A core piece of Dish Network's (NASDAQ:DISH) strategy is its over-the-top service, Sling TV. The service has expanded from one slim bundle to two, and it has added several add-on packages in the meantime as well. What's more, Sling TV customers have lower customer acquisition costs and allow Dish to access markets it couldn't previously (like apartment buildings and densely populated cities with poor lines of sight for satellites).
But there's a growing number of competitors in the live TV streaming space. Sony (NYSE:SNE) launched its PlayStation Vue service nationwide earlier this year. Amazon (NASDAQ:AMZN) is reportedly in talks for a similar service, and Hulu is as well. AT&T (NYSE:T) will launch DirecTV Now by the end of the year.
With satellite subscribers declining, Dish is looking to Sling to help offset the losses. But can it survive the increasingly crowded field?
Dish sees the competition coming
Dish Network doesn't seem to be resting on its laurels. During the company's second quarter earnings call, CEO Charlie Ergen noted the pay-TV landscape is changing. "Others will launch OTT services," he told analysts. "So customers are [...] not going to have two or three choices. They're going to have 10 or 15 choices for their video products."
To go along with that increasing competition, however, is significant growth in the market for over-the-top services. Sling CEO Roger Lynch says, "What we're seeing is a -- certainly a secular growth in OTT marketplace for us."
But neither Ergen or Lynch provided any outlook for Dish's ability to compete with these new entrants. They even note that some of them have significant advantages over Dish Network.
AT&T, Ergen points out, has 100 million customers with important credit data and easy access to direct marketing. AT&T has already leveraged its customer base to try to convert traditional DirecTV satellite subscribers with an exclusive unlimited mobile data offer to customers that bundle the video service. That customer base may be even more receptive, for example, to an over-the-top TV service that competes more directly with Sling TV, and customers could stream zero-rated, or without it counting against their data plan, on their smartphones.
Likewise, Amazon and Hulu have large built-in customer bases that already use over-the-top services. Hulu has 12 million paid subscribers and an estimated 67 million monthly viewers. Amazon has an estimated 54 million Prime members in the U.S. as of the beginning of the year, according to the Consumer Intelligence Research Partners. Sony reaches 65 million monthly users via its PlayStation Network with 10 million paid subscribers.
Meanwhile, Dish says there's very little overlap between its satellite customer base and customers interested in Sling TV. "We've never seen much at all migration from DISH Network over to Sling TV," Lynch told analysts. "Historically, it's been a different customer base that we attract for Sling versus the satellite business."
Can it survive?
If Sling TV has one thing working in its favor, it's pricing. Most competitors are looking to price their service around $40 per month, whereas Sling TV starts at $20 per month. Most over-the-top customers have left traditional cable due to price sensitivity.
The average pay-TV subscriber pays around $100 monthly for service, though, so even a $40 skinny bundle will look appealing to the average household. In fact, the more robust offerings from Sony may be more appealing than Dish for customers looking to cut the cord. Dish brings its base plan down to $20 per month by eliminating niceties like DVR and the ability to stream on multiple devices at the same time.
While Sling TV has a good head start over the competition and a strong pay-TV brand behind it, competition from other big companies is compelling. Management hasn't made clear to investors that it's prepared to deal with the influx of new entrants, only that it's continually working to improve the service. With the strong influx of competition, Dish could see its growth driver lose market share and its traditional satellite subscriber declines fall through to its reported net losses.