Dish Risks Subscribers and Margins in Dispute with Fox
Dish Network (NASDAQ:DISH), the second biggest satellite-TV provider in the US and a direct competitor to DirecTV (NASDAQ:DTV), is facing a dispute with News Corp’s (NASDAQ:NWS) Fox over programming fees. As a result of this, Fox Sports, FX Network and the National Geographic Channels have become unavailable to Dish Network subscribers.
This is not the first time that Dish Network has faced disputes over programming fees. The company had previously dropped Disney’s HD channels as a result of HD price hikes by Disney. Below we discuss how these disputes in general, and the Fox dispute in particular, can potentially hurt Dish Network.
- With Echostar Merger Approaching, What To Expect From Dish’s Q3 Results?
- Can Dish Network Stock Return To Its Pre-Inflation Shock Highs?
- Dish Stock Has Big Upside Potential To Its Pre-Inflation Peak
- How Will The Cyber Attack Impact Dish’s Q1 Results?
- Is Dish Network Stock A Buy Despite Many Headwinds?
- Will Dish Network Stock Continue To Underperform?
On-Going Dispute Risks Subscriber Migration
While Dish Network’s customers are not getting Fox Sports, FX and National Geographic, this has not been the case with DirecTV which seems to be avoiding such carriage disputes. One of the reasons for Dish’s resistance to programming fee hikes (where DirecTV has shown less resistance), is Dish’s attempt to maintain its price leadership and value image.
If Dish network agrees to Fox’s demands, it will either have to pass on the price increases to customers or absorb the cost (or a combination of both). Whatever the case may be, it will impact the company negatively. If the company does not reach an agreement with Fox soon, a lack of sports channels (which are popular among subscribers) can trigger subscriber migrations to its competitors that can further impact Dish Network’s pay-TV market share in a negative way. Below you can see how a reduction in pay-TV market share can hurt Dish Network’s stock.
Settlement with Fox Can Hurt Dish’s Margins
Both Dish Network and Fox are currently engaged in convincing consumers from their respective point of views. Dish Network has stated that Fox is demanding a 50% increase in the programming fee which is unreasonable [1]. On the other hand, News Corp’s Fox seems to be denying Dish’s claims. We estimate that the Fox Sports Network charges close to $2 per subscriber per month [2] as programming fees while the FX network charges close to 42 cents per subscriber per month [2].
A 50% hike would imply an additional payment of about $1.2 per subscriber per month. However considering Fox’s denial of the 50% price hike, we think that the overall settlement could be negotiated at around 75 cents per subscriber per month (fee increment). Even if we assume this impacts Dish Network’s entire subscriber base (which may not be the case), the negotiation could cost Dish Network an additional amount close to $130 million for 2011 [3] . This can reduce its satellite TV gross margins to just below 44% for 2011 and beyond, as opposed to our forecasted figure of close to a little over 45%. Such reduction in margins due to additional expenses can lead to a downside of less than 3% to Dish Network’s stock.
You can see the complete $25.84 Trefis price estimate for Dish Network’s stock here.
- Dish slams Fox for programming dispute ads [↩]
- Video over IP: A practical guide to technology and applications: By Wes Simpson [↩] [↩]
- Calculated based on expected Dish Network subscriber count of close to 14.3 million by end of 2010 and assumed settlement figure of 75 cents per subscriber per month [↩]