Sling TV figures open portal to Dish’s OTT future

Dish Network has finally broken out figures for Sling TV, bucking the trend of bundling all video subscribers into one ostensibly healthy figure. The US operator has effectively lifted the veil on its imploding satellite TV business and, in so doing, has given us a glimpse into the company’s future strategy.

Dish Network’s TV ARPU dropped from $88.66 in 2016 to $86.43 during 2017. However, if we take out the 2.2 million Sling TV subscribers from the equation, who pay around $25 a month on average, ARPU among the DTH subscribers shoots up to $99, yet Dish’s most expensive satellite TV package costs $75 a month. Of course, there are set top rental fees and other costs to consider, but somehow Dish has been growing ARPU steadily among its DTH customers from 2013 to 2016.

From this, we can conclude Dish is effectively trying to squeeze as much money as possible from all remaining satellite TV subscribers. In regions where Dish overlaps with cable TV service providers this is a harder task, but in regions where it doesn’t, Dish only competes with DirecTV.

We think that Dish is trying to build momentum behind its OTT offering before broadening its appeal and raising the price, once it has sufficient Sling TV sub scribers in order to offset satellite losses. The long-term plan is not just to convert all 11 million remaining satellite users over to Sling TV. It would need to more than double its subscriber base to compensate for charging so much less for a lower-priced OTT plan, aiming for perhaps 25 million subscribers paying $30 to $40 a month. Dish is a long way off. It would have to acquire customers at a much faster rate to achieve that.

The reason for the fundamental change in the way Dish Network reports its books is because Sling TV gains for the first time outweighed pay TV losses in the last quarter, adding 160,000 subscribers to the streaming service in Q4, compared to 121,000 lost satellite subscribers. Although for the full year, Sling TV gained 711,000 subscribers, while Dish TV lost 995,000.

This is only the second instance of the TV scales tipping, whereas normally Dish TV losses heavily outweigh Sling TV subscriber gains. This prompted Dish to publish them for the first time, giving the illusion that there is a natural migration of Dish TV subscribers over to Sling TV, but at the sacrifice of revealing how far the operator must go to fix the seemingly irreparable damage.

Sling TV ended 2017 with 2.2 million subscribers, rising from 1.5 million at the end of 2016 and up from 0.6 million in 2015 – an average uptake of 705,000 Sling TV subscribers a year since the service launched. Meanwhile, the Dish TV satellite subscriber base closed 2017 with 11 million, down from 12.2 million in the previous year, losing an average of 957,000 subscribers every year in the same time frame, totaling 3 million losses since 2013. Faultline has issued “guestimates” of where Dish is at various stages in the journey and is the only publication to have pitched it as being as bad as reality. Even Moffat Nathanson, the US financial analysts who have been watching this closely, have in the past given the benefit of the doubt to Dish.

Dish reported total 2017 revenue of $14.4 billion, down from $15.2 billion in 2016, with subscriber-related revenue of $14.26 billion, compared to $15 billion in the previous year. Net income for the fourth quarter totaled $1.4 billion, jumping from $355 million from the year-ago quarter, bringing total 2017 net income to $2.1 billion, rising from $1.5 billion in 2016. As highlighted in our previous coverage of US operators’ Q4 results, net income has been grossly inflated due to a generous tax reform.

What wasn’t obvious to the untrained eye previously, is now an undeniable fact – that Dish Network will be a pure OTT business in a decade or so. Dish should prepare for this future by selling off spectrum and pouring more money into Sling TV. Charlie Ergen is known to be gambler after all, but for now his money is on wireless. He says he plans to build an NB-IoT network across the US over the coming three or four years.

“Sling TV subscribers on average purchase lower priced programming services than Dish TV subscribers, and therefore, as Sling TV subscribers increase, it has had a negative impact on pay TV ARPU. We expect this trend to continue,” said a statement in Dish’s annual report.