Market Watch

DISH Reports Stellar Quarter and TiVo Settlement


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DISH Network has reversed three quarters of subscriber losses by adding 58,000 net subscribers during 1Q 2011. The satellite pay TV operator also grew average revenue per user (ARPU) 5.9 per cent year-on-year and improved its operating margins.

DISH also announced that it had reached, along with its sister company EchoStar, a $500m settlement with TiVo which ended the seven-year patent dispute between the two parties. According to SEC filings, the settlement has resolved all pending litigation in this case and granted DISH/EchoStar license to design, make and distribute DVR products under TiVo's DVR 389 and related patents for their remaining life.

Analysis
DISH Network had an exceptionally good first quarter, adding 58,000 net subscribers and increasing subscriber-related revenue 5.3 per cent year-on-year to $3.196bn. ARPU also increased over the same period from $71.18 to $75.30. On the expense side, subscriber acquisition costs decreased 2.2 per cent from $741 in Q1 2010 to $725 in Q1 2011, on account of lower hardware costs due to an increase in the deployment of remanufactured receivers.

While the improved operating and financial performance of DISH Network is a coup in and by itself, the settlement with TiVo won the day for the company. Not only did it remove the legal uncertainty that had plagued DISH for over half a decade, but it also came at a reasonable price-tag. In a previous analyst commentary, we had estimated that DISH's costs associated with the TiVo litigation could reach $1bn when taking into account the $90m sanctions awarded to TiVo, the replacement costs for infringing DVRs, and any future damages that the court system might have awarded to TiVo had the litigation continued. However, under the terms of this settlement DISH will only pay $290m upfront and the rest will follow in six annual instalments of $31.7m between 2012 and 2017. The $290m upfront payment was well under the $517m that DISH had accrued on its books as of 31 December, 2010 for the TiVo litigation. As a result, DISH booked the remainder of this accrual ($355m) as a one-time gain which sent the company's EBITDA soaring to $1.225bn, up 75 per cent year-on-year.

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