Dish Can’t Compete With Telcos But Stock Can Glide To $26

Sorry, Carl, Dish is not a contender

Dish Network’s share of the pay TV market, which consists of cable, satellite and telecom companies, has remained relatively stable in the range of 12.5% to 13.5% over the past few years. The share declined marginally from a high of 13.6% in 2007, mainly because Dish lost a few distributors like AT&T and Century Link to DirecTV. In addition, direct broadcast satellite companies such as a Dish are finding it difficult to compete with newer technologies that integrate voice, broadband data and video services such as AT&T’s U-Verse and Verizon’s FiOS.

We expect DTV’s share to decline slightly from current levels over our forecast period unless Dish offers a new technology that can compete effectively with new technologies like fiber-optic based services from telecom operators. We currently have a Trefis price estimate of around $26 for Dish Network’s stock, about 35% above the current market price of around $20.

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Current features not enough to help grow market share

Dish competes with Time Warner Cable, Comcast, DirecTV, Verizon and AT&T in the U.S. pay TV market. DBS operators are ill-equipped to provide bandwidth heavy services like Video on Demand as they don’t have a dedicated line to customer premises.

DBS operators don’t offer phone service and have tied up with telcos like AT&T in the past to create synthetic bundles. Such bundles involve offering TV service from a DBS operator with phone and internet service from the telco (e.g. AT&T). However, synthetic bundles have not been very effective. Further, as telcos continue with the planned roll-out of their video services, they have been weaning away satellite customers, more worryingly, from synthetic bundle households.

Additionally, Dish has changed its strategic focus in recent quarters in an effort to balance revenue growth with profitability. This implies that we may not witness aggressive offers by the company in near future in order to gain more subscribers and our market share expectations remain at slight future declines.

The average of Trefis member forecasts for Dish Network Pay TV Market Share indicate a flat trend of around 14% over our forecast period, compared to the baseline Trefis estimate of a decrease from 13.5% in 2010 to 13.2% by the end of the Trefis forecast period. The member estimates imply an upside of 5% to the Trefis price estimate for Dish Network’s stock.

You can drag the forecast trend-line above to express your own view, and see the sensitivity of Dish Network’s stock to Pay TV Market Share.

Our complete analysis for Dish Network’s stock is here.

Notes:

1. We’ve calculated Dish Network’s Pay TV Market Share as: (Average Dish Network Subscribers)/(US pay TV Subscribers). Dish reports the number of total subscribers in 10K filings. We’ve calculated US pay TV Subscribers as: (US TV Households) x (Pay TV Penetration of US TV Households)

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