DISH Network Corporation (DISH) is the nation’s third largest direct broadcast satellite television provider, and serves approximately 14 million customers in the United States, which accounted for 96% of 2012 revenues (customers in the United Kingdom, Mexico, and other countries contributed the other 4% to the top line.
DISH Network was organized as a part of EchoStar Corporation (SATS) formerly known as EchoStar Communications Corporation in 1995, following the launch of EchoStar I satellite. DISH became independent in January of 2008, after it was spun off from EchoStar, and both companies separated into two different publicly traded companies. The pay-TV provider’s revenues are broken down into three segments: DISH (roughly 92% of revenues), Blockbuster (8%), and wireless spectrum (less than 1%).
DISH provides a wide selection of local and national programming. In 2012, it offered more than 270 basic video channels as well as 70 Sirius Satellite Radio music channels, 30 premium movie channels, 35 regional and specialty sports channels, 3,300 standard and high definition (HD) local channels, 300 international channels, and 70 pay-per-view channels. It operates in more than 210 television markets across the United States, offering HD programming in more than 170 markets.
What’s more, the company’s core portfolio is comprised of DISHOnline.com, which allows subscribers to watch television, movies, clips, and trailers on its website; DISH Anywhere (Formerly DISH Remote Access), such as digital video recorder’s (DVRs) as well as high-definition products.
The cable TV industry is a competitive one, as both cable television companies and satellite-broadcast operators aim to increase their subscriber base. Gaining an edge over competitors, such as DIRECTV (DTV), has become increasingly important. DISH differentiates its business through new product offerings, while DIRECTV largely focuses on widening its international footprint in Latin America (particularly Brazil). Specifically, the company introduced its whole home HD DVR solution, the Hopper, and created AutoHop, a feature that allows customers to “skip” commercials. DISH has expanded its product pipeline through new creative technology and bolt-on opportunities, including the acquisitions of DBSD North America, TerreStar, and Blockbuster.
On April 26, 2011, DISH purchased Blockbuster for $234 million, after the movie-rental chain filed for bankruptcy in 2010. Not only are DVD movies, TV shows, and video games offered through retail stores, mail, the blockbuster.com website, and the BLOCKBUSTER OnDemand service, but DISH rolled out a subscription-based streaming service. Blockbuster@Home serves as an entry point into the high-demand streaming universe, as it gives both consumers and film-studio partners greater choices and pricing options. However, gaining market share here is proving challenging with competitors like Netflix (NFLX) holding the majority of sales, and with the burgeoning popularity of Coinstar’s (CSTR) Redbox kiosks.
Despite the segment’s sluggish growth over the past few months, management expects improvements in subsequent quarters. Over the long term, we think this portfolio diversification will position DISH favorably against its cable TV competitors, as the competitive landscape will continue to heat up over time. This is most aptly attributed to disruptive technology, such as streaming digital television shows and movies, which may threaten the cable companies in the not too distant future. Moreover, DISH will continue to face additional obstacles down the road, such as increased pricing pressures and programming disputes.
DISH has been no stranger to litigation. In fact, it recorded more than $730 million in such expenses last year, largely owing to a settlement agreement with Voom HD Holdings and Cablevision (CVC), which was finally settled in October. In connection to the dispute, DISH dropped AMC Network Entertainment (AMCX) channels from its service last summer, and customers experienced a “black out” from AMC, WE tv, IFC, Sundance Channel, and Fuse until a settlement was made. Other programming disputes involved TiVo Inc. (TIVO), Gannett Broadcasting (GCI), and Sinclair Broadcast Group (SBGI). What’s more, DISH is dealing with litigation expenses due to the aforementioned AutoHop feature (and PrimeTime Anytime). Networks including FOX, NBC, and CBS are arguing for a breach of copyright, and retransmission rights, while DISH wants a declaratory judgment allowing the ad-skipping program. All told, programming disputes are increasingly common for pay-TV companies.
Joseph P. Clayton, President and CEO of DISH, discussed certain headwinds that DISH and other pay-TV companies are currently experiencing, and how the “the days of double-digit growth” are in the past. Slower-than-expected subscriber growth, faster than inflation programming costs, and a shift in competition due to disruptive technologies are a few of these challenges. Indeed, this cautious short- and long-term view reflects the evolving cable-TV industry and uncertain economy, in general.
To offset slowing growth in its core business and to further diversify its portfolio, DISH is working to create and build out a wireless broadband network. In fact, Mr. Clayton said, “At DISH, we continue to develop a portfolio of assets that will serve as the foundation of our future growth.” Initiatives to increase its participation here include the acquisition of DBSD America and TerreStar, which cost the company a total of $2.86 billion. That said, its significant investments in wireless spectrum licenses are subject to certain build-out requirements. Back- and forth- discussions with the Federal Communications Commission (FCC) for approval of these licenses have been ongoing; however, a final decision should be announced by the end of the year.
All in all, shares of DISH have been increasing in price, albeit gradually, since reaching an all-time low in the bear market of 2008, which was mostly due to the recession. Indeed, the price should continue its ascent over the long haul, following decent earnings results and expectations, as well as a favorable outcome in connection to its wireless spectrum assets. What’s more, DISH’s ample opportunities should fuel bottom-line growth over the short and long term. For a more detailed evaluation of DISH’s future business prospects and the particular investment merits of the stock, subscribers are encouraged to check our full page report in The Value Line Investment Survey.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.