Wall Street's outlook for Dish Network became even gloomier last week on the news that Charlie Ergen's satellite company had lost its reselling deal with AT&T, with rival DirecTV taking that prize.
AT&T's announcement Sept. 26 that it was switching from Dish Network — and had picked DirecTV as its sole reselling partner after Jan. 31 next year — is the latest in a string of bad news for Dish. The No. 2 satellite provider lost 25,000 customers in the second quarter — its first subscriber loss ever.
“Unless Dish Network can present to the marketplace a silver-bullet type of solution, it's really hard to see them making substantial progress relative to the competition,” said Jimmy Schaeffler, chairman of The Carmel Group. “It looks right now that the planets are lining up against Dish Network.”
Last week, a battery of Wall Street analysts cut back their subscriber estimates for Dish Network in the aftermath of the AT&T news. Without that pact, Dish Network won't have a major telco partner to market and sell its satellite offering as part of a bundle of video, voice and Internet services.
Dish downplayed the loss. “We have enjoyed a good partnership with AT&T over the past several years,” the company said in a prepared statement. “We look forward to a healthy competition with their U-verse product and DirecTV.”
Sanford Bernstein analyst Craig Moffett issued a blistering, bearish report on Dish Network last week. He noted that, in the past, the satellite company said that about 15% of its gross subscriber additions were attributable to its deal with AT&T.
“As a result, we now expect Dish Network to post a sizable (minus 400,000) subscriber loss for full year 2009,” Moffett wrote. “We had previously expected approximately flat net growth. For DirecTV, we now expect a gain of 800,000, where previously we had expected approximately half that. The loss of this relationship leaves Dish without any major RBOC relationship; their largest telco partner will now be Embarq.”
Moffett added: “The announcement also likely puts to rest any remaining prospect of an acquisition by AT&T.”
Other analysts were not so downbeat about Dish's subscriber-growth prospects. Thomas Eagan, an analyst for Collins Stewart, revised his estimates for Dish Network, projecting that it will add 12,000 subscribers in 2009 instead of his prior figure of 218,000.
“More strategically, this new agreement puts DirecTV in the enviable position of being the satellite-TV player AT&T may consider acquiring should their U-Verse TV service not meet expectations next year,” Eagan wrote in a report.
Mariam Rondeli, SNL Kagan's satellite analyst, also was more upbeat on Dish than Moffett was.
“SNL Kagan assumes Dish Network will deliver modest but positive subscriber growth over the next several years, before slipping into negative territory in 2012,” Rondeli wrote. “Yet, a negative subscriber growth at Dish next year isn't unlikely, given current trends in the marketplace.”
Janco Partners analyst April Horace isn't counting Dish CEO Ergen out. He noted that the company will be in a much better competitive position the rest of this year, with 100 HD networks; its HD-only TurboHD package; more local HD markets; improvements in operations and customer care; and Slingbox-enabled set-tops.
“He's going to come out swinging and become the fierce competitor that Charlie always has been,” Horace said.
Dish Network has targeted lower-income customers with its low-cost service. Now the price of HDTV sets has come down dramatically, and they are even being marketed at retailers such as Costco, putting them in reach of those kinds of consumers, according to Horace.
“Charlie's offering as it relates to just a pure-HD tier is brilliant, because, if that person only wants HD, they can have it,” she said. “And for that lower-income person, that television set is their primary entertainment.”
