DISH Could See Rapid Growth in HD - TheStreet




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DISH Network

(DISH) - Get Report

is the third largest pay TV provider in the U.S. and competes with





(CMCSA) - Get Report


Time Warner Cable




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(VZ) - Get Report

in the pay-TV market. With a subscriber count of close to 14 million, the company has a vast customer base to leverage and generate profits by offering additional advanced services like high definition (HD) programming.

HD services constitute about

7% of the estimated $27 price for DISH Network's stock.

This amounts to close to $900 million in value based on our estimated $11.9 billion valuation for DISH Network's stock. We estimate that DISH's HD penetration, which essentially represents the fraction of DISH subscribers also subscribing to its HD services, has grown at a rapid pace in recent years. This figure increased from about a mere 3% in 2006 to about 20% in 2009.

Going forward we expect DISH Network's HD penetration to continue to increase at a fast pace and reach about 55% by the end of our forecast period, implying more than 8 million HD subscribers by the end of our forecast period. This growth is expected to be driven by the following factors:

1) U.S. consumers buying HDTVs

A significant drop in HDTV prices in recent years is one of the major factors for increased customer adoption of HD programming. As per SNL Kagan research, average HDTV set prices are likely to fall further to the $600-$700 range in 2010. This will further accelerate sales of HDTV and adoption of HD services in general

2) Improving economy and a rich catalog of HD channels will sustain high penetration growth rate

Customers who subscriber to DISH Network's regular pay-TV services have to pay an extra monthly fee of close to $10 per month in order to enjoy the satellite provider's HD programming. The need for HDTV and extra charges associated with HD service has a limiting effect on the HD customer base.

However, with the economy improving, falling HDTV prices and DISH Network's ever increasing HD channel count, more customers are likely to sign up for these services. The company even launched a new satellite in early 2010 in order to boost its HD channel count from 160 to over 200.

3) DISH Network bears upfront costs of installation, making it easy for consumer to adopt HD service

Removing the upfront costs of HD installation helps customers to shift to new technology more easily by minimizing costs impacts. The value addition is clearly evident as customers are able to view high definition channels with minimum additional costs.

You can see

our complete model for DISH Network's stock here.


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