EchoStar vs. News Corp.

Murdoch’s 25 owned-and-operated stations were the sole holdouts among hundreds of other broadcasters with whom EchoStar was able to reach a $100 million settlement with broadcasters in August, in a nine-year-long battle over its delivery of New York and Los Angeles signals to hundreds of thousands of viewers in other parts of the country. As part of that pact, EchoStar would expand its delivery of local signals to 95% of the country. That would make it less necessary to import distant signals.

But the 25 Fox affiliates became the card that controlled the deck. Without their agreement, Ergen couldn’t proceed. Ergen never got that card.

Murdoch, the controlling owner of EchoStar rival DirecTV — which stands to benefit handily from the DNS shutdown of about 6% of EchoStar’s 12.5 million estimated subscribers — was instead able to use his 25 O&O stations’ denial to convince the district court that it had no other choice than to enforce the statutory remedy that required turn-off of all the distant signals, no matter the settlement reached with the other 700 or so network affiliates. This included a turn-off of what The Carmel Group estimates are less than 200,000 illegal and more than 600,000 legal subscribers to distant signals.

So just what are distant network signals?

According to EchoStar’s Oct. 23 press release, “Distant network channels are ABC, NBC, CBS and Fox broadcast channels that originate from a market outside the community in which a subscriber lives.” The idea behind the distant network signal system is to permit satellite TV subscribers who can’t get good local off-air broadcasts from their local transmitters the right to receive network signals, even if that means they see another city’s local programs and advertisements.        

And where does the distant signal issue stand today?

For one, EchoStar’s current options appear to be limited.

Notes the National Association of Broadcasters’ outside counsel, North Carolina-based Wade Hargrove, “The affiliates are comfortable with the court’s decision and are not inclined to appeal. They continue to review their options and have not ruled out an appeal. Nonetheless, this is the result they sought from the beginning.”

Positions like this make it less likely that courts will overturn the distant signal death penalty. And in part because of the power wielded by the NAB – and Murdoch — in Congress, it’s unlikely that EchoStar will get the legislative relief it seeks, at least before a new Congress starts up in late January (following the Nov. 7 elections). What this means is that EchoStar will have to actually turn off the legal and illegal subscriptions, because neither the courts nor Congress are likely to step in before Dec. 1. Adds longtime D.C.-based network affiliate counsel Robert Rini, “I’m not sure there’s an appetite in Congress today to deal with a single company issue vis-a-vis the other major telecom issues out there now.”

Longer term, EchoStar will try to get Congress to alter the DNS rulings and rules so that Dish Network can again supplement its bottom line with the $5-per-month revenues from hundreds of thousands of distant signal viewers.

What will become of those 800,000 distant signal subscribers? That is where Murdoch re-enters the fray. A smaller number are likely to migrate to either cable or telephone video providers. A tiny number will leave multichannel pay TV service altogether. Yet most will likely stick with EchoStar after it either switches them over to receipt of local signals by way of local-into-local subscriptions, or upon installation of a standard, old-fashioned off-air antenna. But many of the 600,000 legal subs – even if the prior solutions are offered for free — will turn off their EchoStar subscriptions and switch over to DirecTV. This suggests a bump in the DirecTV subscriber roles for 4Q ’06 and 1Q ’07. When that happens, DirecTV stands to gain more than $60 per month in revenues. From each 100,000 subscribers, that would equal  almost $75 million per year.                   

At age 75, Murdoch may have become a much older fox, but as Ergen, at 53, can attest (more emphatically than ever after this latest DNS brawl), Murdoch remains a still remarkably wily old Fox (and rival).  

Jimmy Schaeffler is chief service officer and senior analyst at The Carmel Group, a Carmel-by-the-Sea, Calif.-based conference organizer, publisher and consultancy. He can be reached at (831) 643 2222 or at jimmy@carmelgroup.com.