Dish Network’s Charlie Ergen this week again called a merger between his company and DirecTV “inevitable” but that won’t change the cliff both are heading toward.
MoffettNathanson analyst Craig Moffett spelled out the dire future of satellite TV; Dish has 11 satellites and only two are less than 10 years old. Each of Dish’s satellites are only expected to be useful for 15 years, meaning that in another five and a half years, only one of Dish’s satellites will still be within its estimated useful lifespan. He said the situation is similar for DirecTV’s fleet and that neither company is building any replacements.
“To dwell on whether a given quarter’s subscriber losses are a little better, or a little worse, than expected, or than last quarter, is to miss the point,” wrote Moffett in a research note. “We are witnessing the long, slow goodbye of satellite TV. The terminal value of a satellite TV platform with neither satellites nor subscribers is, quite obviously…zero.”
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MoffettNathanson notes that either Dish Network’s or DirecTV’s satellite fleets could still be operational past their estimated lifespans but since each operators’ set-top boxes can’t unscramble signals from the other’s satellites, a longer life for one of the fleets won’t help the customers of the other.
Of course, Dish Network has shifted much of its focus to wireless and MoffettNathanson said the company’s equity holders are focused more on that than the satellite business. But it’s a different matter for Dish’s bondholders, who the analyst firm said are secured only by satellite TV assets.
MoffettNathanson said that Dish Network has so far followed a sensible narrative of focusing on a stickier core of rural customers while managing its satellite TV business in run-off mode by moderating churn as gross new customer additions fall to all-time lows. But that story could take a turn next week depending on what happens with Dish’s carriage impasse with Sinclair, whose regional sports networks are already absent from Dish TV and whose broadcast channels could be next.
“That programming dispute should be kept in mind as one considers Q2 results; programming costs could rise sharply if RSNs return with broadcast nets (the cost of broadcast nets can be assumed to rise with or without the RSNs),” wrote Moffett. “Absent a renewal, subscriber losses would be expected to accelerate without the local broadcast networks.”