Weekly Pay-TV Notes: TWC-Charter Deal Gains Support, Netflix Sets Japan Launch Date And Dish Reports Second Quarter Results

The pay-TV industry saw significant activity this week, with Charter Communications’ planned acquisition of Time Warner Cable winning an endorsement from the Business Council of New York State. On a separate note, Netflix has set a September 2 launch date for Japan. Japan will be the first Asian country into which the streaming company launches. In yet another, Dish Network reported its second quarter earnings recently. On that note, we discuss below these developments related to the pay-TV companies over the past few days.

TWC-Charter Deal Gains Support, Improving Chances Of Winning Regulatory Approval

The Business Council of New York State has endorsed Charter Communications’ (NASDAQ:CHTR) planned acquisition of Time Warner Cable (NYSE:TWC). ^[1] The council has 2,400 business members and has written a letter to the state Public Service Commission stating the merger “would be good for both businesses and consumers since Charter is planning to offer higher-speed Internet to Time Warner Cable customers at a cheaper price.” Time Warner Cable had earlier won the support of Netflix when the streaming giant claimed that the proposed deal will be in “substantial public interest benefit.” ^[2]

This is excellent news for Time Warner Cable as Netflix was a staunch critic of the company’s now-defunct proposed merger with Comcast (NASDAQ:CMCSA). Other than Netflix, the proposed Comcast-Time Warner Cable merger consistently faced stringent opposition from the general public, public interest and consumer-advocacy groups, as well as other industry players. With the dissenting voices increasing, Comcast had to walk away from the deal. On the other hand, the Charter-Time Warner Cable has been viewed in a much more favorable light by the industry players, which improves the deal’s chances of getting approved by the FCC.

Time Warner Cable’s stock declined around 0.3% over the week through Thursday. We currently have a price estimate of $198 for Time Warner Cable. For the year 2015, we estimate revenues of $23.7 billion, in line with the consensus estimate, and EPS of $6.86, compared to a consensus estimate of $6.59.

Netflix Sets September 2 Launch Date For Japan

Streaming giant Netflix (NASDAQ:NFLX) has set a September 2 launch date for Japan. ^[3] Japan is the first Asian country into which Netflix is launching and has a population of about 127 million with 36 million broadband households, behind only China and US. ^[4] This launch is part of the company’s aggressive international expansion strategy, which encompasses the launch of its streaming services in 200 countries by the end of 2016. (Related – A Closer Look At Netflix’s Foray Into Japan) Netflix is currently available in about 50 countries and has over 65 million subscribers globally.

Netflix’s stock gained around 7% over the week through Thursday. We currently have a price estimate of $103 for Netflix. For the year 2015, we estimate revenues of $6.79 billion, compared to consensus estimate of $6.83 billion, and EPS of $0.20, compared to a consensus estimate of $0.24.

Dish Reports Solid Q2 Numbers But AWS-3 Discount Might Become Company’s Bane

Dish Network (NASDAQ:DISH) reported its second quarter earnings recently. ^[5] The pay-TV business saw steady growth in the quarter, driven by higher ARPU. The subscriber-related revenues increased 4.3% to $3.8 billion during the quarter. ^[6] The company lost 81,000 video customers and reported that average revenue per user (ARPU) grew 4.5% to $87.91 for the quarter. ^[6] Dish included metrics of its online streaming service Sling TV into its reported pay-TV numbers for the quarter. The inclusion of Sling TV numbers has helped reduce the rate of decline in subscriber base but has also capped the growth in ARPU as the service’s base package is offered at a considerably cheaper $20 a month.

Dish CEO Charlie Ergen stated on the earnings call that the cancellation of the $3.3 billion discount the company received in the AWS-3 spectrum auction might derail the company’s future plans. ^[7] The FCC is set to reject the discount as the commission feels that Dish’s bidding partners did not qualify for the small business discount. If the FCC cancels the discount, Dish will owe the commission the disputed amount, effectively increasing the company’s liabilities. (Read more – FCC Cancelling Dish’s Auction Discount Would Lead To A 9% Correction In Our Price Estimate) An additional liability of that magnitude could stall future M&A activity and cripple Dish’s plans to bid for spectrum at future auctions. The company might also be forced to sell or lease its spectrum in order to cover the additional expenses. (Read our earnings review – Dish’s Positive Earnings Performance Overshadowed by Likely Disruptions With $3.3 Billion Auction Discount Repayment)

Dish Network’s stock gained around 4% over the week through Thursday. We currently have a price estimate of $79.5 for Dish Network. For the year 2015, we estimate revenues of $15.1 billion, in line with the consensus estimate, and EPS of $1.8, compared to a consensus estimate of $1.9.

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1. Time Warner Cable’s SEC Filings [↩]
2. Time Warner Cable’s SEC Filings [↩]
3. Netflix to launch in Japan, its first Asian market, on September 2, August 4, 2015, Venturebeat [↩]
4. NETFLIX TO LAUNCH IN JAPAN THIS FALL, Feb 04, 2015, Netflix [↩]
5. DISH Network Reports Second Quarter 2015 Financial Results, August 5, 2015, Dish Network Press Release [↩]
6. Dish Network’s SEC Filings [↩] [↩]
7. DISH Network (DISH) Charles William Ergen on Q2 2015 Results – Earnings Call Transcript, August 5, 2015, Seeking Alpha [↩]