The media market is getting pretty easy to figure out.
As predicted, DISH Network (Nasdaq: DISH) failed to keep up with the subscriber growth at satellite rival DIRECTV (Nasdaq: DTV). DISH is the commodity play of the two rivals, while DIRECTV aims for a more affluent demographic with a taste for premium content. That choice is paying off handsomely. DIRECTV just added 289,000 net new subscribers in North America while Dish lost 156,000 customers in the fourth quarter.
That's more in line with the subscriber bleeding seen at cable operators Comcast (Nasdaq: CMCSA) or Time Warner Cable (NYSE: TWC). The recession may officially be over but household budgets are still tight and cable or satellite TV service is an easy budget-trimming item for many.
DISH Network isn't regarded as a premium product worth a serious investment, which makes it a disposable commodity just like the cable guys. DIRECTV goes out of its way to offer exclusive programming packages at premium prices, sacrificing potential mass-market sales in favor of stable, committed customers. If that sounds like choosing marriage over a series of random flings, that's exactly what DIRECTV is doing.
DIRECTV is churning through transient customers at a lower rate, quarter by quarter, and ended 2010 at less than 1.5% per month. By contrast, DISH's monthly churn was 1.72% through the first nine months of 2010 but 1.76% at the end of the year.
The company is trying to make up for the subscriber losses by increasing prices, which helped fourth-quarter sales grow by 8.2% year-over-year to $3.2 billion -- but may also have hastened the customer exodus. Earnings jumped 41% to $0.56 per share and beat analyst estimates, but investors know that subscription services are nothing without subscribers and are selling DISH stock today.
The future of media will be dominated by all-digital players, led by Netflix (Nasdaq: NFLX) and Amazon.com into the new era. Cable companies are destined to become bandwidth providers more than anything else, but the satellite guys don't even have that service to fall back on. DirecTV has carved out a lucrative niche for itself that may survive for a while into the digital age, but Dish is failing to follow suit.
Follow the (rare) ups and (mostly) downs of the satellite providers by adding DISH and DirecTV to your Foolish watchlist.
