I have to hand it to the team over at DISH Network (Nasdaq: DISH). It's a forward-thinking group, willing to take flak from investors, regulators, and content creators. But unfortunately, they are also neglecting, and possibly killing, a simple, cash-generating business. For those of you who have tried to increase your shower pressure and instead flooded your basement, you know the enemy of good is better.
Satellite? Try Splatellite!
If you read my article on DIRECTV (Nasdaq: DTV), you know I am a fan of the satellite subscription business model. It generates plenty of cash to play with, allows for lots of upselling, and provides a no-brainer entrance into emerging markets hungry for pay TV.
Well, DISH thinks I'm wrong. Instead of building its subscriber base and tapping into Latin America's virgin customer base, DISH has been spending billions of dollars acquiring dying companies with valuable spectrum. Spectrum refers to the range of radio signals that delivers to us everything from cell signals to Mad Men. Oh and it may be a mind-controlling life-force from an episode of Star Trek.
After spending almost $3 billion snapping up spectrum, the company is still far away from the promised 4G LTE network. In its response to the FCC's mandated timeline of three years to reach the initial milestone, DISH said it was "unrealistic" to accomplish the goal, and instead requested four years. Technology is exotic and tantalizing, but I don't like seeing what is normally a functional and profitable business pouring billions into a shaky area.
With its precious spectrum, DISH plans to launch a wireless broadband network to compete with the major telecoms, like Time Warner (NYSE: TWX) and Comcast (Nasdaq: CMCSA). The race is on to see who can come up with the most spectrum and offer the best services to customers. The two aforementioned companies recently teamed up with three other cable companies to create a nationwide Wi-Fi network. So even if things go smoothly from here on out for DISH's network, they have some serious competition to face.
No Mo' Flo
Now, I don't want to lead you astray. DISH is addressing its existing business by pulling new levers in an effort to turn around last year's net loss in subscriber base. One of its most intriguing tactics is the premium DVR that enables viewers to skip ads entirely. I agree, the Progressive commercials are one of the main reasons I drink, but this may not be the wisest move.
As luck would have it, advertising is a huge chunk of revenue for the content providers. CBS, NBC Universal, and the like are already complaining that their ad revenue will likely suffer from DISH's latest and greatest. For viewers, a world of no ads would be as wonderful as a Nile full of martinis, but DISH is ill-advised to bite the hand that feeds it.
Blockbuster or bust
Last year, DISH acquired bankrupt Blockbuster at a fire sale price of $320 million. The idea was to gain hold of a large asset base of DVDs, games, and streaming abilities and poach on Netflix's customer base. It makes sense to look forward in an industry dictated by technology, but crazy content costs and various operating difficulties suggest that now might not be the best time to jump in. Does DISH really want to share some of the headache Netflix has been experiencing over the last couple of years? I guess.
Abort launch
If you are thinking about forwarding some of little Timmy's college fund into DISH Network, proceed with caution. DISH may look like a safe bet with an appealing trailing P/E of 9.61 -- it's a few points under DIRECTV's P/E of 12.6 and far under Comcast's 18. But considering the future growth of the company, it's difficult to forecast whether DISH will succeed in its multibillion-dollar network investments, whereas DIRECTV nearly guarantees solid growth by adding millions of Latin American subscribers.
DISH isn't a poorly run company, and it certainly has the potential to bank a major win on its 4G network. But I would recommend waiting a little while to see how the spectrum game plays out. If the stock is set for big-time growth or undervalued, as some suggest, then your exact price point isn't crucial. Just make sure you understand, at the least, the level of complexity regarding the business at this point.
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