Why Dish Network’s Shrinking Customer Base Might Not Be A Bad Thing ?

Dish Network‘s (NASDAQ:DISH) chairman Charlie Ergen mentioned in the company’s Q3 2015 earnings call that they have become more conservative on the kind of subscribers Dish Network wants. The company doesn’t take many subscribers below $50 ARPU (average revenue per user) and a certain credit score. This ensures that they get a better quality of subscribers and that all subscribers generate positive cash flow. ^[1]. The company understands that this strategy would impact its gross adds for linear TV, but believe this decline can be offset by new subscribers on Sling TV, its streaming network. We believe a high ARPU with an increasing trend is better for Dish Network’s valuation compared to an increasing subscriber base with lower ARPU

See our complete analysis for Dish Network

We estimate Dish Network’s fee per satellite TV subscriber will increase from $63 per month in 2015 to $77 per month at the end of our forecast period. During the same period we estimate Dish Network’s Pay TV market share to fall from around 14.0% to 12.5% as it continues to lose subscribers. Dish lost 79,000 subscribers in 2014 and 46,000 during the first six months of 2015. The emergence of alternate streaming media and intense competition in the Pay TV market are the main causes of subscriber loss. However, we see a nearly 3% downside in our price estimate in a scenario where we project Dish Network’s  market share to remain stable at around 14% to the end of our forecast period at the cost of a steady (and not increasing) ARPU to at around $63 per month .

Thus, if Dish Network is required to retain its subscribers by reducing subscription charges, thereby generating lower ARPU, its valuation gets negatively impacted.

Dish TV launched its streaming service Sling TV earlier this year and the company believes that this is an attractive alternative to attract more subscribers. According to Dish Network, the combination of Pay TV and Sling TV subscribers will lead to an increase in its total subscriber count in future. Rather than offering discounts and attracting more subscribers for its Pay TV network at a lower ARPU, the company’s strategy appears to be using the streaming media to attract subscribers and eventually have an increasing trend in both number of subscribers and ARPU, which should impact its valuation positively.

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1. Dish Network Earnings Report: Q3 Conference Call Transcript, The Street Transcripts, November 2015 [↩]