Content Disputes Hurt Dish

Evercore ISI Group media analysts Vijay Jayant and David Joyce said subscriber losses at Dish Network in the fourth quarter were likely due to some recent high profile content disputes with programmers, adding that the satellite giant’s future growth will be driven by its wireless spectrum and its recently launched over-the-top service, Sling TV.

Dish lost about 63,000 net video subscribers in the fourth quarter, slightly better than consensus estimates but likely driven by since-resolved programming cost disputes with Fox News Channel and Time Warner Inc.’s Turner Broadcasting.

Fox News went dark to Dish customers on Dec. 20 and returned on Jan. 15, after a contentious negotiating period where Fox claimed that as many as 90,000 customers dropped the satellite TV service provider through Jan., 7. About eight of Time Warner’s Turner Networks went dark to Dish customers on Oct. 20, but were restored about a month later after the parties reached an extension agreement through March. While neither Dish nor Turner have officially announced a formal carriage deal, because the channels are part of its Sling TV service, most observers believe a deal has been reached.   

Broadband subscriber additions of 114,000 also were slightly less than estimates, causing the analysts to postulate that Dish will focus more on wireless spectrum – it was one of the biggest bidders in the recent federal AWS-3 spectrum auctions – and Sling TV.

“Dish is transforming from a DBS company to an organization that has substantial spectrum assets and a fledgling over-the-top video service called Sling TV, which will be the focus of investor interest,” the analysts wrote in a note to clients. “We continue to believe that the spectrum assets are not fully valued within the portfolio and that Dish is more likely to be an arms dealer in the wireless business than an all-out competitor. We maintain our ‘Buy’ rating and $85 target.”

In a separate research note, Morgan Stanley media analyst Ben Swinburne said the results and the announcement that Dish CEO Joe Clayton will retire on March 31, signal that Dish is becoming a new company.

Swinburne noted that Dish plans to finance its purchases in the AWS-3 auction with cash on hand, which fuels his belief that Dish will concentrate on wireless offerings.

“…while the bigger picture remains unclear, this purchase increases the company's strategic optionality but also reinforces our view that Dish aims to enter the mobile business,” Swinburne wrote.

Dish stock was up 2% ($1.49 each) to $79.80 in early trading Monday.