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WIKI ANALYSIS
DISH Networks (DISH) is the third largest provider of paid-TV in the United States and has a customer base of approximately 13.61 million as of June 2009.[1]
Satellite television is the leading alternative to the traditional cable television and has experienced rapid growth in this decade. The Satellite Industry Association (SIA) released its 2009 State of the Satellite Industry Report, showing a 19 percent growth in global revenues for the commercial satellite industry, while worldwide revenues in 2008 were $144.4 billion.[2] However, the industry continues to face challenges from traditional cable companies like Comcast, Cablevision, and Time Warner Cable who are not only much larger than their satellite competitors but also have the capacity to offer bundled services including phone and high speed internet. As a result, cable companies generally receive significantly more revenue per subscriber per month (ARPU), such as Comcast, which in 2008 received $110 ARPU versus DISH's $69.27.[3][4]
DISH has begun to offer similar bundle services through a partnership with AT&T, but their deal ends in 2009 and AT&T is beginning to roll out its own video services. DISH must overcome this and legal battles in order to increase its number of subscribers and lower its churn rate.
Business Overview
Subscriber Analysis
DISH Network'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. DISH has over 13 million subscribers, though its growth rate has been steadily decreasing, with only a 5% increase year over year in 2007, as compared to a 16% increase year over year in 2004.[5]Dish attributes slower subscriber growth to competitive factors including the effectiveness of certain competitors’ promotional offers, the number of markets in which competitors offer local HD channels, and their aggressive marketing of such advantages. Furthermore, satellite launch delays at DISH Network have slowed its growth of local HD markets, delaying its own retention marketing efforts.[6]Finally, a worsening economy slows down the growth of new households. Below charts the number of subscribers to DISH Network since 2003 in millions. After an increase from 2003 to 2007, DISH suffered had a loss in number of subscribers in FY08.
Financial Analysis
DISH reported total revenue of $2.92 billion for the quarter ended Dec. 31, 2008, a 1 percent increase compared with $2.89 billion for the corresponding period in 2007. Net income totaled $217 million for the quarter ended Dec. 31, 2008, compared with $175 million during the corresponding period in 2007.[7]
For the year ended Dec. 31, 2008, DISH Network reported total revenue of $11.62 billion compared with $11.09 billion for the year ended Dec. 31, 2007, an increase of 5 percent. DISH Network's net income for the year ended Dec. 31, 2008, totaled $903 million, compared with $756 million for the year ended Dec. 31, 2007.[8]
The greatest cost DISH 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[9]. This customer turnover rate is known as churn; a measure of the number of individuals or items moving into or out of a collection over a specific period of time. In 2007 DISH suffered its highest ever average monthly churn rate of 1.70%, up .06% from 2006. [10] DISH Network lost approximately 102,000 net subscribers during the quarter ended Dec. 31, 2008, giving the company approximately 13.678 million subscribers at year-end. The number of net subscribers lost for the full year ended Dec. 31, 2008 was also approximately 102,000.[11]
In its 2nd 2009 quarter, DISH’s revenue decreased 0.3% to $2.878 billion compared to its 2nd 2008 quarter results. Net earnings suffered a more severe decrease of 429%, from $335.8 million in 2008 to $63.4 million in 2009; this resulted from higher operating costs which were primarily related with subscriber and Tivo litigation expenses.[12]
DISH attempts to counter this 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.
Trends and Forces
Satellite companies have difficulty in competing with cable companies on the basis of 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. This coupled with cable companies’ already stronger ability to provide local and other programming in a larger number of geographic areas makes it very difficult for DISH to expand their subscriber base and effectively compete. DISH has not been ignorant of these developments, and they partnered with AT&T to provide high speed internet services in certain markets.[14] AT&T Inc. now offers DISH Network programming bundled with broadband, telephone and other services, accounting for approximately 25% of gross subscriber additions.[15] However, AT&T and other telephone companies such as Verizon have begun laying high speed optic fiber lines that are capable of transmitting video services bundled with traditional phone and high speed internet directly to millions of homes, making them as much a competitor as a partner.
DISH 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 digital video recorder (DVR). In April 2006, a Texas jury concluded DISH infringed on certain TiVo patents through the creation and distribution of their own DVR devices.[16]This was appealed and during January 2008, the U.S. Court of Appeals upheld the Texas jury verdict that certain of DISH’s DVRs, infringed a patent held by TiVo. DVR is an increasingly popular device, and if subsequent appeals are overturned, it would be a huge blow to DISH, who has thus far spent $128 million ($94 million in 2006 and $34 in 2007) in legal fees. A total of $105 million were also given to TiVo in Oct 2008, when the Supreme Court denied Dish Network's request for Certiorari.[17]
The second legal issue confronting DISH is the expiration of the Cable Act in 2007. The Cable Act prohibits exclusive contracting practices with cable affiliated programmers, from which DISH purchases a large percentage of their programming. The Cable Act expired in September 2007, but was extended for another five-year period.[18] Cable companies have appealed the FCC’s decision, and this litigation is pending. The expiration of this act could adversely affect DISH’s ability to negotiate and obtain high quality television programming.
Satellites are risky business
Satellites are vulnerable to solar storms, and accidents in space that cannot be repaired. The satellites that DISH launches to broadcast have a 12-year lifespan, 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. Certain launch vehicles that may be used by us have either unproven track records or have experienced launch failures in the past. Currently DISH has 12 satellites in orbit, of which 5 are owned by the company itself while the rest are leased from third parties.[19]
Competition
DISH 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 has several advantages over DISH 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 DISH, and as a result DISH must spend more on advertising to spread the word of its existence than DirecTV. DirecTV is also in the process of launching HDTV. DISH is also doing this but is behind DirecTV. However, both of these companies, and the satellite television market in general, face stiff competition from the firmly entrenched cable television providers. The resources, size, and bundling capabilities of these companies pose stiff competition to the satellite television market. [20]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 cable television providers are the best position to meet that demand.
| Company | Subscriber Acquisition Costs (per customer)[21] | Churn Rate [22] | 2008 Profits (Millions) | Number of Subscribers |
|---|---|---|---|---|
| DISH | $720[3] | 1.86%[3] | $1,092[3] | 13,780,000[3] |
| DirecTV | $715[23] | 1.47%[23] | $2,330[23] | 17,621,000[23] |
Satellite Entertainment Competitors: These companies offer and provide satellite based entertainment to households.
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 - As of December 31, 2007, Comcast served approximately 24.1 million video subscribers, 13.2 million high-speed Internet subscribers and 4.6 million phone subscribers and passed approximately 48.5 million homes in 39 states and the District of Columbia.[24]
References
- ↑ DISH 2009 10-Q2 pg.4 (August 10, 2009).
- ↑ State of the Satellite Industry Report 2009. SIA (06-03-2009). Retrieved on 2009-06-08.
- ↑ 3.0 3.1 3.2 3.3 3.4 3.5 3.6 DISH 2008 10-K pg. 26
- ↑ CMCSA 10-K pg. 26
- ↑ DISH Annual Report 2007 - Item 7 - Page 38
- ↑ DISH Annual Report 2007 - Item 7 - Page 39
- ↑ DISH Network(R) Reports Fourth Quarter 2008 Financial Results March 2, 2009
- ↑ DISH Network(R) Reports Fourth Quarter 2008 Financial Results March 2, 2009
- ↑ Echostar 2006 10K, Item 1A, pg. 3
- ↑ DISH Annual Report 2007 - Item 7 - Page 38
- ↑ DISH Network(R) Reports Fourth Quarter 2008 Financial Results March 2, 2009
- ↑ DISH 2009 10-Q2 pg.2 (August 10, 2009).
- ↑ DISH 2008 10k pg. 31
- ↑ DISH 2007 10-K pg. 3
- ↑ DISH 2007 10-K pg. 20
- ↑ DISH 2009 10-Q1 pg. 46
- ↑ DISH 2008 10-K pg. F52
- ↑ DISH 2008 10-K pg. 13
- ↑ DISH 2009 10-Q1 pg. 11
- ↑ DISH Annual Report 2007, Item 1A, pg. 21
- ↑ This is the cost to the company to acquire each new customer.
- ↑ This is the number of new customers minus the customers that leave.
- ↑ 23.0 23.1 23.2 23.3 DTV 2008 10-K pg. 49
- ↑ Comcast 2007 Annual Report Item 7 - Page 20
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