At a time when tech and telecom firms have been jumping into online video, perhaps it’s appropriate that long-time pay-TV maverick Dish Network is going the opposite direction.
Dish is finally close to realizing Chairman Charlie Ergen’s plan to become a mobile provider, after years of delays, negotiations and spectrum acquisitions. This is a remarkable shift that also could position the company for the next generation of entertainment delivery while diversifying its revenue streams.
The dramatic change in corporate makeup certainly fits Ergen’s contrarian approach over most of the time he’s guided the satellite broadcaster.
But for now, that move is complicated and expensive, the final acquisition of key assets from T-Mobile not quite completed.
At the same time, the move to wireless leaves in question Dish’s commitment to its existing businesses, including its 9.3 million satellite-TV customers and another 2.6 million subscribers using its Sling TV skinny bundle.
Ergen’s big move is being driven by ugly math: the satellite TV unit, like the rest of traditional pay TV, is losing customers quickly, 194,000 in Q4 alone.
In an effort to collar some of those escaping customers, Dish rolled out Sling TV, its bargain version of a so-called “skinny bundle,” in 2015. Sling TV was introduced right before Sony’s now defunct PlayStation Vue, as the very first “virtual MVPD” (vMVPD), live-streamed, OTT-delivered bundles of traditional cable and broadcast channels.
Despite plenty of bugs and glitches in its first couple of years, Sling TV grew quickly, even when Dish was joined in the vMPVD market by Hulu, YouTube and AT&T/DirecTV. For Sling TV and its competitors, the vMVPD business wasn’t profitable. But it least it kept linear pay TV refugees from leaving the pay TV ecosystem altogether.
Dish hoped Sling TV could grow its user base to a scale that would drive down programming cost and improve the economics. Dish also has touted the ability of programatic advertising on the Sling TV platform as a difference-maker.
Notably, in 2017, Dish even took steps to turn Sling TV into the base of a device ecosystem, a la Amazon Fire TV, with the launch of the AirTV OTT device. The Android TV-based AirTV even includes a Sling TV button native to the remote.
But now, for the first time, Sling TV is bleeding users too, losing 94,000 customers in Q4.
The drop set off investor alarm bells, as Sling TV was positioned as the last-chance, low-cost alternative for fleeing Dish satellite customers. Now, Sling TV is beginning to prove porous too.
The drop may be attributed to 20% price hikes (to $30 a month) for two of Sling TV’s cheapest packages, potentially a big deal to the price-sensitive consumer that’s long been Dish’s core audience. It also probably didn’t help Sling TV that last summer Dish dropped a group of regional sports networks in big markets that now belong to Sinclair.
With Sling TV losing a record 281,000 users in the first three months of 2020, outpacing erosion of Dish Network satellite TV in the quarter, is Dish still committed to the virtual pay TV business?
In June, Sling TV Group President Warren Schlichting left the company amid the ongoing heavy subscriber losses. He's was replaced by veteran Dish Network executive Michael Schwimmer.
The Wireless Future
For all its challenges, Dish isn’t the only satellite-based media company having headaches. AT&T, after spending $67 billion (including debt) in 2015 to acquire DirecTV, now can’t seem to decide what to do with the satcaster as it also hemorrhages customers.
One great appeal of satellite TV was its ability to show regional sports from other parts of the country. Thus, for years one of DirecTV’s big attractions was NFL Sunday Ticket, its subscription to all the NFL’s games every weekend.
Sunday Ticket proved irresistible for many fans with far-away favorite teams, not to mention sports bars, wanting to attract viewers of the most popular attraction on live TV. But AT&T was reportedly torn about whether to even re-up Sunday Ticket in the latest NFL rights negotiations.
And with only esports on the air for the foreseeable future, what’s the value proposition for subscribers who don’t care for much traditional programming, especially in households where money is tight? SatTV can’t even function as a big two-way pipe the way cable operators have become. Comcast, for instance, has 25 million broadband customers and only 22 million pay-TV customers.
But converting Dish into a wireless carrier won’t be simple transition.
Dish still hasn’t closed the deal that would give it significant resources to make the transformation. That agreement, part of federal approvals of the T-Mobile acquisition of Sprint, will let Dish buy low-end brands Boost Mobile and Virgin Mobile (along with spectrum and other assets) for an estimated $5 billion.
As part of the deal with the feds, Dish committed to build out a mobile network reaching 70% of the U.S. population by 2023. In the meantime, it will lease capacity from T-Mobile and become a mobile virtual network operator, the nation’s fourth-largest.
The move would have been “challenging” even before the world plunged into an economy-strangling pandemic, according to analyst Craig Moffett of MoffettNathanson.
Now, Dish’s MVNO will launch focused on the mobile market’s lower end, which is most vulnerable during a deep recession.
“Even in the best of times, the pre-paid business is a high-churn business,” Moffett wrote in a recent report. “But with a customer base that skews urban, with lower credit, and with lower income, the current crisis seems almost certain to cause churn to spike higher as unemployment rises.”
Even the audience the MVNO targets will be new for Dish, compared to the more rural user base for satellite TV.
Moffett this month cut his target price for Dish from $30 to $15, noting the company is "preposterously levered,” with debt at 4.4 times trailing earnings before interest, taxes, depreciation and amortization at the end of 2019.
It’s unclear how that leverage ratio gets better when the company must build out a national wireless network capable of keeping up with new 5G networks at Verizon, AT&T and T-Mobile, which are all spending tens of billions of dollars on the next-gen technology. Doing it amid a potentially lengthy recession only makes the challenge more imposing.
Investors seem to agree with Moffett. The stock was one of the biggest losers amid the recent market crash, dropping from a high of nearly $42 a share in mid-February to barely $17, before recovering modestly to the low 20s.
Befitting the challenges ahead, this past week Dish said in a statement that it had “made the difficult decision to reevaluate our organization,” making “a focused set of staffing reductions to align our workforce with the current and future needs of the business.”
The company hasn’t detailed where those “focused” reductions hit, though local reports suggest they hit the company’s in-home services unit. The bigger question for Dish will be balancing the need for significant new investment and continuing revenue amid difficult economic times as it ventures into a new business with a new customer base. Where will initiatives like Sling TV, formed before the collateral impact of the T-Mobile/Sprint merger plunged Dish into the wireless business, fit in? Will Dish continue to invest in Sling TV?
For Ergen and Dish, none of the decisions will come easy.
But then again, who said Charlie Ergen ever did things the way everyone else does? Why start now?
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