pay-TV subscribers increased 3.63% in Q4 2014 as compared to Q4 2013. [1] We continue to believe that APRU will grow steadily in the coming years driven by periodic price increases. Programming costs rise each year due to a periodic increase in the carriage fee for various channels, which is a critical part of the multi-year agreements between media companies and pay-TV service providers. To protect margins, pay-TV companies typically increase prices periodically and pass on the burden of increased programming costs to subscribers. We expect this trend to continue and drive ARPU up.

Looking Ahead to 2015

Arguably the most important news to come out of the event was that Dish Network Corp. founder and Chairman Charlie Ergen will be taking over the reins as CEO from Joseph Clayton at the end of March. Now all eyes will be on Ergen and how he plans to use the $50 billion arsenal of airwaves that the company has accumulated over the years. Dish has been looking to monetize the spectrum to which it has the licenses and a merger with T-Mobile indeed may be in the cards. Ergen was full of praises for the company during the earnings conference call. [4]

In 2014, the company also launched its over the top internet streaming service called Sling TV. The streaming service is priced at around $20 a month and targets the 18-35 demographic, an age at which viewers often do not subscribed to pay-TV. The service aims at providing a smaller selection of live TV channels at a cheaper price in comparison to more expensive cable TV subscriptions. However, the service is still priced considerably higher than other streaming services such as the service from Netflix (NASDAQ:NFLX). Netflix is the largest streaming video provider in the U.S., with over 39 million subscribers, and has priced its standard package at $8.99 a month. It will be interesting to see how much traction Sling TV gathers in the coming quarters among the demographic it is targeting.

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Notes:
  1. Dish Network’s SEC Filings [] [] [] []
  2. Dish, Fox News Reach Distribution Deal, January 15, 2015, Wall Street Journal []
  3. Dish Eases Standoff with Turner, Restores CNN, Cartoon Network, November 21, 2014, Variety []
  4. Dish Network’s (DISH) CEO Joseph Clayton on Q4 2014 Results – Earnings Call Transcript, February 23, 2015, Seeking Alpha []