News

Bird Watching in HD

3/21/2008 8:00 PM Eastern

Last week Dish Network, with its new bird falling short in its orbit, lost a round in the competitive HDTV arms race. Meanwhile DirecTV — after a scare — got a literal rocket boost for its ambitious expansion plans.

The news involving the two rivals centered on satellite launches. Those new birds were meant to enable Dish and DirecTV to ratchet up the number of national and local high-definition channels they can offer, as they compete to sign up subscribers.

In the case of Charlie Ergen’s Dish, it’s not the first dismal news he’s received this year related to his HDTV offering, which lags way behind DirecTV’s. SES Americom disclosed that its March 14 launch of a satellite — AMC-14, which Dish Network was going to use to expand its local HD service — had gone awry.

The full significance of Dish Network’s satellite snafu — the bird fell short of its correct orbital position — remains unclear, as does the future of the actual satellite. Dish Network officials last week downplayed the short-term impact of the mishap, issuing a press release saying that they are still right on schedule to add a host of local markets for HD service in April and May.

STOCK FALLOUT

Nonetheless, skeptical Wall Street analysts pummeled Dish, its stock dropped early in the week, and at least one satellite-industry expert warned that the problems with AMC-14 threaten to impact Dish Network’s long-term HD expansion plans.

“It’s pretty clear that this bird was a significant part of its [Dish Network’s] business plan, so its failure to launch properly will affect their business plan, regardless of what recent announcements say,” said Jimmy Schaeffler, chairman of The Carmel Group, a consultant who had done work for Dish Network, DirecTV and SES Americom.

Potentially, if the problems with AMC-14 are not resolved, it could cost Dish Network hundreds of millions of dollars in future-business losses, according to Schaeffler.

“They’re downplaying [AMC-14’s problems] based upon a short-term argument, which is that it takes a long time for a bird to launch, be tested and then put into operation,” Schaeffler said. “That’s a given. There’s no question about that. But this bird wasn’t launched for the short-term. So that’s a relatively irrelevant argument. The real relevancy is the mid- to long-term [impact], and it’s going to take a long time before we know that.”

By contrast, DirecTV, came out ahead in the HD game last week after it initially appeared that its satellite launch might be in jeopardy. The liftoff of DirecTV 11, originally set for last Monday, was delayed due to unspecified issues. But the countdown was resumed, and the bird was successfully launched last Wednesday.

THINKING LOCALLY

In order to stay competitive, Dish Network has to deploy HD service in more local markets. Dish CEO Ergen, during a fourth-quarter conference call in February, blamed delays in satellite launches last year with paring down Dish’s subscriber gains, because it only has local HD in a relatively small number of markets.

Dish Network gained 85,000 subscribers in the fourth quarter, while DirecTV gained 275,000.

“If you could somehow measure the loss of potential business from this bird [AMC-14] not coming online as quickly as possible, all you have to do is look at the success that DirecTV had in their last quarterly report,” Schaeffler said.

“They’re basing a very large part of their business plan on their ability to offer more competitive HD quicker than anyone else, and their ability to market that,” he said. “[Dish] has had to move a little more slowly in that regard, and this will slow them down even more.”

Dish notified the Securities and Exchange Commission about the AMC-14 problem in an 8-K filing last Monday, where it said that the “launch anomaly will result in a delay in our roll out of some high definition channels, including some local network channels.”

That filing immediately sparked a negative report by Sanford C. Bernstein analyst Craig Moffett, who said the AMC-14 situation was “a major blow” to Dish Network’s HD offering. The next day, Dish Network shot out a press release that maintained their HD plans remained right on track.

“This satellite, as with any satellite, was not scheduled to be in operation for more than a month, so the events that transpired on Friday have no effect on our short-term goals of adding national and local HD content,” Dish Network spokesman Kathie Gonzalez said.

But Schaeffler and some Wall Street analysts are questioning Dish Network’s assurances.

Gerard Hallaren, director of research for JRPG Research, predicted that the AMC-14 problem will impact Dish’s HD expansion.

MINDING THE GAP

“These guys have had a second-rate HD product for a while,” Hallaren said. “While their HD-channel coverage is improving, it’s still not going to be as strong as DirecTV’s. It will be strong as DirecTV’s, or maybe even stronger in the not-distant future, but AMC-14 just puts a kink into the plans.”

SES Americom said it will be evaluating which course to take with AMC-14 for about another week.

“There are various tools that can be used” to get the bird in the right orbit, SES spokesman Monica Morgan said, adding it must then be decided “what does that bring you in the end.”

See “DBS Earns an HD Pass,” page 19.

March