Dish Q1 Preview: Focus On Subscriber Numbers, Sling TV And Dish’s Spectrum Plans

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Dish Network (NASDAQ:DISH) will report its first quarter results on May 11th. We are eager to learn the pay-TV subscriber trends in the quarter. Dish lost 79,000 subscribers for the whole year in 2014, whereas the company had added net subscribers in the 2 years before. [1] 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.

We are also looking for an update on Sling TV, Dish’s new $20-a-month streaming service primarily targeting the millennial audience and broadband-only subscribers. Additionally, the company management might share details regarding how they intend to monetize Dish’s significant spectrum holdings.

See our complete analysis for Dish Network

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Subscriber Trends In Focus

We estimate that the satellite TV operations contribute close to 30% to Dish’s value. Even though Dish lost pay-TV subscribers in 2014, the company has managed to maintain its pay-TV subscriber base over the past few years despite a slowdown in the industry. This can be attributed in part to the reach of satellite TV, which is available in rural areas, where cable operators do not provide services. Another reason for Dish’s success is the popularity of its advanced AutoHop DVR, which skips commercials while recording. However, we believe that the decline in the pay-TV industry will eventually catch up to Dish and the company will start losing subscribers on a regular basis in the future. The company will compensate this loss by increasing prices and the growth in pricing will translate into higher pay-TV revenues for the satellite company.

Moreover, Dish is at a disadvantage in comparison to other pay-TV operators due to its inability to efficiently bundle its services. While Dish offers broadband and pay-TV bundle in partnership with other operators such as Frontier Communications, its bundled offering is mainly useful for rural areas. In urban markets, it pales against the value of bundled offering from cable companies such as Comcast (NASDAQ:CMCSA) and telcos such as AT&T (NYSE:T). The growing availability of online content on alternative video platforms such as Netflix (NASDAQ:NFLX), Hulu, Sling TV, HBO Go etc. also poses a competitive threat to the whole pay-TV industry. These factors will weigh over the company’s pay-TV operations in the long run and accordingly we estimate Dish’s pay-TV market share to drop from 14% currently to a little over 13% towards the end of our forecast period.

Also Watch Out For Updates On:

Sling TV Online Streaming Service

We will be looking for an update on the progress of Dish’s new streaming service Sling TV. Sling TV’s base package is priced at $20 per month and offers a good mix of popular sports channels such as ESPN and ESPN2, as well as entertainment channels such as AMC, TNT, Disney Channel, Cartoon Network/Adult Swim, etc. [4] The service also offers various paid add-ons depending on consumer preferences. Sling was made available to all U.S. subscribers in February and the service witnessed encouraging adoption, registering at least 100,000 sign-ups in its first month. [5] (Related – Dish’s Sling TV Off To A Good Start, But Worries Remain) Sling is primarily targeted at the 10.6 million broadband-only subscribers in the U.S. and we believe that the service could witness good adoption rates going forward. [6] Dish can generate of more than $600 million in revenues if it manages to capture around 3 million subscribers, representing more than 25% of this market.

Dish’s Future Plans For Its Spectrum Holdings

Dish has also made significant investments in spectrum over the past few years and the company is now the fifth largest holder of wireless spectrum in the United States. Dish currently owns licenses to more than 80 Megahertz (MHz) of spectrum and we believe the company’s spectrum holdings contribute 58% to Dish’s value. (Related – Dish Network Price Estimate Revised To $79.80 Based On Spectrum Valuation) The spectrum provides Dish with a number of options, such as launching its own nationwide wireless network, partnering with an existing wireless carrier and either leasing or selling the spectrum. It will be interesting to see whether the company management elaborates on what course of action it plans to take in this regard.

Currently, Dish offers video services and satellite Internet service, though it isn’t as fast as the Internet services from wired providers. We continue to believe that with the spectrum Dish owns, it should either build its own infrastructure or partner with an existing carrier to provide wireless services. With an efficient wireless network in place, Dish could easily deliver faster Internet service. The company will also be able to compete better in the saturated U.S. pay-TV market by offering a viable bundling option in which it can combine its satellite service and wireless spectrum to offer consumers a single subscription. Other pay-TV providers have benefited immensely by offering bundled services and Dish needs to come out with its own variant in order to remain competitive.

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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. Sling TV: Everything you need to know, January 20, 2015, cnet.com []
  5. Sling TV’s Web-TV Service Attracts at Least 100,000 Sign-Ups in Its First Month, March 5, 2015, recode.net []
  6. Dish Network Unveils Sling, a Streaming Service to Rival Cable (and It Has ESPN), The New York Times, Jan 5, 2015 []