Positioning for the future
Decision
• Merge with DirecTV • Stock-swap to
minimize financial risk
Implementation
• Consolidate operations to reduce costs
• Leverage market share• Diversify offers to
subscribers
Next Steps
• Accelerate entry into wireless market
• Expand beyond US
Due to
• Competitor consolidation• Mature and evolving market• Increasing supplier pressure
Pay-TV market is saturated in the U.S.
Source: BloombergDecision Implementation Next Steps➡ ➡
2007 2008 2009 2010 2011 2012 20130
20
40
60
80
100
DirecTV DISH ComcastTWC Other Total
Mil
lio
ns
of
Su
bsc
rib
ers
• Subscriber growth has dwindled• Market share tied up between 4 companies
2006
2007
2008
2009
2010
2011
2012
2013
2014
110
112
114
116
118
120
122
124
0.95
0.96
0.97
0.98
0.99
1
U.S. HouseholdsTV US Housholds%Households w/ TV
% H
ou
seh
old
s W
ith
TV
• Rate of TV US household on the decline
Programming costs expected to increase
Source: Bloomberg, SNL KaganDecision Implementation Next Steps➡ ➡
• Retransmission fees projected to continue rising
• Content providers will continue to drive costs up for the Pay-TV market
DirecTV merger necessary for competition
Source: Bloomberg, SNL Kagan Decision Implementation Next Steps➡ ➡
0
5
10
15
20
25
30
35
Cable Merger
DISHDirecTV
Mill
ion
s o
f S
ub
sc
rib
ers
• Larger customer base provides more leverage for TWC-Comcast
• Leverage opportunity realized for cable by curbing the rising costs of content
• Rising costs for satellite companies
Satellite merger projected to realize savings
Source: Bloomberg, SNL Kagan Decision Implementation Next Steps➡ ➡
0
5
10
15
20
25
30
35
40
Cable Merger
Satellite Merger
Mill
ion
s o
f S
ub
sc
rib
ers
• Comparable customer base between cable and satellite
• Programming costs for DISH-DirecTV merger under control
Reduction in costs by 2018:➔ 10% subscriber acquisition costs➔ 10-15% SG&A➔ 10-25% programming costs
Strong synergy: +$3.8B
Conservative: +$2.0B
Net income projected to grow post-merger
Source: 10-K Filings, S&P Decision Implementation Next Steps➡ ➡
20
14
20
15
20
16
20
17
20
181000
2000
3000
4000
5000
6000
7000
8000
9000
10000Strong
Conservative
Status Quo
Ne
t In
co
me
($
B)
*assuming flat customer growth
Core Competencies & Merger Synergies
Decision ➡ Implementation Next Steps➡
• Major DBS players in the US market • DVR (Hopper and Genie)• Streaming, On demand• HD
Supplements
• Spectrum holdings
• Satellite Internet• Rural area
coverage
Complements
• Latin America market
• Exclusive channel packages
Complements Combined cutting-edge technology
More channels & cheaper packages
Better geographic coverage
Structure of the deal
Source: S&PDecision ➡ Implementation Next Steps➡
Acquire Stock Swap“Highly leveraged” financial risk:
➔ Requires $45-50 B debt financing and assumption of DTV debt
➔ FFO/debt ratio ~12%◆ Difficult to repay debt obligations
High taxation of acquisition
“Intermediate” financial risk:➔ Stock swap at 1.32 DISH: 1 DTV➔ Pro forma value of $66.5 B➔ FFO/debt ratio ~27%
◆ Healthy ratio to repay debt obligations
Lower taxation of acquisition
Merge via stock-swap
Source: S&PDecision ➡ Implementation Next Steps➡
Acquire Stock Swap“Highly leveraged” financial risk:
➔ Requires $45-50 B debt financing and assumption of DTV debt
➔ FFO/debt ratio ~12%◆ Difficult to repay debt obligations
High taxation of acquisition
“Intermediate” financial risk:➔ Stock swap at 1.32 DISH: 1 DTV➔ Pro forma value of $66.5 B➔ FFO/debt ratio ~27%
◆ Healthy ratio to repay debt obligations
Lower taxation of acquisition
• Rapid growth in Latin American digital TV market
• DirecTV estimated 33% market share
Latin American DBS market is expanding
Source: 10-K filings, Digital TV ResearchDecision Implementation ➡ ➡ Next Steps
2013 2018
Households (M) 66 134
Latin American Market
New opportunity: Global wireless broadband
Source: Broadband Commission for Digital Development, ExtremeTechDecision Implementation ➡ ➡ Next Steps
Broadband Commission for Digital Development
Acquisitions of TerreStar, DBSD North America, and others:
● Unpaired 700 MHz: multipoint broadcasting w/ eMBMS
● PCS H block: LTE wireless country-wide
● AWS-4 blocks: additional broadband capacity
Mobile Broadband is Growing Dish’s Spectrum Holdings
Now is the right time to shift to wireless market
Source: Bloomberg, www.broadband.govDecision Implementation ➡ ➡ Next Steps
Industry
• Pay-TV competitors are also in broadband Internet market
• Over-the-top content delivery expanded by 225% in past 4 years
• Dish Network is in process of acquiring additional wireless spectrum licenses
Regulatory Environment
• FCC is currently reallocating wireless spectrum
• FCC’s National Broadband Plan actively promotes broadband penetration
• Dept. of Justice is reconsidering competition standards in face of broadband development
Future growth strategies
Source: Advanced TVDecision Implementation ➡ ➡ Next Steps
Future Build-outs
• Latin America (DirecTV)
• Wireless broadband
• Smart home potential (DirecTV: LifeShield)
• Electronic sell-through (EST)
• Mobile & Interactive TV (ex. DirecTV – shares in i.TV)
• 4K resolution and beyond – potential for a specialty market
Short-Term (0-2 yrs) Mid-Term (3-5 yrs) Long-Term (5+ yrs)
Survive Merge with DirecTV Consolidate operations Lower costs
Position Build core-competencies Roll out wireless broadband Expand Latin American market
Thrive Identify new opportunity Expand global market
High Risk Not a diversified business
Volatile Risk Changing structures
Robust Business Diversified business robust to disruption
DBS
Diversified Content Provider
1. Mobile satellite TV market to reach $11bn by 2015, in Advanced Television
2. IBISWorld Industry Report 51711a
3. IBISWorld Industry Report 51711b
4. Yahoo! Finance
5. What Would A DIRECTV-DISH Merger Mean For Ratings?, S&P Credit FAQ, Oct. 2013
6. Dish secures spectrum for 150 Mbps LTE wireless broadband to rural homes in the US, Neal Gompa in Extreme Tech
7. Ergen lays out Dish Network’s 10-year plan, Associated Press, May 2012
8. Updated Industry Retransmission Fee Projections, SNL Kagan, November 2013
9. Multichannel Video Subscription Count Drops by a Quarter Million in 2013, SNL Kagan, March 2014
10.US Multichannel Subscriber Update and Programming Cost Analysis, SNL Kagan, June 2013
Sources
11. Analysis: In telecom merger mania, skeptical eye from Obama administration, by Alina Selyukh and Sinead Carew in Reuters, Dec. 2013
12. DirecTV’s Latin America Pay-TV Is Booming, by Trefis in Forbes, Sep. 2013
13. Saturated market for DBS, in Advanced Television, Nov. 2013
14. What A Merger of Comcast And Time Warner Cable Could Mean For Hollywood, by David Lieberman, Feb. 2014
15. Economics of Mobile Programming, SNL Kagan, Mar. 2014
16. Why A DirecTV Dish Network Merger Might Be Different This Time Around, Forbes, Mar. 2014
17. Ergen’s DirecTV Overture Puts Dish in Play: Real M&A, Bloomberg News, Mar. 2014
18. FCC Chair Hints at Spectrum-Allocation Idea, Wall Street Journal Tech, Dec. 2013
19. Dish-DirecTV M&A May Yield Up To 25% Programming Cost Savings, Bloomberg, Mar. 2014
20. Dish-DirecTV DOJ Review Would Have Three Possible Outcomes, Bloomberg, Mar. 2014
21. Broadband, Commercial Service Are Main Bull Cases for U.S. Cable, Bloomberg, Mar. 2014
Sources -continued
Financial Summary (EOY 2013)
DISH DirecTV
Liquidity (current ratio) 2.71 0.912
Operating margin (EBIT% / revenue) 12.8% 16.7%
Asset turnover (revenue / avg assets) 0.737 1.50
Interest burden (pre-tax profit / EBIT%) 63.7% 84.4%
Revenue $13.9 bn $31.8 bn
Sales growth 5.49% 6.77%
P/E ratio 15.1 36.5
Profit 807.5 2859
Projected cost reduction schedule
Cost Reduction Schedule
2014 2015 2016 2017 2018 OPTIONS
Programming 0 0.02 0.05 0.08 0.1 10.00%
SG&A 0.03 0.08 0.12 0.15 0.15 15.00%
Subscriber Churn 0.1 0.1 0.1 0.1 0.1 10.00%
DISH Projections
DirecTV Projections
2004 2006 2008 2010 2012 20141000120014001600180020002200240026002800
f(x) = 68.11083333333 x − 134618.7541667R² = 0.614111862473237
2005 2007 2009 2011 2013 2015100.0110.0120.0130.0140.0150.0160.0170.0180.0190.0
f(x) = 5.936505 x − 11767.0665116667R² = 0.906411735413546
2006 2008 2010 2012 20148000850090009500
100001050011000115001200012500
f(x) = 449.664857143 x − 893223.840143R² = 0.928772969442011
2006 2008 2010 2012 20142000
3000
4000
5000
6000
7000
8000
f(x) = 471.142857143 x − 941320.285714R² = 0.990034486625509
2004 2006 2008 2010 2012 2014100.0
120.0
140.0
160.0
180.0
200.0
f(x) = 7.411661666667 x − 14730.96658833R² = 0.992602466155754
2004 2006 2008 2010 2012 20140
5000
10000
15000
20000
25000
30000
f(x) = 1964.72857143 x − 3928489.26429R² = 0.997539398266467
Cost Calculation
Programming per userSG&A Op. expense
Programming per userSG&A Op. expense
DISH Projections
DirecTV Projections
Net Income Calculation
Subscriber AddsSAC Revenue
SAC Revenue
2004 2006 2008 2010 2012 2014500550600650700750800850900
f(x) = 22.866666667 x − 45203.133333R² = 0.840425037949808
2004 2006 2008 2010 2012 2014500550600650700750800850900
f(x) = 31.683333333 x − 62902.594444R² = 0.961103654558093
2004 2006 2008 2010 2012 2014
-0.4-0.2
00.20.40.60.8
11.21.4
2004 2006 2008 2010 2012 20140
0.2
0.4
0.6
0.8
1
1.2
1.4Subscriber Adds
2006 2008 2010 2012 20140
2000400060008000
10000120001400016000
f(x) = 498.428785714 x − 989249.423714R² = 0.842096406792792
2004 2006 2008 2010 2012 20140
5000
10000
15000
20000
25000
30000
35000
f(x) = 2394.675 x − 4788763.63055556R² = 0.996530722266654
Projected cost efficiencies post-merger
Source: 10-K Filings, S&PDecision Implementation Next Steps➡ ➡
2 0 1 4 2 0 1 5 2 0 1 6 2 0 1 7 2 0 1 8
2014
2015
2016
2017
2018
5,000
7,000
9,000
11,000
13,000
15,000
17,000
19,000
Customer Acq.
Programming
SG&A
M: Customer Acq.
M: Programming
M: SG&A
Co
st
($B
)
Exchange Ratio Calculation
Supplement
Basis date 2/28/2014
Stock price DISH $58.84
Stock price DTV $77.60
Shares outstanding DISH 458.34M
Shares outstanding DTV 509.47M
Stock exchange ratio 1.319
Pro forma shares 1,130.24M
Pro forma value $66.5 bn
White: % of household with TV
Orange: Over-the-top subscribers (000’s)
Over-the-top subscribers
Source: Bloomberg
Triple Play isn’t a good idea (i.e. no landline)
http://www.cdc.gov/nchs/data/nhis/earlyrelease/wireless201306.pdfSupplement
Current wireless strategy is poorly defined
Looming FCC build-out requirements2016 40%2019 70%
● $10-26B in broadband transmission spectrum
● DISH attempted to acquire:○ SprintNextel (2013, failed)○ Clearwire (2013, failed)○ LightSquared (2014, GPS conflict)
● Pending FCC relaxing restrictions on currently owned spectrum
● Lack of industry experience or partner in venture
New market: Global wireless broadband
Source: Bloomberg, Broadband Commission for Digital DevelopmentDecision Implementation ➡ ➡ Next Steps
Broadband Commission for Digital Development
2009
2011
2013
2015
2017
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
98.0
99.0
100.0
101.0
102.0
103.0
104.0
Total subscribers
Projected total subscribers
Total retransmission fees ($B)
Projected total re-transmission fees ($B)
Year
Ind
ust
ry R
etra
nsm
issi
on
Fee
s ($
B)
Fees increase by 100%, 3% growth in market size
Vision laid out by Ergen (2012) for TV, voice, and internet to both home and mobile
Acquisitions of TerreStar, DBSD North America, and others make it possible now
● Unpaired 700 MHz: point to multipoint broadcasting w/ eMBMS
● PCS H block: LTE wireless country-wide
● AWS-4 blocks: additional broadband capacity
Use additional resources from merger to aggressively develop mobile capabilities
Become the first to offer the “new triple play” - seamless wireless and satellite connectivity - anywhere in the U.S.
DISH’s Spectrum Portfolio
Source: Extreme TechDecision Implementation ➡ ➡ Next Steps
Friendlier regulatory environment
Source: FCC (2002) CS Docket No. 01-348Supplemental
FCC Findings
DBS Market
DBS growth flat over past 5 years
DBS monopoly still a concern
Pay-TV Market
Pay-TV stagnant market
Competitors are shifting to broadband
Wireless Spectrum
FCC National Broadband Plan
Possible spectrum divestments necessary
FCC findings contingent on 3 arguments:
1. DBS Market2. Pay-TV Market3. Broadband
Beyond 2002 Failed Merger
Source: FCC, CS Docket No. 01-348
Beyond 2002 Failed Merger -- DBS
Findings Response
Merger means consolidation to roughly 100% DBS market
Fair point
Issue because while benefits exist for expanding broadband market, DBS is still a viable market
No longer true: DBS and Pay-TV overall is a saturated and shrinking market
Beyond 2002 Failed Merger -- Pay-TV
Findings Response
Pay-TV market would drop from 3 competitors to 2
Pay-TV is a stagnant market, whereas broadband is the substitute market
Cable growth is flat, compared to 20% annual growth in DBS (2002)
No longer true: DBS growth rates have been flat for past 3 years (2010-2013)
Beyond 2002 Failed Merger -- Broadband
Findings Response
Companies failed to uphold benefit to broadband competition
Proposed model concurrent with FCC’s National Broadband Plan (2013)
Merger places all of the available full-CONUS DBS spectrum licenses in the hands of one entity
Possible divestments necessary
Merger Payoffs
Consumer Competition
Pay-TV 0 -1
Wireless Services +1 +1
Mar
ket
Sh
ift Barrier to Entry
Alternative merger prospects
Decision ➡ Implementation Next Steps➡
• FCC may see merger as anti-competitive behavior
• Dish identity diluted
• AT&T and Sprint have more diversified holdings
• Does not lead to DBS monopoly
• Strong long-term market prospects with well-established companies
• Long-term growth prospects unclear
• Dish subsidiary may be barred from additional spectrum acquisitions
Opp
ortu
nitie
sC
halle
nges
Short-Term Long-Term
➔ Things that could preclude the DISH-DirecTV merger◆ Regulation*◆ Ownership◆ Cultural hurdles◆ Technical barrier
Merger Challenges
Decision ➡ Implementation Next Steps➡
Market shift from Pay-TV to Online Content
Regulatory Overhaul (National Broadband Plan)➔ Promoting Broadband Penetration➔ Spectrum Reallocation➔ Re-visiting Competition Standards
Friendlier Regulatory Environment
FCC Overhauling Broadband Regulation:➔ Spectrum Reallocation➔ Actively Promote Penetration➔ DOJ Reconsidering Competitivity Standards➔ Possibly Re-Visiting Communications Act
National Broadband Plan (2013)
Source: FCC, www.broadband.gov
AT&T or Sprint Merger?
Short-Term Long-Term
Opportunities ● AT&T and Sprint have more diversified holdings
● Does not lead to DBS monopoly (regulatory hurdle)
● Strong long-term market prospects with well-established companies
Challenges ● FCC may see this as anti-competitive if WB via satellite is introduced (PrimeStar)
● Company identity diluted
● Long-term growth prospects unclear
● Dish subsidiary may be barred from additional spectrum acquisitions