EchoStar Loses Court Ruling On Some TV Transmissions
Wednesday, August 23, 2006
Hundreds of thousands of Dish Network subscribers could lose access to shows on traditional television networks as early as today after a Supreme Court justice's decision yesterday that brings an end to lawsuits that have been tied up in court for more than eight years.
U.S. Supreme Court Justice Clarence Thomas yesterday let stand a May ruling by the U.S. Court of Appeals for the 11th Circuit that ordered EchoStar Communications Corp., the parent company of Dish Network, to stop transmitting network programming to 800,000 subscribers -- those who live in mostly rural areas too far to receive local stations with regular antennas.
The decision stemmed from lawsuits filed by News Corp.'s Fox Network and stations affiliated with the four major networks, all claiming that EchoStar has been illegally offering distant-network signals to customers who are capable of receiving television signals from nearby cities.
Rural customers who live within the reach of a local television broadcast are not eligible to receive network programming from a satellite TV company, which usually offers transmissions from stations in large cities, such as New York or Los Angeles.
For more than eight years, Englewood, Colo.-based EchoStar has been battling broadcast networks that say the satellite provider is illegally encroaching on their markets and taking a chunk out of their audiences. EchoStar has frequently settled with local stations to maintain its presence in rural markets.
This time, analysts said, the satellite company may be required to halt service to all subscribers who receive the network transmissions, even if the subscriptions are legal.
"It looks like the company is running out of legal options and it's going to have to take some drastic steps to appease customers who are losing access to these signals, whether it be lowering rates or helping them find access to other channels," said Thomas W. Eagan, an analyst with Oppenheimer & Co. in New York.
"The subscription television marketplace has become very saturated and people are looking to be compensated," he said. "This could send customers straight to DirecTV or cable."
The Supreme Court's decision was "not unexpected," according to a statement released by EchoStar.
"We have settled with hundreds of stations and station groups over the eight and a half years this case has been winding its way through the court system, and we continue to negotiate with the broadcasters who have not yet settled," the company said.
The ruling is a double victory for media mogul Rupert Murdoch, chairman of News Corp., which owns Fox and DirecTV Group Inc., the nation's largest satellite television company.
As the subscription television space becomes increasingly competitive, companies are going to become more aggressive in ensuring their edge in the market, said Matthew J. Harrigan, an analyst with Janco Partners in Colorado.
"You're going to see this continual jockeying of ethical positions," he said. "There's no reason to believe Murdoch is going to back off and this is one of the tactical maneuvers he had to work with."
The loss of 800,000 rural subscribers, about 6 percent of EchoStar's 12.5 million customers, could cost the company several million dollars in revenue, analysts said.
EchoStar reported a profit of about $169 million for the quarter ended June 30, down from about $856 million for the same quarter a year ago, which included a $593 million extraordinary gain. It added 195,000 subscribers from April to June.
The company's stock closed yesterday at $31.67 per share, down 27 cents, or 0.9 percent.
Satellite TV companies had explosive growth in the mid-1990s as they reached out to rural customers who did not have access to multi-channel programming.
"A decade ago, satellite TV was a boon to rural subscribers," said Craig E. Moffett, a senior analyst with Sanford C. Bernstein & Co. "Now that game has largely played out. The obvious beneficiary here is DirecTV."