Many of the satellites used by broadcasters Dish Network and DirecTV are approaching the end of their useful life cycle, and neither company appears to be building new satellites fast enough to replace them.
That was the conclusion in an analyst note published by MoffettNathanson this week, as first reported by the trade publication Fierce Video.
Satellite systems like those used by Dish Network and DirecTV typically have a life span of about 15 years, and while some systems can be used beyond that, most satellite broadcasters typically have replacements constructed and ready to go before that term ends.
Not Dish Network: Out of the company’s 11 orbital satellites, nine are rapidly approaching the end of their anticipated life span, analyst Craig Moffett said. And the situation is not much better at DirecTV, which recently severed itself from AT&T to become a standalone company.
Both Dish Network and DirecTV have been preparing for a post-satellite world for a while now: Each company has their own streaming television product (Dish Network operates Sling TV; DirecTV has AT&T TV, which will soon re-brand as DirecTV Stream), which offer the same live channels as what’s found on the satellite platform but don’t require hardware installation or commitments from customers.
But those products only work if customers have access to broadband Internet. A report published by the Federal Communications Commission (FCC) two years ago said around 21 million American households still lack access to broadband Internet connections. Some analysts believe the number of non-broadband households is even higher than what the government claims.
A sweeping infrastructure bill passed in the U.S. Senate showed some promise of closing that gap, in that it provides billions of dollars to companies like Comcast and AT&T that are specifically earmarked for rural broadband buildout. But these companies have been anemic toward rural investment in the past.
In the absence of adequate broadband services, satellite television remains a lifeline for rural households — not just for entertainment and sports, but also local news, national news and weather. It’s a point both Dish Network and DirecTV understand well: Two years ago, when AT&T decided to shift its pay TV marketing initiatives away from DirecTV toward AT&T TV in the suburbs, it continued marketing DirecTV in rural areas. Dish Network continues to promote its service in rural areas as well.
When it comes to the future of their satellite products, both companies seem to think a merger is inevitable, with Dish Network co-founder and chairman Charlie Ergen saying as much last year (a point he re-iterated on a recent conference call with investors).
A merger would solve certain operational problems — it would give the combined companies greater leverage when negotiating programming deals like DirecTV’s NFL Sunday Ticket or just about anything on Dish Network — and it would help the company’s streaming initiatives as well.
But a merger will not likely solve the problem of Dish Network and DirecTV’s aging satellite fleet: The satellites used by DirecTV and Dish Network were built years ago to support their individual platforms, without cross-compatibility in mind. Set-top boxes used by Dish Network and DirecTV are designed to receive unique signals, and satellite dish antennas used at homes and businesses were engineered to receive signals from either Dish Network or DirecTV — not both.
A similar issue happened in the satellite radio space more than a decade ago: After combining forces, the newly-formed SiriusXM Satellite Radio chose to use XM’s technology and satellites to support next-generation technology and hardware radios. But it didn’t want to leave behind the millions of customers still using Sirius hardware in their homes and cars, so to this day, the company continues to support the XM and Sirius platforms, even though both use different audio encoding standards and hardware.
It is a headache that SiriusXM surely wants to get away from: Like Dish Network and DirecTV, the company has invested heavily in the future of streaming. It acquired music streamer Pandora a few years ago and Stitcher last year, purchases that helped it beef up its streaming app and next-generation Internet-connected hardware radios.
But unlike Dish Network and DirecTV, SiriusXM continues to build and deploy satellites to support its datacasting services — radio aside, the company also offers live weather, traffic, marine and aviation information through its satellite platform.
As Moffett explains, Dish Network and DirecTV do not appear to be making the same investment. Instead, it appears the companies are allowing the satellite platform to slowly degrade, and that could leave millions of rural customers without a viable television option.
“We are witnessing the long, slow goodbye of satellite TV,” Moffett wrote. “The terminal value of a satellite TV platform with neither satellites nor subscribers is, quite obviously…zero.”