Q1 Earnings Preview: Dish Network's Pay-TV Subscriber Trend In Focus

May. 6.14 | About: DISH Network (DISH)

DISH Network Corporation (NASDAQ:DISH) will report its Q1 2014 results on May 7. Earlier, in Q4 2013, Dish delivered impressive results driven by the pay-TV subscriber gains and higher ARPU. The promotional schemes such as a free iPad offer helped the company attract more customers. We continue to believe that satellite TV will grow in the near term and Dish will see continued benefit from its AutoHop feature, which will help it gain more customers. The AutoHop allows commercials to automatically be removed from the recordings on DVR.

The company reported a gain of 8,000 pay-TV subscribers in the previous quarter taking the total subscriber count to 14.06 million. The pay-TV industry is witnessing a decline in subscribers, especially from cable operators. However, Comcast (NASDAQ:CMCSA) managed to turnaround the subscriber losses and added video subscribers in the previous two quarters. This reflects success of Comcast’s triple play bundling. We are eager to see Dish’s pay-TV subscriber trends in the coming quarters, given that some consumers at present are opting for a lower-cost mixture of over-the-air TV, Netflix (NASDAQ:NFLX) and other over-the-top viewing options. Netflix continues to add more subscribers every quarter.

Earlier in March, Dish won the H-Block spectrum in an auction for $1.56 billion. Later towards the end of March, there were talks about Dish approaching DirecTV (DTV) for a possible merger. We’ll be closely watching for any updates from Dish’s management over these developments.

Pay-TV Subscriber Trends In Focus

The U.S. satellite TV operations contribute close to 70% to Dish’s value, according to our estimates. It must be noted that the overall U.S. pay-TV industry lost 105,000 net video subscribers in 2013 while Dish managed to gain a modest 1,000. The difficulty in the U.S. pay-TV industry reflects a combination of market saturation, fierce competition, and the increased focus of providers on acquiring higher-value subscribers. Moreover, rise of alternative video platforms such as Netflix and other over-the-top viewing options are adding to the woes.

Dish has managed to add pay-TV subscribers despite slowdown in the industry. One of the reasons for this is the cord switching from cable to satellite providers. Also, Dish benefited from its promotional schemes as well as its unique Auto Hop DVR. However, it must be noted that Dish’s rival DirecTV was able to gain 169,000 subscribers during the same period. DirecTV has an advantage of its exclusive programming in the form of NFL Sunday Ticket.

Apart from the number of subscribers, another important driver for pay-TV revenues is the average monthly fee per subscriber (ARPU). Dish’s ARPU has risen from $52 in 2007 to an estimated $62 in 2013. Going forward, we believe this trend will continue and ARPU will reach $76 mark towards the end of our forecast period.

Disclosure: No positions