Deeper Dive—How did satellite TV go from a $50B business to ‘less than zero’ in 3 short years?

It's almost like Dish knows it doesn't have much to sell, anyway. (Sony Pictures Entertainment)

For sale: Satellite TV operation. Eleven million remaining subscribers. Couple of debt liabilities. Mature. Driven only on Sundays to Denny’s by crazy Colorado billionaire. Runs like new!

During Dish Network’s fourth-quarter earnings call on Wednesday, I didn’t hear Chairman Charlie Ergen specifically say his company’s linear pay TV business was for sale. But the operation, referred to as being “mature” three times, was definitely put out on its own lonely island. It's almost like Dish knows it doesn't have much to sell, anyway.  

“There's nothing new on the video business, other than what we've been saying for the last five years, which is the video business is going to change,” Ergen said. “And I think that we're probably the first guys in the industry to take a real hard look at the profitability of customers and adjust accordingly.” 

So what does Ergen mean by adjusting accordingly?

“I think you can extract out that as the industry declines in the linear TV business, there's consolidation opportunities, where you are going to need to be more efficient, and you're going to need to cut costs.”

Certainly, in terms of satellite TV, Ergen was probably talking about Dish being the consolidatee and not the consolidator. 

RELATED: Dish loses 200K more linear TV subscribers in Q4, value of satellite business ‘less than zero,’ analyst postulates

At the outset of Wednesday’s call, Erik Carlson made a point of highlighting the new management structure—as announced in December, Carlson is taking over as CEO, as Ergen moves over to make sense of Dish’s still shapeless but potentially vast wireless opportunity. 

Ergen doesn’t seem to be walking away from satellite as much as sprinting. In all, more than 1 million customers bolted Dish satellite TV in 2017, with an estimated 196,000 joining the exodus in the fourth quarter, after reconnects in hurricane-ravaged Puerto Rico are factored in. 

In fact, the Dish satellite customer base is shrinking at a rate of 8.8% a year, according to MoffettNathanson, with revenue now declining at a rate of 5.4% a year. Earnings before interest, taxes, depreciation and amortization are falling at an “astounding” 21.5% a year. 

The satellite operation is sinking so fast, Dish finally separated out its proliferate but unprofitable Sling TV platform. Dish revealed that the streaming platform now has 2.2 million customers. 

For his part, analyst Craig Moffett is struggling to put a value on Dish to guide investors. While assigning worth to the Englewood telecom’s vast but totally unmonetized wireless holdings is tricky, figuring out the worth of the core satellite business is no longer easy, either. Moffett pondered, could it be less than zero?

“With nearly all of Dish’s debt held at its satellite subsidiary, without recourse to Dish’s spectrum holdings as collateral, it can be argued that the enterprise value of Dish’s satellite business can never drop below the value of its debt (since Dish could, in theory, simply separate the two businesses and let the satellite business go bankrupt).”

Wow, would Dish really do that? Just walk away from satellite TV at some point? 

“We spend our money where we could get a return, and we saw the world going to connectivity and video being a big part of that and had the opportunity to acquire spectrum,” Ergen said.

When I started this job in May 2014, AT&T had just agreed to pay $48.5 billion for DirecTV. Dish had just added 36,000 linear subscribers in the first quarter, and its base stood at nearly 14.1 million users. DirecTV had nearly 20.3 million customers. Would even AT&T buy Dish now, as some have suggested?

"DirecTV is now itself declining rather rapidly," Moffett pointed out. "Would AT&T want more where that came from, even allowing for huge synergies? And, if they did want it, would they, or anyone else, pay more than 5x EBITDA for it?"