Local TV Birds May Fly

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Capitol Broadcasting Co. Inc. division Local TV on
Satellite (LTVS) has quietly taken some major steps toward building two Ka-band satellites
capable of allowing direct-broadcast satellite providers to offer subscribers signals from
at least 800 local broadcasters, covering 75 percent of all U.S. households.

LTVS placed a multimillion-dollar down payment in January
for the first "long-lead" components needed for the satellites, tentatively
scheduled to launch between 2002 and 2003, chief operating officer John Hutchinson said
last week.

Both EchoStar Communications Corp. and DirecTV Inc. have
stepped up their local-to-local plans since Congress passed a revised Satellite Home
Viewers Act in November allowing DBS companies to sell subscribers local network signals
-- a move that threatens one of cable's key advantage over DBS.

The legislation spiked interest from investors, and LTVS is
forming a corporation that will be backed by a wide array of communications companies,
Hutchinson said.

Investors include broadcasters, satellite providers,
satellite-hardware companies, set-top vendors and uplink companies, he said. "It
would be among industries that have a vested interest in the system working, and working
well," he added, declining to name the companies.

New York-based investment-banking firm Babcock & Brown
is signing up investors.

Until now, neither DirecTV nor EchoStar has expressed much
interest in pursuing a deal with LTVS. But last week, EchoStar signaled that it may be
part of the $1 billion project.

"The bottom line is that we think they can be part of
the solution for offering local programs to our customers in the United States,"
EchoStar spokeswoman Judianne Atencio said.

EchoStar believes that LTVS still "needs to overcome
some hurdles," but she wouldn't elaborate. She declined to comment when asked if
EchoStar is one of the companies that will finance the venture.

An early concern was that LTVS wouldn't be able to
send signals to both DirecTV and EchoStar because they use different encryption standards.
But Hutchinson said the company designed around the problem by designing dual-encryption
streams, adding that it's now a "nonissue."

DirecTV spokesman Bob Marsocci said the company hasn't
had "any substantive discussions with Capitol in quite some time, and we have no
immediate plans to do anything with them."

Hutchinson said LTVS' business plan only requires one
DBS provider to sign on. He declined to comment when asked if he had a commitment from at
least one of the DBS companies, citing nondisclosure agreements. But he hinted that at
least one is on board.

"We wouldn't be ordering million-dollar satellite
parts for the fun of it," Hutchinson said.

LTVS has also secured letters of intent from 500 of the 800
stations it hopes to distribute, covering "the biggest of the big" stations in
the top 66 broadcast markets, Hutchinson said.

Stations will receive fees from LTVS in exchange for the
retransmission-consent agreements, but Hutchinson declined to list terms of the deals.

LTVS is now going back to key station groups to covert the
LOIs into formal retransmission-consent agreements, Hutchinson said.

Hearst-Argyle Television Inc., which owns 26 stations in 24
markets, signed a LOI with LTVS last year, and the company plans to meet with LTVS in the
next few weeks to negotiate a formal retransmission-consent deal, COO Tony Vinciquerra
said. "We will do it in some form, I'm certain," he added.

LTVS plans to formally announce retransmission-consent
deals soon, possibly at the annual National Association of Broadcasters convention in
April, Hutchinson said, adding that a number of broadcasters asked the company to announce
the deals in aggregate.

DirecTV's and EchoStar's local-to-local
strategies cover 50 percent of the country. By using Capitol's satellites, the DBS
companies could offer local signals to 75 percent of the country, freeing up capacity on
their existing satellites to offer new services.

Capitol's venture would provide at least 800 stations
with 19.4-megabit-per-second streams capable of passing high-definition channels,
multicast digital networks and datacasting, Hutchinson said.

The standard model is that the stations -- which are
required to upgrade to digital by May 2002 -- will offer a high-definition channel, a
single standard-definition channel and a datacast channel.

Using EchoStar as an example, Hutchinson said, Dish Network
subscribers would be offered new dishes capable of receiving signals from EchoStar's
two high-power satellites and LTVS' spot-beam satellites. LTVS would wholesale the
satellite capacity to EchoStar, and subscribers would get one bill from EchoStar, he
added.

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