Dish Network has snatched a set of assets from its set top and satellite services sister company EchoStar, including some which are key for the development of OTT technologies and services.
The benefits are clear for both parties – but the deal suggests that Dish is dressing itself up for potential buyers (or mergers), while EchoStar may be able to harness new opportunities which have been limited by its close affiliation with Dish.
Dish is taking a group of OTT software and hardware developers from EchoStar Technologies, plus its managed fiber backhaul network, wireless spectrum licenses, its national and regional uplink business, as well as EchoStar’s 10% stake in the Sling TV – meaning Dish now has a 100% holding in the OTT service.
What EchoStar gets in exchange is an 80% holding in Hughes Retail Group, held in the form of a tracking stock, but the deal represents much more than that. By selling its OTT streaming assets to Dish, this breaks the agreement that was in place to limit EchoStar’s ability to launch its own competing IPTV service. EchoStar’s close ties with Dish have limited its base of potential customers, as US operators are understandably wary of doing business with a rival – so all but cutting these ties opens the door to a wave of possible new clients for EchoStar.
The deal will see EchoStar stripped of its TV assets, emerging from the changing room as a pure satellite services business. Dish is taking additional spectrum from EchoStar, covering four markets in the 28 GHz band spectrum, which presents a plate of opportunity for prospective buyers such as Verizon, which is already under pressure to acquire spectrum from Dish. Charter is the more heavily rumored target for Verizon, but many analysts favor a move for Dish and content business Viacom.
EchoStar Technologies houses the development of video streaming and broadcast services, for which Dish is EchoStar’s largest customer with some 13.64 million pay TV subscribers. With these technologies comes a number of significant patents, inherited from Move Networks, which invented Adaptive Bit Rate streaming, plus Sling Media patents for place shifting – raising the question that if these patents now live inside Dish, then why would it continue to need EchoStar?
The Move Networks idea resides in a single patent, number 8,868,772 which focuses on breaking a video file into different copies, each encoded at different bit rates and then slicing them into chunks and timestamping them so that whichever bit-rate you call on, you only play chunks with the relevant timestamp.
The announcement comes less than a month after Dish and EchoStar launched the Sling plus AirTV box, a product to encourage cord cutting. AirTV is a simple digital terrestrial hybrid with a digital antenna adapter built into an Android box, capable of also attaching to your broadband line.
Dish will be taking hold of these hardware assets once the deal closes sometime this quarter, including the Slingbox. This is another case of a set top company jumping ship, just as EchoStar did in Europe in May 2015, when Kudelski subsidiary SmarDTV completed the acquisition of its set top operations, with EchoStar acquiring a 22.5% of SmarDTV’s capital in return.
The value of the deal has not been disclosed, but the books don’t make for particularly pleasant reading. Dish’s debt pile exceeded $15.53 billion at the end of Q3 2016, contributing to total liabilities of $23 billion. EchoStar, meanwhile, reported third quarter financial results of $3.63 billion in long-term debt, creeping up from the $2.15 billion worth of debt on its books a year earlier, ending the quarter with total liabilities of $5 billion – adding more than $1.5 billion in liabilities in a year.
Dish says it will continue to market satellite broadband under the dishNet brand to rural customers.
“With this transaction, we will vertically integrate all the elements that define our customer experience – one team will deliver the full Dish and Sling TV experience end to end. Not only do we gain full control of product development roadmap for DBS and Sling TV but we also anticipate achieving operational efficiencies,” said Dish President Erik Carlson.
Mike Dugan, President and CEO of EchoStar, added: “It will result in EchoStar owning 100% of the economics of the growing HRG business and divesting the less strategic set top business. It will focus EchoStar’s mission on its core satellite and broadband services and eliminate the complexity associated with the tracking stock. The clearer business focus and simplified ownership structure will provide an improved platform to pursue strategic opportunities.”