DISH Sees the Writing on the Wall

Satellite TV purveyor DISH Network (Nasdaq: DISH  ) just released a spartan earnings report, in more ways than one.

First-quarter sales grew 5.2% year-over-year to $3.06 billion, net income fell from $0.70 per share to $0.52 per share, and DISH added a modest 237,000 net subscribers to land at 14.34 million customers. And that's all she said.

If you want to know anything else, you've got some work to do. Put the numbers in context versus the industry, for example, and you'll see that DirecTV (Nasdaq: DTV  ) is growing even slower with just 100,000 new subscribers last quarter, and cable companies like Comcast (Nasdaq: CMCSA  ) and Time Warner Cable (NYSE: TWC  ) are actually losing video customers these days. In that light, DISH looks like a winner.

Or you could read the 10-Q report that DISH also filed yesterday to get some more meat on the bare-bone numbers. The higher sales was a result of aggressive promotional campaigns during the quarter, and that discounting also goes a long ways toward explaining the sinking profits. DISH sucked 1.6% more revenue out of each subscriber compared with the year-ago period, but every new customer cost 12.4% more in marketing and installation costs. At the current subscriber-related expense rates, DISH doesn't make an operating profit from new customers until they've paid for over 22 months of service.

The company recognizes that it's up against a new paradigm, noting that "competition has intensified" with assaults from telecom vendors and online video providers alike. In other words, semi-traditional TV broadcasters like DISH and Comcast are being squeezed between Verizon (NYSE: VZ  ) on one side, and by Netflix (Nasdaq: NFLX  ) and Amazon.com (Nasdaq: AMZN  ) (and Hulu, and YouTube, and TV network websites, and ... ) on the other.

Times are relatively good right now as DISH is stealing market share from the cable guys and even DirecTV. Just don't be surprised when the bottom drops out of the entire satellite TV market.

How long will that take? I'm thinking it'll happen in the next two to four years, but I'd love to hear what your view might be. The comments box below is wide open, my friend.

Fool contributor Anders Bylund owns shares in Netflix, but he holds no other position in any of the companies discussed here. Oh, and he'd like some more info in the earnings reports and less mandatory 10-Q-diving next time, OK? Amazon.com and Netflix are Motley Fool Stock Advisor picks. Try any of our Foolish newsletters today, free for 30 days. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.


Read/Post Comments (6) | Recommend This Article (5)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 11, 2010, at 3:09 PM, hildanother wrote:

    Anders,

    I agree absolutely with your take on the satellite/cable TV providers. 9 months ago I signed up for NetFlix. It costs me $14 a month for oodles of streaming movies plus two DVDs at a time. The service is seamless...their business model is very, very good.

    I saved almost $80 a month when I cancelled my DirecTv contract. With Netflix I can watch what I want, when I want, unlike broadcasting where you have to either watch what they feed you in real time, or fiddle with DVRs, with their associated rental fees.

    I think Netflix introduced a new and very important paradigm into TV viewing, and I truly believe that the satellite/cable providers are in deep do-do. I also bought Netflix stock back then...I am a very happy camper:-)

    Best Regards

    Brian

  • Report this Comment On May 11, 2010, at 5:24 PM, Jackrenee wrote:

    At the moment, nothing could compare with Direct TV. They are the leaders in every segment. Customer service, channel lineups, 3D channels, Sports packages, quality picture, excellent price for the big offering they provide.

    Cable and Dish must invest heavily to catch up and compare with Direct TV.

  • Report this Comment On May 11, 2010, at 5:47 PM, gspaxis wrote:

    Living outside of an urban area, satellite is the ONLY way we can get TV, and (very limited and expensive ) internet, and many, many US households are in the same boat.

    Where would we watch programming in your model, without the bandwidth to watch online?

  • Report this Comment On May 11, 2010, at 7:50 PM, EquityBull wrote:

    You forgot to mention they are going to be paying a HUGE settlement to Tivo for patent infringement. Also they don't seem like they want to pay Tivo a couple bucks per DVR's in use now. If not they have to shut them down possibly leaving customers without a DVR and then scramble to get another DVR that does not infringe and install at customers.

    Purchasing DVR's for all infringed DISH customers will cost a fortune. If only the CEO would pay Tivo a royalty to get the best DVR software by far on the planet they might actually get a leg up on all their competitors. If I was DISH ceo I'd be talking to Tivo about merger if I wanted to survive in 5 years.

  • Report this Comment On May 11, 2010, at 7:50 PM, EquityBull wrote:

    You forgot to mention they are going to be paying a HUGE settlement to Tivo for patent infringement. Also they don't seem like they want to pay Tivo a couple bucks per DVR's in use now. If not they have to shut them down possibly leaving customers without a DVR and then scramble to get another DVR that does not infringe and install at customers.

    Purchasing DVR's for all infringed DISH customers will cost a fortune. If only the CEO would pay Tivo a royalty to get the best DVR software by far on the planet they might actually get a leg up on all their competitors. If I was DISH ceo I'd be talking to Tivo about merger if I wanted to survive in 5 years.

  • Report this Comment On May 24, 2010, at 10:28 PM, borntolosedotcom wrote:

    The biggest reason for DTV's success is the NFL package, period. When the NFL network becomes available to cable operators and/or other media providers, the playing field will get real muddy. Pay-per-view will be the new world order, folks. Get yer wallet out.

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