According to SNL Kagan, satellite companies presently collect about $77 per month from their subscribers. Over 80% comes from standard TV services, with DVRs, HD packages and advertising providing almost all the rest. Most industry observers expect DVRs and HD to be in most households sometime within the next 10 years. For at least the next five years, satellite companies should be able to sell these services. As the services reach full saturation, however, it will be difficult to maintain much pricing premium, but I think that eventuality is beyond a reasonable investment time horizon for the time being.

SNL Kagan projects that monthly ARPUs for satellite companies will grow to $104 in 10 years. Basic TV packages will see price increases of about 2% per year, so most of the growth will come from increased penetration of advanced services and incremental advertising.

Satellite companies face minimal network investment but have significant costs to attract and retain subscribers, upgrade set-top boxes and pay for programming. In the long run, I think that the business model is pretty stable, with modest revenue growth and minimal pressure on margins. Should cable and telco begin to price aggressively, however, satellite faces similar or greater negative operating leverage given it has only one product with which to respond.

DirecTV is better positioned than Dish Network as a business and a stock. It is larger, with 17 million subscribers, and has a much higher-quality subscriber base (i.e., wealthier households). DirecTV has two more things going for it as well:

1. It has effectively branded itself as the HD service, allowing it to participate more fully as households continue to upgrade to HDTVs.
2. DirecTV has taken over as AT&T's partner, replacing Dish Network.