EchoStar Communications Corp. has been ordered by a federal court to cut off probably hundreds of thousands of customers around the country who have signed up for packages of ABC, NBC, CBS and Fox programming that originates on local stations in New York and Los Angeles.
The court, in a ruling Tuesday by a three-judge panel of the U.S. Court of Appeals for the 11th Circuit, found that EchoStar's Dish Network illegally provided distant network signals to at least 630,000 ineligible homes, violating hundreds of TV stations' copyright protections under the Satellite Home Viewer Act of 1988.
But the court-cited illegal-subscriber totals were several years old and probably stale. It is unclear how many distant network subscribers EchoStar has added or has converted to a legal package of local TV signals in recent years.
EchoStar will likely have to cut distant network service to "hundreds of thousands [of subscribers]," said Jimmy Schaeffler, senior financial and consulting analyst at The Carmel Group. "Whether or not it's millions, that's something probably only someone at EchoStar could judge."
EchoStar issued a statement saying that it was “disappointed in the Court of Appeals ruling” and adding that it believed it had “acted within the scope of the law and in the best interest of consumers.”
The company did not disclose the number of subscribers affected. However, it said in recent years that it had settled with hundreds of TV stations, “including all ABC, NBC and CBS owned-and-operated stations. We were not able to reach settlement agreements with Fox Network or the station groups owning the remaining stations.”
The court slapped EchoStar with a nationwide injunction. In more pain for the direct-broadcast satellite provider, the ruling appeared to also require the company to terminate distant network service to customers who are legally receiving the programming.
Satellite subscribers have an affinity for distant signals because they offer time-shifted viewing of network fare, including sporting events and entertainment programming. Subscribers on the West Coast can view CBS' New York affiliate to tune in The Late Show with David Letterman at 8:30 p.m. instead of the normal time of 11:30 p.m.
"It's like having a TiVo. They get so used to the convenience of it that taking it away is very difficult," Schaeffler said.
The “Big Four” networks, in addition to their affiliates, have been waging a court battle against EchoStar for many years in an effort to protect their copyrights. EchoStar could seek rehearing by the full 11th Circuit or appeal directly to the U.S. Supreme Court.
EchoStar could also turn subscriber dismay at the court defeat into a political weapon by urging riled customers to complain to their Capitol Hill lawmakers about their loss of service. Congress intervened in 1999 in response to satellite-subscriber anger at the potential loss of distant networks.
EchoStar has about 12 million video subscribers. In another court setback last month, the DBS provider lost a patent-infringement suit against digital-video-recorder vendor TiVo Inc., which was awarded $74 million in damages. EchoStar is expected to appeal, however.
Under the SHVA, satellite customers are barred from purchasing out-of-market network stations from EchoStar and DirecTV Inc. if they can rely on conventional rooftop antennas to watch their home-market stations. DirecTV, which settled with broadcasters a few years ago, was not included in the 11th Circuit's ruling.
Broadcasters went to court after suspecting that EchoStar had been violating the SHVA on a large scale. Local TV stations don't want area residents to view distant signals because the practice hurts their advertising revenue.
In a 44-page ruling, the 11th Circuit panel found that EchoStar engaged in a "pattern and practice" of violating the SHVA. It ordered a lower court to issue a nationwide permanent injunction barring EchoStar from selling distant network signals.
The ruling's wording appeared to compel EchoStar to terminate not only illegal distant network subscribers, but also legal ones -- customers who can't pick up their local stations with an antenna.
"We have found no indication that EchoStar was ever interested in complying with the [SHVA]," the court said in a unanimous opinion. "EchoStar has disregarded the limitations of its statutory license and sought to avoid its obligations under the [SHVA] at every turn."
The ruling was handed down by U.S. Circuit Judge Gerald Bard Tjoflat, U.S. Circuit Judge James Clinkscales Hill and U.S. District Judge Richard Mills. Tjoflat wrote the opinion.
"It's going to cost EchoStar money -- a lot of money," Schaeffler predicted.
The outcome could have been far worse for EchoStar. At times in the litigation, broadcasters asked the courts to punish the DBS operator by banning it from providing even local TV signals to subscribers in dozens of local markets. The court's ruling did not address a local-signal ban as a remedy.
David K. Rehr, president of the National Association of Broadcasters, which represents hundreds of network affiliates, said the ruling affirmed “the importance of localism in television and vindicates an eight-year effort by TV broadcasters to stop EchoStar's blatant and massive abuse of copyright law."