Dish Network's (NASDAQ:DISH) new service, Sling TV, isn't meant to replace a full-featured cable package. It doesn't offer as many channels (just 15), or as much access (it's limited to one stream at a time). But it's not intended to.
Sling TV is a solution for cord-cutters seeking access to a number of networks with content often found in cable bundles, but rarely online. Most notably ESPN, but also AMC, TNT, TBS, and a few others.
Clearly, Sling TV's biggest advantage is its price -- just $20 per month. But Sling TV has a couple of other advantages over traditional cable that may not be as obvious. In a recent phone interview, Sling TV's CEO, Roger Lynch, shed light on some key aspects of the industry that could give Sling TV an advantage.
It's easy subscribe, and easy to cancel
One of the more underappreciated aspects of Netflix's (NASDAQ:NFLX) business model is the ease with which its customers can sign up for, and cancel, their service. At any time, day or night, subscribers can navigate to Netflix's website and, with just a few clicks, create (or shut down) their account. There's no need to schedule a service visit, or to spend hours on hold, only to speak with a pushy rep.
In the past, Netflix critics have rightly pointed out that this policy increases the company's churn -- if its easy to cancel, subscribers will leave. And indeed, they do. But Netflix's management argues that its policies encourage consumers to try out the service, and to come back after they've left. Given that Netflix now has more subscribers than HBO, it's hard to argue.
Sling TV operates in a similar fashion. There's no contracts to sign, or installations to schedule. Subscribers can sign up for the fall, and if they desire, cancel in the winter. According to Lynch, this is not a feature that's likely to be coming to traditional cable providers -- certainly not any time in the near future.
The industry average [for customer acquisition costs] is around $800. ... You have to pay for marketing, for customer service, for installation -- that's expensive ... it's unlikely you'll ever see traditional companies offering [the ability to cancel at will].
Dish Network's satellite service requires a commitment -- generally 24-months to qualify for the best pricing, as do virtually all other traditional paid-TV providers. But because it relies on the Internet and subscribers' own equipment, there's no need to lock customers into long-term contracts.
The promise of 4K content
Sling TV's Internet-based distribution also gives it another advantage over cable: the ability to more easily offer 4K content to its subscribers. Sling TV doesn't offer any 4K content right now -- indeed, not a single network broadcasts in 4K. But as the number of 4K television sets increases, Americans will eventually seek out 4K offerings, and Sling TV could be there waiting.
Netflix has been a pioneer in 4K content, offering some of its own shows -- such as House of Cards -- in 4K. Netflix has argued in the past that its distribution method gives it an advantage -- it can easily target individual households on a per-subscriber basis, rather than upgrading each market, as a traditional paid-TV provider would be forced to do.
Lynch said the same advantages apply to Sling TV. When its content partners make the move to 4K, Sling TV could be among the first to offer 4K channels.
It's an issue of bandwidth. Traditional providers have to deliver all their channels over a limited amount of bandwidth. ... If you add a 4K channel, you still have to support the HD [version of that] channel; that doesn't go away. ... Sling TV doesn't have that restriction.
What does Sling TV mean to Dish Network?
Despite its advantages, Sling TV seems too limited to cannibalize many sales of Dish Network's full-featured paid-TV service. If you have multiple TVs in the same household, for example, or if you seek a robust DVR, Sling TV simply isn't for you.
This is likely intentional, as it wouldn't be in Dish's best interest to dramatically disrupt its core business model -- at least not initially. But it's easy to see how Sling TV's advantages could eventually evolve into a more robust service if Dish decided to push it in that direction.
For now, Lynch insists that Sling TV is only in its early days, and that the company has no firm targets. But it's definitely one of the more interesting services to emerge from the paid-TV complex in recent years, and one worth following.
Sam Mattera has no position in any stocks mentioned. The Motley Fool recommends AMC Networks and Netflix. The Motley Fool owns shares of AMC Networks and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.