At Worst, Dish Can Stick Customers With Jacked-Up Fees

Dish Network is the third largest pay TV provider in the U.S. Dish competes with DirecTV, AT&T, Comcast, Time Warner Cable, Verizon and others in the pay-TV market. TV content producers are currently pressuring pay-TV providers to pay higher carriage fees for programming. Recent examples include Dish Network's recent carriage fee disputes with Disney and with a Fox affiliate station in Charlotte, N.C. We can expect these disputes to multiply because many of the contracts between networks and service providers are expiring in 2010. We forecast a minor downside of 1% to our $26.55 estimate for Dish Network's stock if it pays higher carriage fees while simultaneously continuing to offer free HD channels on a promotional basis. On the other hand, we forecast a 4% upside for Dish in the more likely event that the company is able to pass the fee increases on to its subscribers. Our analysis follows below. Is Yamana Gold too cheap to last? Is $15 a ridiculous target or just around the corner. Click here for all mining recommendations updated daily in Professional Timing Service.

Slump in advertising due to weak economy and rise in internet media is eroding profits for TV networks

Broadcast and cable TV networks have witnessed declines in advertising revenues due to a weak economy and the rise of Internet media. As their profits erode, the networks are trying to compensate by charging higher fees to carriers like Dish Network for carrying their programming. Compared to cable networks, broadcast networks (like ABC, NBC, CBS, Fox) are more exposed to the weak ad market because they currently don't benefit from a second stream of carriage revenues. As a result, broadcast networks have been especially aggressive in pushing for higher fees from pay-TV providers that retransmit their content. Dish can mitigate the negative impact of higher carriage fees by passing on the costs to its subscribers.

As shown in the chart below, we currently expect Dish's subscriber fees to decline slightly over our forecast period, primarily as a result of competitive pressures. If Dish's were to pass the higher costs associated with programming content, this could negatively impact Dish's subscriber growth. You can modify the chart below to see how carriage fee increases impact Dish Network's stock: