Dish Network Initiated as Neutral

We initiate coverage for Dish Network Corp. (DISH - Analyst Report) with a Neutral recommendation. The company together with its subsidiaries operates the DISH Network direct broadcast satellite (DBS) subscription television service in the U.S. servicing more than 14 million subscribers. Dish Network’s third quarter 2009 financial results were below the Zacks Consensus Estimate due to higher subscriber-related costs and litigation expenses associated with TiVo Inc. (TIVO - Analyst Report). Legal battle with TiVo related to digital video recorder technology has resulted in massive outflow of cash from Dish Network’s balance sheet.
 
In the U.S., pay-TV market is highly competitive. Dish network is currently the third largest pay-TV service provider, well below Comcast Corp. (CMCSA - Analyst Report) with 23.8 million subscribers and Direct TV Group (DTV - Analyst Report) with 18.4 million subscribers. Time Warner Cable Inc. (TWC - Analyst Report) is quickly approaching Dish Network with more than 13 million subscribers. Dish Network, which focuses on the lower-end of the market, was also affected by the termination of distribution relationship with AT&T (T - Analyst Report) in January 2009. Beginning with the second quarter 2009, AT&T no longer contributes to Dish Network’s gross subscriber additions.
 
Nevertheless, Dish Network continues to position itself as a low price leader in the U.S. pay-TV industry by subsidizing the cost of equipment and installation to increase subscriber base. The company also focused on increasing distribution of highly rated DVR and HD (High-Definition) equipment, as value additions to drive subscriber growth and retention.
 
The company is investing more in advanced technology equipment as part of its subscriber acquisition and retention efforts. Recent initiatives includes, transmit certain programming only in MPEG-4 and to activate most new subscribers only with MPEG-4 receivers. Additionally, Dish Network is changing equipment to migrate certain subscribers to free up transponder capacity in support of HD and other initiatives.

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