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Continuous rise in programming costs has compelled the leading satellite TV operators in the U.S., DIRECTV (DTV - Analyst Report) and Dish Network Corp. (DISH - Analyst Report), to hike the service rates from the beginning of next year.

As per a Nomura Equity analyst, DIRECTV’s Entertainment and Premier packs will rise $3 and $5, respectively, from the current value of $55 and $125. On the other hand, Dish Network will raise all the plan rates by $3 to $5 per month, on all its plans except for “America’s Choice 120+” package.

Both Dish Network and DIRECTV will increase its average service costs by 4.4% and 5.5%, respectively as compared to last year’s 3.2% and 16.3% respective hikes. Mounting programming costs coupled with higher penetration of low-cost video streaming companies like Netflix, Inc. (NFLX - Analyst Report) and Hulu have encouraged the price hike.

In the third quarter of 2013, both DIRECTV and Dish Network gained 139,000 and 35,000 pay-TV subscribers, respectively. Additionally, average monthly subscriber churn rates were 1.61% and 1.66%, respectively, a significant improvement from the prior-year quarter.

Unlike Time Warner Cable Inc. (TWC - Analyst Report), both the satellite TV operators witnessed strong subscriber growth even after rate hikes in 2013. So, it was highly anticipated that again these two companies will follow the same strategy. Moreover, we believe that the launch of enhanced TV services by these operators will easily offset any possibility of subscriber loss.

Currently, both DIRECTV and Dish Network have a Zacks Rank #3 (Hold).

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