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Echostar Corp A (SATS) |
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WIKI ANALYSIS
EchoStar (NASDAQ: SATS) is a TV equipment and satellite service provider that generated $1.9 billion in revenue for FY2009.[1] Located in Englewood, Colorado, EchoStar distributes TV equipment and satellite services in Europe, Mexico, Africa, the Middle ,East, and North America. [1] [2]
EchoStar's primary customer and source of revenue is DISH Network Corporation, the company from which EchoStar was originally spun off in January 2008.[3] In FY2009, DISH was the source of 81.3% of EchoStar's total revenue.[1] EchoStar’s other customers include Bell TV and the US government.
The TV industry is undergoing three important changes: more people are expected to buy subscriptions, the internet is playing a larger part in TV, and more people are viewing TV on mobile devices. Global TV viewers are increasingly purchasing TV subscriptions, offering viewers more options and control in what they watch.[4] This provides EchoStar with the opportunity to gain more market share via DISH Network and other suppliers of TV subscription services.
EchoStar has also entered the field of mobile video. Over a third of mobile phone subscribers have the ability to view video on their phone.[5] With EchoStar’s smartphone application, SlingPlayer, mobile phone users can watch their TV on the go. EchoStar stock is primarily owned by Charles Ergen, who controls about 83.5% of its voting power[1] and serves as the chairman, President, and CEO of DISH Network.[6]
Company Overview
EchoStar is one of the biggest TV equipment and satellite service providers in the US. In January 2008, EchoStar and DISH Network spun off from EchoStar Corporation. DISH Network is EchoStar's main customer, accounting for 81.3% of EchoStar's revenue in FY2009. EchoStar's second biggest customer is the Canadian company Bell TV, a division of BCE.[1]
DISH Network and Bell TV buy items such as set-top boxes (STBs) and digital video-recorders (DVRs) from EchoStar, as well as access to EchoStar's fleet of nine domestic satellites. These satellites allow DISH Network and Bell TV to distribute their TV services to their subscribers. Three satellites in the fleet are also used by the US government for information collection and transfer.[7] EchoStar Corporation has three subsidiaries: EchoStar Technologies LLC, EchoStar Satellite Services LLC, and EchoStar International Corporation. EchoStar Technologies is responsible for the sale, development and maintenance of digital and satellite equipment. EchoStar Satellite Services is responsible for the transport of information across satellite, fiber optic, and earth station paths. Lastly, EchoStar International sells EchoStar goods and services in countries beyond North America. EchoStar also has access to the European, Asian, Middle Eastern, and Latin American Markets.[7]
Business and Financial Metrics
EchoStar ended FY2009, its second year as a corporation separate from DISH Network, with an operating income of $4.9 million. EchoStar generated its first positive operating income in FY2009 since its separation from DISH Network; EchoStar incurred an operating loss of $640.6 million in FY2008. [1] Even though the company saw a decrease in total revenues from FY2008 to FY2009, it made this jump in operating income after cutting two expenses in two categories; the expenses of sales of equipment dropped from $1.5 billion to $1.3 billion while expenses related to the spin-off (intangible assets like brand name, experience, and management) were eliminated altogether in 2009. EchoStar cites cheaper technology as a driver of its sales expense decrease. [1]
EchoStar has maintained a positive operating income through 2010Q1. The quarter's operating income measures just under $40.8 million, a drastic increase from the first quarter of the 2009 operating income of negative $2.3 million.[8]
The company generated most of its FY2009 net income of $364.7 million from other sources of income like interest payments and investment profits. Unrealized gains from investments totaled about $432.5 million in FY2009. EchoStar has investments in variable rate demand notes (VRDNs), debt securities, equity securities, and marketable investments. Within its marketable investments, EchoStar is invested in Terrestar Corp (TSTR).[1]
It is important to note that because EchoStar and DISH Network have only been separate entities as of January 2008, comparing present financial metrics to those from before the spin-off is unreliable.
| Annual Financial Data, in Millions[1] | FY2009 | FY2008 | FY2007 | FY2006 |
| Revenue | $1,903.6 | $2,150.5 | $1,544.1 | $1,525.3 |
| Gross Profit | $433.3 | $435.1 | - | - |
| Operating Income (loss) | $4.9 | $(640.6) | $(863.8) | $(37.4) |
| Net Income (loss) | $364.7 | $(958.2) | $(853.0) | $(34.2) |
Business Segments
- Equipment (79.62% of revenue in FY2009): Error creating thumbnail: convert: unable to open image `/home/wikinvest/src_live_2/mediawiki/images/0/05/EchoStar_Revenue_Pie.jpg': No such file or directory @ blob.c/OpenBlob/2480. convert: missing an image filename `/home/wikinvest/src_live_2/mediawiki/images/thumb/0/05/EchoStar_Revenue_Pie.jpg/300px-EchoStar_Revenue_Pie.jpg' @ convert.c/ConvertImageCommand/2800.Business Segment Divisions as of March 2010 [1]
- Satellite Receivers
- SlingBoxes
- Wireless Monitors
- Satellite Receiver Equipment
- Cable Receivers
EchoStar sells satellite, cable, and Internet Protocol TV (IPTV) equipment primarily to DISH Network and Bell TV. The satellite and cable receiver equipment is then distributed by DISH Network and Bell TV to their respective subscribers. In 2007, EchoStar acquired the Dutch company, SlingMedia. SlingMedia technologies lets TV subscribers control and view their TV programming from any wireless device.[9] Originally AT&T denied SlingMedia the access to iTunes which would allow SlingMedia to create an iPhone application. However, in February 2010, AT&T teamed up with EchoStar to make the smart-phone application, SlingPlayer, available on the iPhone. [10] [11] SlingPlayer lets customers to watch and control their TV via their smartphone.
- Services and other revenue (22.38% of revenue in FY2009):
- Satellite Services
- ViP-TV
- Conditional Access Services
- Set-Top Box Services
- Engineering Services
EchoStar generates service revenues by distributing both video and data across its satellite network. EchoStar also offers viewer tracking services, which let satellite television customers gain insight into their viewers’ preferences.[12] DCS Copy Protection Ltd. is a division of EchoStar which offers copyright protection to videos. [13]
Trends and Forces
Although Economy is Bad, TV Subscriptions Not Suffering as Much as Other Areas
According to Nielsen, a media market research company, while the economy's downturn has forced 63% of people surveyed to change their spending habits, TV subscriptions are not being cut as much as other items. Only 11% of people have changed their subscription as a result of the change in the economy, and only 3% entirely cancelled their subscriptions.[14] In fact, PricewaterhouseCoopers predicts that there will be a 6.8% compounded annual growth rate (CAGR) in global TV subscriptions from 2010 until 2014. Canada's TV subscriptions are also predicted grow at 6.8% CAGR. By 2014, PricewaterhouseCoopers expects Canada's TV subscriptions to hold a value of US$9.1 billion.[15] This is especially relevant to EchoStar given that its second biggest customer is Bell TV, a Canadian provider of subscription-only TV. According to a study by Magna-Lab, Digital Video Recording (DVR) subscriptions are expected to be owned by 44% of the total TV-owning population by 2014.[16] However, more growth of subscription-only TV is seen in China, which is predicted to have a 22.0% CAGR from 2009 until 2013.[17] In June 2009, EchoStar entered into a joint venture with Asia Satellite Telecommunications Co. to provide southern China, Taiwan, Hong Kong, and Macau with iPTV. EchoStar is providing the TV equipment and experience, while Asia Satellite is providing the distribution channel through its satellite fleet.[18] By working with Asia Satellite, EchoStar has gained access to the growing Chinese market TV subscriptions.
TiVo Continues Ongoing Patent Violation Suit Against EchoStar and DISH Network
TiVo filed a suit against then EchoStar Corporation in 2004, claiming that the company had violated TiVo's patent on the digital video recorder (DVR). TiVo won $106 million in damages in the 2006 hearing and another $190 million in the June 2009 appeal. By this time EchoStar Corporation had spun-off into EchoStar and DISH Network. In March 2010, both companies appealed the 2009 decision. Again, TiVo won and received $300 million in damages for EchoStar's continued use of DVR technology.[19] EchoStar and DISH Network applied again for an appeal with the US Court of Appeals Federal Circuit, which they were granted in May 2010.[20] The case was heard in June 2010 and this time the court ruled in favor of EchoStar and DISH Network.[21] This ruling voided the original $106 million payment of 2006, but the legitimacy of the $190 million payment of 2009 is to be determined at November 9, 2010 hearing. [22] TiVo has voiced plans to appeal this latest ruling.[23]
EchoStar Enters the Mobile Video Industry
EchoStar’s SlingPlayer is a smartphone application which allows owners of a SlingBox, a piece of hardware that allows for wireless control of TV, to view television from anywhere with a wireless internet connection. As of February 2010, SlingerPlayer is available on the iPhone. The iPhone community received the app enthusiastically, available on iTunes for $29.99.[24] According to the 2010Q1 of Nielsen, a market and consumer researcher for the TV industry, over 20 million mobile phone owners watch video on their phones with a year-to-year growth of 51.2%.[25]
Competition
Given the nature of EchoStar's business, it competes directly in two industries: the satellite and cable equipment and services industries.
- Satellite and Cable Equipment:
- Motorola: Motorola sells satellite and cable equipment as well as wireline and cable services. These items, however, are not Motorola’s primary products. Motorola also offers mobile devices and home networking[26]
- Cisco Systems: Cisco, along with its companies, Scientific Atlanta and Technicolor, specialize in communication technologies. Cisco targets both commercial and personal markets. Spending almost $5.2 billion annually for Research and Development, Cisco generated $36.1 billion in sales for FY2009. [27]
- Satellite and Cable Services:
- Intelsat : Founded in 1964, Intelsat offers fixed satellite services to about 1,800 customers. Intelsat has the advantage of longtime loyalty, given that many customers have worked with the company for over 30 years. In FY2009, Intelsat earned revenues of $2.5 billion. [28]
- SES Americom: SES is a satellite group which has operations located in Europe, North America, South America, Africa, Asia, and the Middle East. With 40 satellites world-wide, SES distributes video broadcasting to all of those places. In FY2009, SES earned $2.1 billion. [29]
- Telesat Holdings: Telesat is a privately owned satellite services company in Ottawa, Canada. It has 12 satellites operating and two more on the way, which broadcast television programs. [30]
For its ViP-TV, EchoStar also competes with other IPTV distributors. This includes AT&T, for its new U-Verse television, and soon Verizon, which reportedly plans on entering the IPTV industry. [31] However, in light of possible new FCC regulations, AT&T has threatened to slow its production of U-Verse television. [32] Because business from DISH Network constitutes most of EchoStar’s revenue, DISH Network’s competition is also important to EchoStar. As of 2008, EchoStar (now DISH Network) had the most DVR subscribers at 6.4 million, while DirectTV had 6.2 million, Comcast had 4.4 million, and Times Warner Cable had 4 million. [33]
| Company Name[34] | Percent of Revenue Share |
| SES | 28% |
| IntelSat | 27% |
| EutelSat | 14% |
| Other (including TeleSat and EchoStar) | 31% |
2007 Worldwide Revenue Share of Satellite Service Companies
References
- ↑ 1.0 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 1.9 SATS 2009 10K
- ↑ EchoStar Europe, History
- ↑ DISH Network, Press Release, 28/12/07
- ↑ PricewaterhouseCooper Press Release, 15/6/10
- ↑ The Christian Scientific Monitor, Screen Wars: Stealing TV’s ‘Eyeball’ Share, p.3
- ↑ Forbes Profiles, Charles W. Ergen
- ↑ 7.0 7.1 Echostar Satellite Services
- ↑ SATS Q1 2010 10-Q
- ↑ DISH Network Press Release 27/9/10
- ↑ Bloomberg IPhone Users Lose in AT&T-EchoStar TV Scrap
- ↑ EchoStar Press Release 4/2/10
- ↑ EchoStar
- ↑ DCS Copy Protection Ltd
- ↑ Nielsen Wire, Economy Affecting Overall Consumer Spending, but TV-Related Spending Relatively Spare, 20/2/10
- ↑ PricewaterhouseCoopers Press Release, 15/6/10
- ↑ WIRED, Analyst Report Says 44% of U.S. Homes Will Own DVRs by 2014, 16/12/10
- ↑ PricewaterhouseCoopers China Entertainment and Media Outlook: 2009-2013 Flyer, pg. 3
- ↑ Asia Sat Press Release, 2/6/10
- ↑ PC Mag, TiVo Handed Victory in Battle Against DISH, EchoStar, 4/3/10
- ↑ Business Week, TiVo Plunges as Court Reconsiders Echostar Ruling (Update2), 14/5/10
- ↑ Broadcasting & Cable, Dish, EchoStar Get Favorable Ruling in TiVo Case, 8/6/10
- ↑ Law.com, PTO Invalidates TiVo Patent Claims, but Case Against EchoStar is Far from Over, 11/6/10
- ↑ Broadcasting & Cable, Dish, EchoStar Get Favorable Ruling in TiVo Case, 8/6/10
- ↑ WIRED, Epicenter, 18/2/10
- ↑ Nielsen Three Screen Report Q12010
- ↑ Motorola TV Video Distribution
- ↑ Cisco Company Overview
- ↑ Intelsat Company Profile
- ↑ SES the Group
- ↑ Telsat
- ↑ PC World, Verizon Plans FiOS IPTV Service 20/5/10
- ↑ Daily Tech, AT&T May Stop Work on Uverse TV Service After Feds Step up Regulation
- ↑ WIRED, Analyst Report Says 44% of U.S. Homes Will Own DVRs by 2014, 16/12/10
- ↑ Citigroup Global Markets, Equity Research, “EchoStar Coporation,” 30/10/08
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