For years, DISH Network (NASDAQ:DISH) and DirecTV acted as the Coke and Pepsi of the satellite television world.
The two companies battled back and forth in ads, and while there was never anything as clever as the old "challenge" when the two soda brands faced off in a blind taste test (blind tests don't work very well for television, after all), the battle has been fierce. That situation, however, has changed a bit since AT&T (NYSE:T) acquired DirecTV. DISH still focuses its ads on its satellite rival, but DirecTV has now become a piece of a larger puzzle, with AT&T using it to sell wireless subscriptions as well as bundles with its other services.
With DirecTV no longer a pure satellite company, DISH stands as a bit of an anomaly. It's a mid-size player in a world where consolidation is giving its rivals a more national scope. It's also primarily a pay-television company with a little bit of satellite Internet in a market where all of its major competitors sell broadband, television, and usually phone services.
DISH has a lot of opportunities ahead of it, but the company also faces an unsure business climate.
What is the biggest risk facing DISH?
In a broad sense, the biggest risk facing the pay-television industry as a whole is that people will decide that spending big money for TV no longer makes sense when streaming services provide quality programming options for much less money. DISH runs the risk, like every other provider, that people will simply cut the cord.
In addition, unlike most cable companies and even DirecTV, now that it's in the AT&T family, DISH doesn't have a large base of broadband customers it can leverage against any losses to its television subscriber base. If people leave DISH, they're gone, and the company won't have an Internet relationship to use to work itself back in.
That said, DISH does have a hedge against cord-cutting that should not only keep some of its own subscribers who otherwise would have left but also add some from its rivals. Sling TV, the company's streaming service that offers roughly 20 channels for $20 a month, makes a lot of sense for cord-cutters. It's much less expensive than cable while offering popular channels including ESPN, TBS, TNT, and others, as well as various $5 add-on packages for sports, kids, and so on. [The company provided me with a Sling TV subscription that it offers to members of the media; that subscription has been canceled. I also pay for cable in three locations.]
Sling doesn't replace a full cable or satellite subscription, and DISH certainly loses revenue if its own customers elect to downgrade. But Sling, which is a little over a year old, should be attractive to anyone who wants to pay less but still retain a semblance of a traditional pay-TV package.
Are there any other risks?
Aside from the general pressures facing pay-television as a whole, DISH also faces increasingly large rivals. The AT&T/DirecTV deal created a much larger player, while the pending Charter Communications/Time Warner Cable deal will create another if it receives federal approval. This puts DISH in a position where its rivals are closer to national players rather than regional companies.
That's a problem, because while DISH only sells pay-television and limited satellite broadband, its near-national competitors can offer bundling discounts. Still, this is only a minor risk, because even when you factor in bundling discounts, DISH generally offers the least expensive full-service pay-TV package at least on a long-term basis (when not factoring in new customer promotions or discounts).
Is DISH stock risky?
While any stock offers risks and DISH operates in segment facing significant challenges, it's fair to say the upside outweighs the downside. In addition to Sling, which should help the company profit from cord-cutting, it's also sitting on billions of dollars of wireless spectrum. That asset could be sold to prop the stock up, and it makes the company an attractive merger or buyout target.
DISH should be a strong stock moving forward, assuming it's willing to part with its spectrum, sell it, or even use it to enter the wireless market -- perhaps in some sort of partnership. The company has risk factors, but it also has ready answers for the potential problems it may face.