EchoStar Communications (DISH)

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Echostar (DISH) is the second largest provider of household satellite television in the United States and has a customer base of over 13 million^[1]. The company markets itself as a high quality, low cost provider, and generally attracts customers by offering equivalent bundles of television channels that are priced 16% to 40% the packages of traditional cable companies. Echostar has also positioned itself as a premier destination of international and multi-cultural programming. The company specifically targets the growing U.S. Hispanic population through specially tailored programming packages. Echostar offers over 250 Spanish language channels, and has packages that mix those Spanish language channels along with the English and local area programming^[2].

Satellite television is the leading alternative to the traditional cable television and has experienced rapid growth in this decade. The industry continues to face challenges from traditional cable companies like Comcast (CMCSA), Cablevision Systems (CVC), and Time Warner Cable. These companies are not only much larger than their satellite competitors, but also have capacity to offer bundled services including voice, and high speed internet. EchoStar has only recently begun to offer similar services through a partnership with AT&T and may lose the ability to do so, as AT&T continues to roll out its own video services.

[edit] Business Financials

Echostar's revenue comes from the monthly subscription rates for programming that it provides to households. Depending on the number of channels and premium programming that a customer requests, the amount each household pays can be vastly different.

In 2006, Echostar generated a net income of 608 million dollars on sales 9.8 billion dollars, of which 9.37 billion was subscriber-related. Over the past four years, Echostar has posted solid profits of at least 200 million dollars annually with a high-water mark of 1.51 billion dollars in 2005^[3]. The satellite television sector is rapidly developing, and in the past five years alone Echostar has experienced a doubling of its revenues.

The greatest cost Echostar incurs is the acquisition of a customer. Each new customer is a net loss for the company, but the company sales strategy is to recoup the cost by ensuring the customer stays with the company^[4]. Echostar attempts implement this strategy by providing low cost programming, friendly customer service, and quality equipment. The margins are crimped slightly, but it is far less costly than losing the customers and constantly having to sign up new customers to offset those that left.

The steep drop in profit from 2005 to 2006 may have been a result of several factor including interest payments from Echostar's significant debt, a 38% increase in depreciation of physical capital and a 94 million dollar litigation expense associated with the Tivo lawsuit^[5].

[edit] Trends and Forces

• Bundling: The entire satellite television market is facing stiff competition from other companies that are able to bundle telephone services, high-speed internet, and entertainment into one package. Echostar has not been ignorant of these developments, and they partnered with AT&T to provide high speed internet services in certain markets^[6]. However, AT&T recently began laying high speed optic fiber lines that are capable of transmitting video. As a result of this future cooperation with AT&T or any other company to create bundling packages is in doubt. AT&T and Verizon, another telecommunications doing the same thing, will not fully enter the market for at least the next few years.

• Legal Issues:Echostar faces significant legal exposure to two key legal issues. The first is its purported copyright infringement of TiVo (TIVO) by creating and selling its own DVR device. In April 2006, a Texas jury concluded Echostar infringed on certain Tivo patents through the creation and distribution of their DVR devices^[7]. DVR is an increasingly popular device, and if the infringement lawsuit is upheld it would be a significant blow to Echostar. The second legal issue confronting Echostar is the expiration of the Cable Act in 2007. The Cable Act prohibits exclusive contracting practices with cable affiliated programmers. The expiration of this act could adversely affect Echostar’s ability to negotiate and obtain high quality television programming^[8].

• Satellites: Satellites are vulnerable to solar storms, and accidents in space that cannot be repaired. The satellites that Echostar launches to broadcast have a 12-year lifespan^[9], and spare solar arrays, but if 8 of the 104 solar arrays malfunction or breakdown then the entire satellite is offline. Launching a replacement is expensive, and has its own risks in takeoff. The very nature of satellites can make them vulnerable to freak accidents, and they are not insured by Echostar^[10].

[edit] Competition

Echostar’s faces competitors in the satellite television market and in the home entertainment sector at large. The DirecTV Group (DTV) is its main competitor in the satellite television market, and DirecTV enjoys several advantages over Echostar such as larger size and financial resources as well as greater penetration in the United States. DirectV is sold in more electronic retailing stores than Echostar, and as a result Echostar must spend more on advertising to spread the word of its existence than DirecTV. DirecTV is also in the process of launching HDTV. Echostar is also doing this but is behind DirecTV and may suffer as a result. However, both of these companies and the satellite television market in general faces stiff competition from the firmly entrenched cable television providers. The resources, size, and bundling capabilities of these companies pose stiff competition^[11] to the satellite television market. However, their key advantage at the moment is their greater HDTV penetration rates, and capabilities. If there is a shift in preferences of consumers to HDTV, then at the moment, cable television providers seem to be in the best position to meet that demand.

Satellite Entertainment Competitors: These companies offer and provide satellite based entertainment to households.

• DirecTV

Cable Television Competitors: These companies provide clients with the cable television. These are some of the larger providers of cable entertainment, but there are many local companies as well.

• Time Warner Cable
• Comcast

[edit] Notes

1. ↑ Echostar 2006 10K, Item 7, pg. 46
2. ↑ Echostar 2006 10K, Item 1A, pg. 2
3. ↑ Echostar 2006 10K, Item 6, pg. 38
4. ↑ Echostar 2006 10K, Item 1A, pg. 3
5. ↑ Echostar 2006 10K, Item 6, pg. 52
6. ↑ Echostar 2006 10K, Item 1A, pg. 3
7. ↑ Echostar 2006 10K, Item 1A, pg. 25
8. ↑ Echostar 2006 10K, Item 1A, pg. 17
9. ↑ Echostar 2006 10K, Item 1A, pg. 8
10. ↑ Echostar 2006 10K, Item 1A, pg. 25
11. ↑ Echostar 2006 10K, Item 1A, pg. 21
12. ↑ This is the cost to the company to acquire each new customer.
13. ↑ This is the number of new customers minus the customers that leave.
14. ↑ Echostar 2006 10K, Item 6, pg. 47
15. ↑ Echostar 2006 10K, Item 6, pg. 45
16. ↑ Echostar 2006 10K, Item 6, pg. 45
17. ↑ DirecTV 2006 10K, Item 6, pg 33.
18. ↑ DirecTV 2006 10K, Item 6, pg 32.
19. ↑ DirecTV 2006 10K, Item 6, pg 65.
20. ↑ Comcast 2006 10K, pg 26.