Avid Consulting

Andrew George

Olivia Pennell

Adela Martinez

Jason Warren

Zakahra White

Spencer Mead

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Executive Summary

DISH Network Executives,

This strategic audit provides insight into the management and operations of your company. We

have made recommendations that we think will provide a foundation for future financial and

operational success. However, these are recommendations only, and do not guarantee the

occurrence of any of the forecasts or projections as seen in the paper or appendices.

DISH Network’s current strategies have changed recently, especially with the acquisition of

Blockbuster, Inc. These new strategies address numerous opportunities for growth in market

share and profitability. Beginning with the formation of a mission and vision statement to guide

the company, and continuing with a reorganization of your company’s management structure,

these operational improvements will lay a foundation for managerial success.

The company’s financial position is stable, however, DISH is not the market leader and the

company’s Altman Z-score is in the “unknown area” and does not indicate that DISH is 97%

safe from declaring bankruptcy in the next year. Our recommendations, including expanding

Blockbuster Express kiosks, numerous company acquisitions, new subscriber acquisitions, and

cost savings reformations will allow DISH to capitalize on the current opportunities you are

faced with. The following matrices show the improved position and market share your company

is expected to experience after successful implementation of the following recommendations.

Sincerely,

Avid Consulting

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Dish Networks Past and Current Strategies (Appendix A)

Past Strategies

In 2007, DISH Network created a plan to increase market share and expand the

company’s objectives, growth, and vision. As part of this plan for growth, DISH Network

decided to distribute its technology for expansion creating a separation between its infrastructure

assets and their technologically based “set-top box business.” This created two separate

publically traded companies, EchoStar Corporation, and Dish Network. Along with his plan,

DISH Network has set forth a series of objectives such as: high quality products, outstanding

customer service, great value, and provide new and emerging technologies.

Current Strategies

As of 2011, DISH Network completed the acquisition of Blockbuster, Inc. This

acquisition has caused DISH Network to set forth new focus areas which are now included as

part of their strategic plan. The first area of focus is to be the best provider of video services in

the United States. In addition, Dish Network focuses on outstanding customer service and great

value for customers. In order to obtain these objectives, DISH Network is dedicated to training

employees in customer satisfaction strategies. Along with customer satisfactions, Dish Network

emphasis their ability to produce high-quality, reasonably priced television programming

services.

Mission and Vision

DISH Network did not have a current vision statement but their current mission can be

found in Figure 1. The new mission and vision statement provide more specificity of the

business operations that DISH Network engages in and the routes to profitability and success.

These goals will lead DISH to become the market leader in entertainment services.

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SWOT and Environmental Analysis (Appendix B)

DISH Networks SWOT Analysis (Figure 3)

DISH Network has many strengths such as: the hopper, numerous programming options,

wide selection of movie titles, superior customer satisfaction, and offers the ability to watch live

television anywhere. Along with these strengths, DISH strives to provide outstanding customer

service by improving the quality of the initial installation of subscriber equipment, improving the

reliability of our equipment, better educating customers about products and services, and

resolving customer problems promptly and effectively when they arise.

DISH Network’s SWOT Matrix (Table 1)

This SWOT Matrix was developed to help strategize potential key initiatives for the

company by identifying the strengths, weaknesses, opportunities, and threats. The strategies will

help DISH Network maintain and increase market share by knowing where the company stands

compared to its competitors. Some of the strategies that were developed from this tool were to

grow Blockbuster Express to decrease brick and mortar dependence, renegotiate programming

costs to help with competition from low cost competitors, continue to provide great customer

satisfaction to gain customers despite recession, and increase programming options available

online

DIRECTV SWOT Matrix (Table 2)

DIRECTV has many strengths including: a wide coverage network, diverse transmission

satellites, and additional services. These strengths are what make DIRECTV one of DISH

Networks greatest competitors. Because DISH and DIRECTV are closely related, they share

many of the same threats such as those coming from digital recording online, streaming, and

network contract renewals. Two of DIRECTV’s weaknesses are their high capital expenditures

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and satellite costs. DISH could take advantage of these weaknesses by lowering their

expenditures and increasing market share through lower cost alternatives.

Netflix SWOT Matrix (Table 3)

Netflix has many strengths because they were the first to infiltrate this certain segment of

their industry. Because of this, they still retain a large market share for online movie rentals.

Netflix has very competitive prices, is convenient, and is equipped with efficient streaming

capability. Your company can take advantage of our Netflix analysis by offering more streaming

services at a discounted price.

Charter SWOT Matrix (Table 4)

Charter has strengths including the bundle package, DVR recording, On Demand, and

Charter Business. Along with these strengths, they have capitalized on a few opportunities such

as the growing demand for 3D viewing and the Optimum West acquisition. Charters biggest

threats are 3G and 4G cellular network internet services, direct broadcast satellites, and new

entrants into the “MDU” market. DISH Network can take advantage of these opportunities and

threats by increasing their direct broadcast satellite services.

Coinstar SWOT Matrix (Table 5)

Through low costs rentals, convenience kiosks, a partnership with Verizon, and

integration with app stores, Coinstar has a wide range of strengths that make it a vital competitor

for DISH. Coinstar is limited though by the threats of piracy of videos and the large selection

from competitors. Along with their physical limitations, Coinstar is limited on the availability of

new releases. DISH network is not limited on the timeframe of new releases and could offer

these videos to the customer before Coinstar can, enabling them to gain new customers.

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Organizational Chart (Appendix C)

The current organizational structure of DISH Network is a combination between

functional and small business unit structures. Currently they have C-level executives for

different functions in the company, but DISH also has a Blockbuster small business unit

President. We presume this position is remaining in the organization because of the acquisition a

few years ago. However, we do not feel that this structure is the best format for the company.

We recommend transforming the organizational structure into a functional type. The President

and CEO should oversee the following officers: COO, CMO, CFO, CTO, and General Counsel.

Below these C-level officers should be Executive Vice Presidents of each operational

department. When acquisitions occur, an analysis of employee positions would need to be

addressed and another organizational reformation will be necessary.

The Board of Directors is Sarbanes-Oxley compliant, although we suggest making some

slight changes to the Board members. Charles Ergen is the Chairman of the Board (and has held

this position or CEO since the company’s founding), but he is also the Chairman of EchoStar

Corporation. DISH does a lot of business with EchoStar, as they are DISH’s supplier for

hardware. We recommend replacing Mr. Ergen as Chairman due to this close business

relationship with EchoStar and the fact that his wife is also on the board. The other members

may remain on the Board, as they are all experienced and are not current executives of the

company.

Key Success Factors and Value Chain Analysis (Appendix D)

The five key success factors for DISH Network are the quality of service and products,

the variety of their services, technological skills, financial resources, and brand recognition.

DISH Network frequently ranks as having one of the best customer service departments in the

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industry and the company has superior programming and satellite quality. The company offers a

variety of services including pay-TV, movie streaming, movie rentals, internet provision, etc.

The company also has great technological skills, as a result of the close relationship with

EchoStar Corp. The financial resources of DISH are also excellent, including a net worth

analysis of over $8 billion and large amounts of cash on hand. The brand recognition of DISH

Network is widespread, as it is one of the top two pay-TV satellite providers.

An analysis of the company’s value chain shows that improvements can be made in all

primary areas of operations. Our strategy to vertically integrate and acquire suppliers Qwest and

EchoStar will increase inbound logistics value by lowering costs and increasing internal

efficiencies. This integration will also improve distribution, as it will decrease customer wait

time for satellite and hardware delivery and installation. Marketing and sales will improve with

our new subscribe acquisition and increase in advertising efforts. The value obtained through

service operations will drastically increase with our recommendation to outsource call centers to

save money. DISH will have to closely supervise the service these outsourced centers provide to

ensure maintaining quality customer service. Overall, operations will drastically improve with

the implementation of our recommendations.

The only distinctive core competency DISH currently has is the close relationship with

EchoStar. We recommend acquiring EchoStar and expanding this distinctive core competency.

Also, acquiring Qwest will increase vertical integration and create an even more distinctive core

competency that primary competitors will not be able to duplicate.

Market and Competitor Analysis (Appendix E-L)

DISH Network’s primary competitor in the pay-TV, satellite industry is DIRECTV. This

company has approximately 20,000,000 subscribers while DISH has about 14,000,000. Other

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competitors that you face are Charter (cable pay-TV industry), Netflix (online streaming), and

Coinstar (Redbox’s kiosk movie rental). All of these competitors are shown on market analysis

matrices.

Porter’s Analysis (Appendix E)

DISH Network corporation operates within the CATV industry. However, it has

subsidiaries in the home entertainment/online streaming industry such as Blockbuster. This is a

rapidly changing industry from new entrants, changing technology and customer preferences

being a couple of dominating factors pushing this rapid change. An analysis shows that rivalry is

high, and both new entrants and supplier power are medium-high on this model. Rivalry is high

from the mix of competitors, primarily DIRECTV and pricing. New entrants competing with

DISH are plentiful in the home entertainment industry. The advances in technology and changing

customer preferences allow current satellite and cable companies to expand their services to

customers.

Supplier power is a factor because companies must create relationships with TV networks

and movie/production companies to receive their content. This can be difficult primarily for new

releases. Movie companies are not eager to give their new releases out before they do. Substitute

products are plentiful but do not have a dominating impact. Customer’s choices between movie

theaters and non-subscriber TV are the primary options here. Both provide an option for the

customer but this is changing due to customer preference for at home entertainment.

In regards to Porter's Five Generic Strategies DISH Network pursues a cost leadership

strategy. This strategy is crucial in the market of online movie and television streaming because

competitors such as Netflix and Red Box already provide low cost alternatives. Their ability to

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do this is in part due to the type of company they are. They are quite different from DISH

because they are not a Cable TV network with multiple cost structures.

IE Analysis (Appendix F)

DISH’s pre strategy implementation IFE and EFE places the company in the hold and

maintain cell of the IE Matrix. However, our strategies will improve internal strengths, decrease

internal weaknesses, and allow the company to capitalize on external opportunities. Increased

competitiveness with low-cost alternatives from Blockbuster Express expansion will turn DISH’s

weakness into strength. Also, increasing engagement in online streaming will improve the EFE

score. DISH Network’s average weighted IFE score increased from 2.48(pre) to 2.85(post) and

their average weighted EFE score went up from 2.32(pre) to 3.15(post). Expanding Blockbuster

Express locations will allow customers access to a wider selection of movie titles and closing the

remaining retail Blockbuster locations will reduce dependence on brick and mortar movie rental

store demand. These will increase the IFE score. As a result, the company will increase market

share and move into the grow and build cells of the IE Matrix.

BCG Matrix (Appendix G)

DISH has high relative market share as it is the second leader in the industry. Relative to

DIRECTV, DISH has 0.7 or 70% of their market share. We found that the satellite pay-TV

industry has a 5% expected growth rate between 2010 and 2015. As a result, DISH and

DIRECTV are in the star performers quadrant of the BCG Matrix. Engaging in online streaming

and movie rental kiosk industries, which are very high growth, will allow for increased market

growth and market share. After our recommended strategies are implemented, the company

should be the market leader and continue to be a star performer.

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DISH's Pre BCG Matrix shows high market share relative to Netflix, Coinstar (Redbox)

and Charter but lower in relation to DIRECTV. Netflix and Charter are in the question mark

quadrant while Coinstar is in the Dog quadrant.

Company Life Cycle (Appendix H)

When looking at DISH alone, a trend of hyper growth existed the past 10 years.

However, when looking at a direct competitor, DIRECTV, DISH is not growing fast enough. As

a result, we recommend inorganic growth with multiple company acquisitions. The DISH

company life cycle shows the trend for past growth and the pro forma growth after our

recommendations.

SPACE Matrix (Appendix I)

The company’s competitive advantage has an average of -2 and the Industry Strength has

an average of 3.5. This leaves the company in the right side of the matrix at 1.5. This means

that DISH is in a strong industry and needs to capitalize on this success. Along the y-axis, DISH

has an average financial strength of 2.5 and an average Environmental Stability of -2.75. This

equals a -0.25 position on the y-axis and DISH is in the bottom right quadrant of the SPACE

Matrix. This quadrant is labeled the Competitive quadrant. They are in this position for several

reasons including strength in brand recognition, customer loyalty, and high barriers to entry.

Because these numbers are arbitrarily chosen, and -0.25 is an especially small number, we

examined strategies in both the aggressive and competitive quadrants. Strategies we addressed

for our recommendations include capitalizing on the strong industry while improving financial

strength. To address this opportunity, we suggest acquiring numerous companies to increase

revenues and cut costs by vertical integration. Also, we suggest increasing brand recognition

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through expansion of Blockbuster Express kiosks and expanding low-cost online streaming

services.

GE McKinsey 9 Cell Matrix (Appendix J)

The pre strategic analysis 9 cell matrix shows DISH in between the grow and invest cells.

DISH Network has a Pre CSA of 7.15 and Post CSA of 8.20. As a result, we recommend the

company engages in inorganic growth through company acquisitions and investing in

Blockbuster Express opportunities and online streaming possibilities. We also suggest growing

by acquiring new subscribers such as gyms, hospitals, and sports bars. This will lead to

improved market share, possibly overtaking DIRECTV, and a move to the invest cell.

Continuous investment in new business opportunities and a reevaluation of long-term company

strategy will contribute to the continued presence as market leader.

Strategic and Financial Group Maps (Appendix K and L)

The variables that we chose for the strategic group maps include customer service,

geographic coverage, Price/Quality, number of services or packages offered, number of channels

in the basic package, and number of movie titles available. We chose price/quality because our

strategies will increase the quality of products. Also, the increase in Blockbuster Express kiosks

will increase geographic coverage. The titles, packages, and channels offered represent customer

satisfaction and convenience. Customer service scores are based on reviews and awards for

service. All of these represent qualitative rankings of operational success of the companies.

Your company will increase in market share, quality, customer satisfaction, and competitiveness

after our recommendations are implemented.

We chose five different comparisons when analyzing your company’s competitive

position on the financial group maps. The first, Net Income/Revenues versus Subscriber

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Acquisition Costs/Revenues, shows that pre-recommendations DIRECTV has slightly higher

Costs/Revenues but much higher Net Income/Revenues. After our recommendations, DISH

should move to a more comparable position with DIRECTV, overtaking them in market share.

DISH also has a much higher Net Income ratio than the other three competitors. The next,

Accounts Receivable/Revenues and LT Debt/Revenues, shows slightly higher LT Debt ratios but

a lower AR than DIRECTV. Our recommendations of providing discount credit terms will allow

a strengthening of this advantage over DIRECTV. The third, Net Income/Revenues and ROA,

shows that DIRECTV has a much higher ROA than DISH. The increase in acquisitions and net

income should alter DISH to a more competitive position while gaining market share. The

fourth shows the amount of money spent on acquiring customers versus the ROA. And the final

map shows G&A expenses versus ROA. Our strategies will decrease G&A and increase ROA.

On all maps, DISH is operating in a more advantageous area than Charter, Coinstar, and Netflix,

and is moving to a more competitive position with DIRECTV, gaining market share in the

process.

Financial Analysis (Appendix M)

Edward Altman’s Z-score is a model that predicts, within 97%, whether or not the

company will need to file bankruptcy. Although the Altman Z-score we used was for

manufacturing companies, the formula for publicly traded nonmanufacturing companies should

not be significantly different. The Z-score for DISH resulted in 2.0583 which places DISH in the

range of 2.98 to 1.82, also known as the “ignorance area,” whereby the Z-score cannot provide a

more conclusive answer as to the probability of filing bankruptcy in the next year. DISH must

achieve a Z-score of 2.99 or greater to enter the “no immediate danger range” and will have to do

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so by improving its balance sheet makeup or significantly improving one of its Z-score

components.

Looking at the comparative balance sheet, DISH has experienced significant growth in

the last five years. On the asset side, current assets have increased 141.72% from the end of

12/31/2011 to 12/31/2012. The largest components of this increase in current assets can be traced

to an increase in cash and cash equivalents (in thousands) from $609,108 to $3,606,140 and an

increase in marketable investment securities from $1,431,745 to $3,631,637. These large sums of

cash and near cash equivalents amount to more than $7 billion putting DISH in an excellent

position for future acquisitions.

In long-term assets the only significant change can be seen in 2012 whereby FCC

authorizations increased from $1,391,441 to $3,296,665. This large increase is a result of an FCC

authorization that grants DISH the exclusive right to broadcast a new wireless broadband

spectrum. With this new right granted by FCC, this has essentially increased DISH long term

assets by $2 billion which DISH could use to partner with a wireless carrier and stream

broadband video service. Such a partnership would allow DISH to broadcast its service to

smartphone users and would significantly increase coverage and market share.

There are no significant changes in current liabilities and equity over the last five years.

Long term liabilities however, increased by 54.39% in 2012. One of the accounts that had a

major impact on long term liabilities is long term debt that increased from $7,458,134 to

$11,350,399 in 2012. Deferred tax liabilities also increased from $974,414 to $1,662,732 in

2012. Together these two accounts help explain why the company has such a major increase in

cash and near cash equivalents in 2012. Since a large portion of DISH’s cash is financed using

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long term debt, it will have to invest this money into expansions or acquisitions in the near future

in order to achieve a positive NPV on whatever projects it decides to pursue.

On the comparative income statement, DISH has experienced a positive net income for

the last five years. When DISH acquired Blockbuster in April, 2011, DISH experienced a

significant increase in general and administrative expenses of 105.24% in 2011. Revenue

generated from equipment and merchandise sales in 2011 from Blockbuster was more than

enough to cover the increase in expenses from Blockbuster and helped contribute to the bottom

line. Although total revenue increased by $218 million in 2012, total cost and expenses increased

by almost $2 billion in 2012. The two major sources of why increases in expenses exceeded

increases in revenue by nearly $1.8 billion can be traced to subscriber acquisition and litigation

expenses. Subscriber acquisition and advertising costs increased by 329.52% in 2012 while the

TiVo litigation expense went from ($316,949) a gain, to$730,457 expenditure in 2012. A $200

million increase in revenue does not justify a $1 billion increase in subscriber acquisition and

advertising expenses. Your company will need to focus on more profitable subscriber acquisition

methods.

The accounts identified in the comparative balance sheet and comparative income

statement is also visible on the comparative cash flow statement. Net income declined by -

58.71% in 2012 from what was largely due to excess spending on advertising and subscriber

acquisition costs. Proceeds from issuance of long-term debt were $4.4 billion in 2012 which

complies with the substantial amount in cash. Looking at these financial statements it is safe to

conclude that DISH must invest its loan of $4.4 billion in projects that will generate positive

NPVs in the near future as interest expenses are expected to increase substantially in 2013. In

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addition, we recommend finding a way to make its advertising and subscriber acquisition more

efficient by increasing revenues and lowering expenses.

Recommendations and Implementation (Appendix N-S)

Note: Appendices N and O are relevant to the following text

We created many strategies for DISH Network to gain market share and increase

profitability. We recommend selling services via contract to airline companies. This will offer

in-flight entertainment where DISH can offer movies and TV shows that they acquired with the

Blockbuster segment. This will cause about a 5% increase in programming and administrative

expenses, or about $75,000,000 total. Also, DISH should partner with sports bars to offer cable

services for customer viewing. The usual cost per subscriber addition was derived from the

annual report. Total subscriber acquisition costs in 2012 were $1,687,327,000 and they acquired

89,000 customers. This equates to about $20,000 total cost per new subscriber. We advise

acquiring 10,000 restaurants which would be a cost of $200,000,000 (increase in subscriber

acquisition costs). In addition to sports bars, we recommend partnering with school districts to

provide the educational videos they watch. The usual cost per subscriber addition is about

$20,000 total cost per new subscriber. However, the new service fees would increase revenues

(average monthly revenue per customer of $77.10 so $77.10*12*1000 = 900,000). We

recommend acquiring 1,000 school districts at total cost of ($20,000,000 – $900,000 in new

revenues =) $19,100,000 in the first year but $15,500,000 costs over 5 years total. Also, we

recommend partnering with hospitals to provide their television services. The usual cost per

subscriber addition is about $20,000 total cost per new subscriber. However, the new service

fees would increase revenues 900,000. We also recommend acquiring 1,000 hospitals at total

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cost of $19,100,000 in the first year but 15,500,000 costs over 5 years total. In addition to

hospitals, we recommend partnering with gyms to provide their television services. The usual

cost per subscriber addition is about $20,000 total cost per new subscriber. However, the new

service fees would increase revenues 900,000. We suggest acquiring 1,000 gyms at total cost

$19,100,000 in the first year but 15,500,000 costs over 5 years total.

We also suggest increasing advertising efforts to gain market share. Currently DISH spends

$1,420,194,000. We suggest increasing this by 20% to $1,704,232,800 for a total increase in

costs of $284,038,800. We also recommend obtaining new and renewing old programming

contracts with networks. This will cause about a 10% increase in programming costs, or about

$100,000,000. To reduce the rising trend in accounts receivables, we recommend providing

discounts. There was a sharp increase in the last year from $778,443,000 to $842,905,000. We

suggest offering discount terms to increase the payments, perhaps 2- 10 - Net 30. We assume

50% will take advantage so it would cost $8,000,000. Also, we recommend selling off

remaining blockbuster stores (500 left to close as of 12/31/12). According to Kim Peterson of

MSN Money, there is $500,000 profit for all 500 stores. The reduction associated costs with this

unrelated diversification closure in the stores will provide the company with a net savings of

about $1.5M. Also, we recommend expanding the number of Blockbuster Express kiosks to

compete with Redbox (owned by Coinstar). We suggest opening 1,000 kiosks at $15,000 each

(according to GuruFocus). Once the remaining Blockbuster stores are closed, we recommend

liquidate retail inventory from the closed stores. Assuming about 30% of current inventories are

in the retail stores so liquidation of this would increase cash by (.3*$623,720,000) =

$187,116,000.

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The Grand Strategy Matrix (Appendix N) we derived shows DISH in Quadrant I which

reflects rapid market growth and a strong competitive position. The strategies for a company in

this quadrant include integration methods, which DISH will do with Qwest and EchoStar, and

market penetration, which will happen with the acquisition of other companies. We recommend

acquiring a small company like Hulu (segment of News Corp.) for online streaming competition.

We assume that Hulu has 40% of the value of Netflix. Based on our net worth analysis of

Netflix (Appendix O), a Hulu segment acquisition cost would be $2,169,737,833. To compete

with DIRECTV and use vertical integration strategies, we recommend acquiring DRECTV’s

supplier Qwest. This would require purchasing Qwest from its owner, Centurylink. Although

the net worth analysis suggests a price of $6B, the large net assets value and the recent

acquisition price suggest higher. We recommend purchasing for $20B. We also recommend

acquiring Netflix. The net worth of Netflix is $5,424,344,582 so this would be our purchase

offer. We also recommend reacquiring EchoStar. These two companies used to be one

organization and we suggest reacquiring them to cut out middleman fees. Based on the Net

Worth Analysis of EchoStar, the purchase price will be $2,653,510,095. We suggest acquiring

Coinstar and turning all Redbox machines into Blockbuster Express machines. According to

Coinstar’s Net Worth Analysis, the purchase price is $1,136,948,796. A transformation of these

locations would cost about (42,000 locations transformed to Blockbuster Express at half the cost

of manufacturing new kiosk – $7,500) = $315,000,000 + $1,136,948,796 = $1,451,948,796. We

acknowledge that anti-trust concerns may be present with these acquisitions and this would have

to be addressed when the time came to actually acquire the companies.

As for cost saving recommendations, we suggest outsourcing DISH Network’s call

centers. Outsourcing call centers can save approximately 20-40% of operations costs. We

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assume the call centers account for 20% of G&A expenses so this is $270,000,000. As a result,

outsourcing would save between $50,000,000 and $80,000,000 (let’s say $60,000,000 for the

GANTT chart – Appendix Q).

Some of the non-financial recommendations we made include replacing Charles Ergen as

chairman of the board. His wife is also on the board and he has been Chairman or President

since the founding of DISH. He is also the Chairman of EchoStar so he can retain that position,

unless DISH acquires EchoStar. We also suggest reorganizing the management structure. Also,

DISH needs to create a new vision statement, as we did in Appendix A. Before DISH installs the

new Blockbuster Express kiosks, we suggest reviving Blockbuster’s image with a new logo.

QSPM (Appendix P)

After consulting all of our recommendations, we feel that the strongest three are to close

all remaining Blockbuster stores, expand the Blockbuster Express kiosks to compete with

Redbox, and to outsource the call centers. Using the QSPM to choose the strongest

recommendation, the best strategy to pursue is expanding the Blockbuster Express kiosks to

compete with Redbox.

EBIT Analysis (Appendix R)

According to the EPS/EBIT analysis, for all of our projects that have costs included on

the GANTT chart, we suggest DISH chooses common stock financing in both a recession and

normal times but they should use combination financing (50/50) in a boom. Based on the

GANTT chart, the total cost of all of the above recommendations would be approximately

$33,000,000,000. An analysis of DISH Network’s Net Worth post strategy implementation

shows an increase in company valuation from about $9,000,000,000 to about $53,000,000,000.

Fishbone Diagram (Appendix S)

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All of these strategies address the problem and possible solutions listed in our fishbone

diagram. The balanced scorecard analysis also shows how strategic objectives affect the

financial, customer, and internal aspects of DISH Network (figure 32).

Pro Forma Income and Cash Flow (Appendix T)

The Pro Forma Income Statement shows where the company was on 12/31/2012 and

where we project it will be on 12/31/2013. After our strategies are implemented, we assume

there will be an initial, first year spike in revenues of about 3%. We expect this number to rise as

the strategies continue being successful. Many of our recommendations require increases in

subscriber acquisition costs of about 25%. However, our cost savings methods should decrease

G&A by about 5%, annually. Overall, we expect about an 8-10% decrease in expenses, although

not all categories are shown on this pro-forma. Based on the average 5.5% interest rate and 33%

tax rate, we expect net income to more than double.

At the end of 2012, DISH had over $3 billion in cash on hand. Our strategies provide

excellent uses for this cash. However, the acquisitions we have planned for the company are

scheduled to occur after the next fiscal year. As a result, we will build up more cash to use for

these acquisitions in 2014 and 2015. We expect about a 10% increase in operating activities cash

flows and we expect a $1 billion increase in investing expenditures due to the implementation of

our short-term recommendations. Due to the large amounts of cash on hand, we do not need to

finance any projects in the next fiscal year. Instead, we recommend a 25% decrease by paying

off some long-term debts. Including all of these plans, DISH should see a net increase in cash of

just over $1B, leaving the figure at almost $5 billion. After 2013, this cash can be used to

expand on already successful strategies or to implement our acquisition and vertical integration

plans.

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Sources of Resistance

There are a few sources of resistance that may occur with DISH Network’s strategies.

Current chairman Charles Ergen is the man who founded Echo Star, along with his wife, Candy

McAdam, and friend Jim DeFranco. When DIRECTV launched a new, small satellite in the

1980’s, Ergen followed suit, and did the same as his competitors. Although Ergen gave up his

CEO title in 2011 after 30 years, he still remains the chairman of both DISH as well as EchoStar.

Because Ergen has been there since the start of the company, he might not be so fond of the idea

of change. Also, because he is the founder, he may have a unique vision for this company that

may not coincide with our recommended strategies. Although, after seeing the data that has been

put together by our team of analysts, he might be open to our suggested changes. There might be

other sources of resistance from C-levels of management and/or the Board of Directors. Many of

these individuals have been with the company for many years and may not recognize the need

for a new strategy implementation.

Contingency Plans

A risk assessment of the likelihood for failure is analyzed to better assist in the final

choice that will be implemented for your company. One of the many strategies that were

suggested was to mimic our competitor, Redbox, and penetrate the market with more of the

already existing express Blockbuster Express kiosks. This is a risky move, since there is already

a market for the Redbox and customers might want to stick to what they already know and are

familiar with. The increase in advertising expense, and the relatively low switching costs

customers face, may be enough to overcome this issue. A merger with Qwest was another

strategy that our team of analysts came up with. Qwest is a supplier and business partner of

DIRECTV. However, this company has had some organizational and reputation issues in recent

20

years. Management staff would have to ensure that these problems are resolved and that the two

different companies’ cultures can come together smoothly. Finally, customer service quality is a

strength of the company. If the strategy to outsource all of the call centers were to be

implemented, this may risk the quality of service. DISH Network employees would have to

closely watch the call centers and ensure that quality was not sacrificed to save these costs.

Epilogue

Our recommendations will transform DISH through acquisitions, cost savings, market

penetration, and increases in profitability. Rather than focusing on the pay-TV portion of the

industry, we recommend increasing the emphasis and strategy on the online streaming and movie

rental kiosks. The acquisition of Blockbuster has helped gain access to the movie rental industry

and the on demand movie service. We suggest capitalizing on this acquisition by expanding

kiosks and continuing to close retail locations. Retail movie rental locations are not consistent

with the mission or vision, so this segment needs to be abandoned. Expansion into markets that

are not currently a focus, such as the online streaming and movie rental kiosks, will increase

operational efficiency and profitability. DISH is already equipped with the resources and

capabilities to competitively engage in these markets and not doing so will result in a slowing of

growth and loss of market share. These recommendations are not guaranteed methods of

achieving success. However, proper implementation and organization of these new

recommendations will help DISH Network move towards the market leader position.

Assumptions

Note: all assumptions are listed in the relevant section of the paper or appendices.

21

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