With a Win, Dish Would Drop Station

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EchoStar Communications Corp. is likely to drop local TV stations if the company can gain relief from mandatory federal carriage obligations, the company informed the U.S. Supreme Court.

On March 7, EchoStar asked the high court to void a 1999 law that requires direct-broadcast satellite carriage of all local TV stations in each market where a DBS provider opts to carry any local broadcasters.

The "carry-one, carry-all" mandate kicked in Jan. 1, requiring EchoStar's Dish Network platform to carry every station in the 36 markets where it now provides local-into-local service.

EchoStar is in the process of merging with Hughes Electronics Corp., parent of DirecTV Inc. parent Hughes Electronics Corp. If allowed to combine, the new company has promised to carry every local TV station in all 210 local markets within two years.

But the scope of that promise depends on the outcome of this case.

If the high court tosses out the carriage requirement, "the merged entity does not intend to carry all channels in every market," EchoStar said in a footnote in the brief.

In December, a three-judge panel from the 4th U.S. Circuit Court of Appeals said the DBS must-carry law was consistent with the First Amendment.

SHOPPERS ON HIT LIST?

Although EchoStar and the Satellite Broadcasting & Communications Association are appealing that order, DirecTV has dropped out of the case.

In the 30-page brief, EchoStar did not mention the number of stations it would drop, nor did it name affected stations or markets. But chairman and CEO Charlie Ergen has often stated that his channel capacity is squandered by the mandated carriage of many home-shopping stations that duplicate their national feeds.

EchoStar's appeal didn't sit well with the National Association of Broadcasters, which is fighting the merger. The TV-station trade group insisted the appeal was evidence that Ergen's promise to carry every station in every market was hollow.

In the filing, EchoStar said the carry-one, carry-all regime violates the First Amendment and should be reviewed under the most exacting judicial standard, called strict scrutiny, because it has a content-based purpose. Very few laws have been upheld under strict scrutiny.

EchoStar said the law violates the First Amendment because it requires carriage of major-market independent stations, when those channels could be used to transmit popular network affiliates in secondary markets.

The law, which strips DBS providers of editorial control in markets where they initiate local TV service, "is more reminiscent of the Maoist doctrine of 'let a thousand flowers bloom.' Such an approach is wholly alien to our constitution," EchoStar said.

Congress enacted the "carry-one, carry-all" mandate under the Satellite Home Viewer Improvement Act, which permitted DBS carriers to provide local TV signals for the first time.

The law was designed to stop DBS from cherry-picking the most desirable stations in a given market at the expense of less-popular broadcasters — a rationale endorsed by the 4th Circuit.

Since 1988, DBS carriers have been allowed to provide superstations to all of their subscribers, and to offer distant-network signals to a limited number of households that can't receive the same programming from the in-market affiliate.

EchoStar said the carry-one, carry-all concept has an additional First Amendment defect: It mandates local TV signal carriage to address an unfair competition issue that does not exist.

COMPETITIVE ARGUMENT

As DBS has 18.3 million subscribers to cable's 70 million, EchoStar said its refusal to carry a given station does not threaten that broadcaster's survival, as a cable system would by refusing carriage.

"These differences between the cable industry and the satellite industry lie at the heart of this case," EchoStar said.

In 1997, the Supreme Court upheld mandatory cable carriage of local TV signals. Its basis was that Congress was properly concerned about the future of local broadcasting if stations could not employ cable systems to reach a majority of their viewers.

Getting the Supreme Court to take the case is a roll of the dice, especially since the federal government is seeking denial. The high court hears between 90 and 120 cases a year, after sifting through thousands of petitions like EchoStar's.

"The odds generally don't favor the Supreme Court taking that case," said Schwab Washington Research Group media analyst Paul Glenchur. "You never know for sure, but we'll see what they do in a few months."

Ergen said he was seeking Supreme Court review to vindicate the principle that he should be able to select programming without government interference, even if such a move made for bad merger politics.

The appeal shouldn't cost Ergen any friends, said Banc of America Securities LLC cable and DBS analyst Doug Shapiro said.

A POSSIBLE HITCH

"If you look at the risk-reward trade-off to EchoStar, the downside is pretty limited in that you probably can't generate any more ill will with the NAB," Shapiro said.

There's another possible curve in the road ahead: If the Supreme Court agrees to hear EchoStar's case — and the merger is approved on condition that EchoStar-DirecTV carry every station in each market — would the court then reverse its decision, because the issue had been made moot by the merger conditions?

Some media lawyers said the Supreme Court was likely to still hear the case because other current and future DBS carriers would have to comply with the law.

Other lawyers said the court might drop the case because EchoStar can't claim injury after signing a consent decree with the Justice Department or accepting similar merger conditions from the Federal Communications Commission.

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