Satellite TV operator DISH surprised just about everyone this past quarter when it said subscribers actually fell in Q2. Everyone knew the business was challenged, but just not that bad. In a new report today, Bernstein analyst Craig Moffett emphasizes that the worst may still be yet to come, and that the market doesn't appreciate the risks. Among them: A September 4th hearing on TiVo (NSDQ: TIVO) patent issues, likely loss of the AT&T agreement, poor prospect of a merger with DirecTV (NYSE: DTV) and the declining competitive position of DSL.
The first two points have been discussed plenty, though there's still no resolution to either TiVo or AT&T (NYSE: T). Post XM/Sirius (NSDQ: SIRI), there's been fresh speculation that a DISH/DirecTV tie up could work. But don't be so sure about it. When the companies tried to merge in 2002, the hang up had to do with lack of choice in rural markets. That situation still hasn't changed. And since the XM/Sirius decision was all about defining the market, that ruling really isn't applicable to this one. What's more, even DirecTV chairman John Malone doesn't think a tie-up could past regulatory muster.
The final problem is one we've discussed several times this quarter: DSL providers are losing out to cable operators in the race to sign up new customers. Seeing as these DSL providers are the natural broadband partners for DISH (and DirecTV) this erosion impacts them: "The technology on which satellite TV is based is simply unable to offer a broadband product. In order to create a synthetic bundle with video and data, therefore, DBS providers must utilize a partner (or, their customers must synthetically create a bundle on their own). In those markets where the TelCos deploy fiber, their broadband offering is tied to their own TelCo video offering. And Cable's broadband alternative is tied to cable's own video offering."
And on TiVo, Moffett's outlook is pretty grim. He expects the company to lose the case, while scolding CEO Charlie Ergen for playing a dangerous game in the courts, rather than settling and licensing the patent, and putting it all behind them.
Shares of DISH are down over percent today.
By Joseph Weisenthal