You’d be a pretty rubbish satellite TV supplier if you never had at least one ace up your sleeve in answer to the vagaries of the satellite world. Satellites can fall out of the sky, they can suddenly stop working, they can fail to launch. It is only people that have some considerable experience understanding how little can be done once an unmanned satellite launches into space, that really make it in this world.
So the 8% share price fall at Dish Network, the US’ second largest DTH supplier, and third largest pay TV supplier, just because a satellite deployed in the wrong place last week, was perhaps an over reaction. Especially when EchoStar, the now separately spun off technology and satellite services supplier, only lost around 6% of its value over the same news, and that’s the company that actually holds the contracts for the satellite lease.
The initial filing that alerted the investment community to the failed orbit, was filed on March 14th, saying that a Proton vehicle had undershot its orbit by around 5,000 miles, due to the failure of a Russian deployment craft. There are various reports about just how useful a satellite is when it is in the wrong place but the financial filing said that it is just a lower orbit and that engineers from SES Americom and Lockheed Martin, who made the satellite, would try to bring the AMC-14 into its proper orbit, but that this would use up fuel which is supposed to be used for keeping the device in place, and this in turn would reduce its effective life. These statements suggest that the satellite is working, and that it will send signals to most of its intended footprint.
This should hit SES Americom and Lockheed’s value, because it is they who will get less lease revenue because we would expect EchoStar to only pay for the capacity it uses, and will have plenty of time to replace that capacity. If the satellite doesn’t deploy at all, EchoStar would divert money from those leases, and probably end up in a law suit and also might have to pay slightly over the going rate for one of the plentiful satellites that are being deployed right now. Those costs will all be passed onto Dish, but only if the service is passed on too.
The worry for Dish is that bad news comes in threes and follows hard on the heels of its worrying last quarter results, hurt by weakness in provisioning HD services and clearly losing the HD war against DirecTV, and also hurt by the latest TiVo legal win, which threatens to cost Dish (rather than EchoStar) $94 million for infringing on TiVo DVR patents.
Dish management have an answer for all of this. Dish says the TiVo suit would not have gone against it if the evidence from an expert witness was discounted, and it now says it can prove he contradicted himself during the hearing. Dish thinks this is the basis for a retrial. And although the satellite was one of those supposed to be bringing the company more HD capacity, it insists that is on schedule over the next two months to enhance local HD programming by 60% and deliver it to 21 new markets. The filing specifically contradicts the company’s earlier statement that the wrongly positioned satellite would cause it to delay some HD services.
That earlier Dish statement said, ‘We intended to lease the entire capacity of the satellite from EchoStar Corporation in order to, among other things, increase the number of high definition channels we offer. Therefore, the launch anomaly will result in a delay in our roll out of some high definition channels, including some local network channels.’
It’s funny how the contradiction made by a TiVo witness should be to the advantage of DISH and a contradiction by its own management should also be to its advantage, and there we have the problem. People (read investors) have stopped believing what DISH management are saying about its problems.
When the company released its quarterly figures it went with the story that the economy and the housing and sub-prime mortgage scandal had caused its weak quarter. But its rival DirecTV had an astounding quarter, giving lie to these statements.
“Dish Network customers can be reassured that the expansion of our HD programming over the next few months will proceed as planned,” said Charlie Ergen, Chairman, CEO and President of Dish Network. Well the devil is in the detail. It will be as planned for the next few months and THEN it will have to be re-organized, is how most people will read this statement.
“We are fortunate to have two more satellites scheduled for launch later this year to continue our HD rollout and reach our year-end goal of 100 local HD markets and 100 national HD channels,” Ergen went on.
While the new EchoStar company has only fallen back to its first day trading level and a valuation of about $2.8 billion, Dish itself has fallen off 40% since the high flying days of November, pre-split when it was valued in excess of $20 billion. Today it is closer to $12 billion.
But the Dish management is determined to counter the bad news and this week, after the satellite launch anomaly filing it added another saying that Echostar has entered a transponder service agreement with Bell ExpressVu for use of sixteen transponders on the Nimiq 5 satellite which is expected to be launched in the second half of 2009. At the same time EchoStar said it would use these to supply Dish with capacity. Ergen may have responded quickly to the bad satellite news, but the second half of 2009 is a long way away, about 6 reporting quarters away, and without sufficient HD capacity, they will be tough reporting quarters for Dish.
It is also worth noting that the wrongly positioned satellite is one of an order of three from SES Americom, including the AMC-15 and AMC-16. In total Dish, via EchoStar, ordered capacity on four in-orbit satellites. AMC-15 has been operational since January 2005 and AMC-16 since February 2005.
And as if the satellite disease is catching, DirecTV felt it was time it alerted the market to the fact that it has postponed one of its own satellite launches contracted to SeaLaunch, a joint venture owned by Boeing, and some Russian and Ukraine companies, perhaps concerned that their satellites would also go wrong. Naturally this was all part of the rush to Russian space flight expertise in order to throw up more and more HD capacity.
Finally, DirecTV says that it is testing a video on demand service, part broadband delivered, but mostly it is a copy of the Push VoD service that News Corp offers elsewhere in the world, using NDS designed set tops. Push VoD simply takes films that are being broadcast anyway and drops them onto a piece of operator controlled hard disk to view anytime.
The service is a huge success outside of the US, and we would expect that this may indicate that News Corp subsidiary NDS will continue to supply both conditional access services and set top design and management for DirecTV even after it passes into the management control of Liberty Corp. However operators outside of the US are not up against cable operators that have 10,000 selections on their VoD services, like Comcast and these service may not be quite so popular in the hyper competitive Pay TV market of the USA.