News

Thousands of DirecTV Subs Lose CBS, Fox Signals

2/28/1999 7:00 PM Eastern

DirecTV Inc. is facing its first wide-scale
customer-service crisis, after a federal district court judge in Miami last Thursday
ordered it to turn off its distant CBS and Fox network signals to hundreds of thousands of
illegal customers this past weekend.

Early last week, DirecTV tried to avert the previously set
Sunday (Feb. 28) cutoff date imposed on network-signal provider PrimeTime 24 by dropping
that distributor and announcing that it would uplink its own set of broadcast station
feeds from New York and Los Angeles outlets.

Broadcasters decried the move immediately, and they
received a temporary restraining order against the direct-broadcast satellite company.

Estimated numbers of DirecTV and C-band satellite customers
affected by the Feb. 28 cutoff range from several-hundred thousand to more than 1 million.
DirecTV would not specify the total, but it said all of its customers had been previously
notified in writing.

The court order presented the satellite industry with its
first real crisis since programmers began scrambling signals in the 1980s.

Deborah Lathen, chief of the Federal Communications
Commission's Cable Services Bureau, estimated that 700,000 dish owners were to lose
Fox and CBS Feb. 28.

DirecTV's loss could be cable's gain, at least to
some extent. Steve Effros, president of the Cable Telecommunications Association (CATA),
said he believes that the signal cutoffs will allow cable operators to serve new
customers. He recommended that operators provide service to people -- even if they only
wanted lifeline broadcast packages -- as a way of getting a foot in the door of
people's living rooms.

A quick response by cable operators would not only
reinforce their public-service image, but it would give them an opportunity to sell new
products -- such as digital TV, cable modems and telephony -- in the future.

The National Rural Telecommunications Cooperative, which
distributes DirecTV in certain rural territories, sent out 101,610 subscriber
notifications of its own. An NRTC spokesman said the number actually cut off could be
smaller as broadcast waivers are processed.

Broadcasting and satellite interests have fought for years
over which satellite subscribers are eligible for distant-network signals.

PrimeStar Inc. does not fall under the cutoffs because it
was not an affiliate of PT24.

Last year, EchoStar Communications Corp. dropped PT24
signals from its lineup and began using New York and Los Angeles stations for its
distant-network feeds. Although EchoStar and the broadcasters have filed suit against each
other over the matter, EchoStar is still beaming the signals.

While it may seem ironic that DirecTV was so severely
punished for an action that EchoStar took months ago, some observers said DirecTV's
move to drop PT24 at the 11th hour seemed to be a more deliberate affront against the
broadcasters and the court.

Wall Street appeared to give DirecTV the benefit of the
doubt. At midday last Friday, the price for parent company Hughes Electronics Corp.'s
stock was down only slightly. Analysts predicted that the negative impact to DirecTV would
be short-term, and that the publicity surrounding the signal cutoff would help to push
Congress to quickly pass DBS-friendly legislation.

Reaction from subscribers who will lose access to popular
network programming -- even if it is only for a matter of days or weeks -- is harder to
downplay.

By comparison, in 1986, when Home Box Office began
scrambling its signal -- known as "The day the skies went dark" -- the outcry
from the nearly 2 million C-band customers who had received the service free-of-charge was
immediate and intense, and HBO was faced with the multiyear challenge of wooing those
customers back.

"With so many people being cut off Sunday, that has
the makings of a public-relations disaster," said Steve Blum, president of
California-based Tellus Venture Associates.

When viewed purely in terms of primetime viewership, Blum
said, take away broadcast networks "and you're taking away one-half of the
programming off the satellite."

Blum predicted that DirecTV, the broadcasters and even
satellite retailers might all share the blame in the minds of consumers. But he did not
believe that DirecTV would lose many customers over the signal cutoff, although he said
its call centers would likely be inundated with phone calls.

A spokesman for DirecTV said the company was not
anticipating additional call-center staffing over the past weekend, although
customer-service representatives would be given scripts to handle subscriber questions.
DirecTV was also directing viewers to its channel 298 for more information, such as how to
request waivers.

Those who ultimately lose their network signals, however,
will be looking for an immediate solution to accessing local broadcast signals. The
National Association of Broadcasters last week recommended that DBS companies provide free
off-air antennas to disenfranchised customers.