Can Dish Network Benefit From A “Skinny” Bundle?

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After facing high subscriber losses in Q2 2016 (with a loss of 281,000 subscribers), Dish Network (NASDAQ:DISH) is looking at innovative ways to attract and retain subscribers. High Pay-TV subscription costs are one of the reasons cited for cord cutting and to counter this trend, the company recently launched a Flex Pack skinny bundle at $ 39.99 per month to save its highest revenue generating segment. According to our estimates, Satellite TV accounts for nearly 30% of Dish Network’s valuation and Pay-TV market share is a critical driver for this segment. A cheaper skinny bundle is an attractive way to lure additional subscribers, especially if accompanied with an option to add channels of choice through additional payment. That said, a lower subscription fee can impact its profitability if content providers do not co-operate wiht lower fees. Further, players such as Netflix with their original and exclusive content can still retain a competitive edge.

See our complete analysis for Dish Network

Skinny Bundle Can Attract Users But Impact On Profitability Remains To Be Seen

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Dish looks to promote “Sportsless” packages that lack the  expensive sports channels such as EPSN, so as to target and retain subscribers who find Pay-TV expensive, especially those who are less interested  in sports. While this strategy can also attract new subscribers in the short term, before competitors start replicating this model, the impact of this strategy on Dish’s margins remains to be seen. The carriage fee should be lower for skinny bundles.  However, media companies usually negotiate with Pay-TV networks to get their biggest and most expensive channels in the basic programming packages bought by consumers. This ensures their profitability as the biggest channel is bought by the highest number of households. However, this can impact Dish Network’s margins negatively as the company tries to offer attractive packages to retain and attract subscribers.

The company’s streaming service Sling TV was launched with the objective of providing internet-based viewing of custom channels to viewers.   However, the company now appears to be deploying this strategy on a broader base. Sling TV’s numbers are not reported separately by the company and there are indications that growth in the OTT (over the top content) providers’ subscribers is slowing down.  Dish Network is now looking to attract subscribers who don’t want to use an internet connection to watch television.  However, the population of traditional TV viewers is dwindling. Studies suggest that while 90% of viewers in the age group of 68+ still watch traditional TV, younger viewers more commonly watch TV shows on mobile devices or PCs.

Dish’s combination of Sling TV and Flex Pack for traditional TV can cater to most of these viewers. However, subscribers are also looking for original, exclusive content, which is the primary driver of Netflix’s popularity. As Dish looks to offer popular channels as part of its core bundles, the cost of these bundles can be higher for the company. In a bid to offer these bundles at attractive prices to consumers, the company can impact its margins negatively. As the cord cutting trend gains momentum, Dish Network is looking at several ways to improve revenues in an industry which is going through a transition. We believe skinny bundles are essential to survive in the current situation.  However, Dish Network might need to constantly tweak this model to ensure that it drives revenues and profitability in the long term.

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