The Future of Dmitriy Gorenshteyn Daniel M. Choi Brandon Stackhouse Levi Golston & Ellen Zhang.

The Future of

Dmitriy GorenshteynDaniel M. Choi

Brandon StackhouseLevi Golston

& Ellen Zhang

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

Appendix

Service Segments

Source: IBISWorldSupplement

Cable$ 84.9 bn

Satellite$39.9 bn

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

High Market Share Locations

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