EchoStar Targets Middlemen in Piracy Suit; Company Alleges Distributors Enable Theft of Its Signals
Andy Pasztor. Wall Street Journal. (Eastern edition). New York, N.Y.: Jul 23, 2007. pg. B.3

Satellite-television broadcaster EchoStar Communications Corp., estimating that its signals are pirated at two million residences across North America, has gone on the offensive by filing suit against a Southern California distributor of set-top boxes and others it accuses of masterminding such schemes.

The suit, filed in federal district court in San Diego, accuses the defendants of selling equipment and software designed to circumvent the company’s security systems. The filing presents a glimpse into the latest twists in the shadowy world of stolen satellite-TV programming, which industry analysts estimate may result in lost revenue of more than $1 billion annually for EchoStar.

The Englewood, Colo., company has 13 million paid subscribers in the U.S., while another 2.3 million Canadian homes served by another company use similar receivers, access cards and related antipiracy measures.

The new signal-theft techniques come amid indications that EchoStar may be particularly prone to piracy, partly because larger rival DirecTV Group Inc. seems to have developed access codes and other protections more resistant to hackers. Starting in late 2004, “pirate resources were consequently shifted from DirecTV” to EchoStar’s “more vulnerable Dish Network,” according to The Carmel Group, a Monterey, Calif., consulting concern that has examined piracy issues for years and has worked for EchoStar and other broadcasters.

The suit alleges that certain middlemen and Internet entrepreneurs have been peddling a new generation of home-receiving equipment and, separately, distributing software on the Web that can negate techniques “traditionally used to combat satellite piracy.” It says Viewtech Inc., an Oceanside, Calif., distributor of set-top boxes, and a number of unnamed defendants effectively acted as wholesalers and “sold thousands of . . . receivers to consumer pirates for the sole purpose of circumventing” EchoStar’s security systems.

The court filing also contends that Jung Kwak, the founder of Viewtech, used several code names on the Web to “offer, provide and traffic in updated pirate software,” and that consumers tend to move among Web sites as the sites release updated software capable of snaring satellite signals without paying for them.

EchoStar and Viewtech declined to comment. Mr. Kwak couldn’t be reached for comment.

Previous lawsuits by EchoStar and DirecTV have tended to target individual customers or rings that allegedly trafficked in stolen access cards, rather than equipment suppliers or distributors. EchoStar and DirecTV remain embroiled in a separate, long-running civil suit, in which each side has accused affiliates of the other of improperly obtaining antipiracy secrets.

An analysis released by The Carmel Group over the weekend estimates that signal-theft rings primarily targeting EchoStar “have now distributed their illegal services and products to an estimated two million” U.S. and Canadian households.

The report goes on to say that, so far, eight distributors or marketers of suspect set-top boxes have sold a total of nearly 2.1 million of the consumer devices with a combined retail value of nearly $350 million, with the market estimated to increase about 10% in the first quarter alone. The top three shippers historically have accounted for roughly 70% of total revenue, according to the analysis.

According to the study, Mr. Kwak’s company is “one of the top four” marketers of such set-top boxes, which often retail for less than $200 each, and the report concludes such sales volume isn’t justified by any conceivable legitimate uses.

The consulting company’s analysis says that in North America, so- called free-to-air consumer-receiving devices are intended to receive ethnic and religious programming free of charge but such programming tends to be marginal and “of interest to only very limited audiences.” Based on its research, The Carmel Group concludes “such limited programming sources are not capable of justifying” the more than two million such devices sold in North America.

The analysis also says that the suspect set-top boxes generally are manufactured in China or South Korea and that the success of the alleged pirating rings “depends substantially on the support they provide customers” by quickly supplying illicit access codes and then coming up with variations able to defeat EchoStar’s enforcement efforts.

Dish Network Again Casts Its Deal Gaze at DirecTV
ANDY PAZTOR and VISHESH KUMAR
AUGUST 5TH, 2008

Dish Network Corp. Monday posted the first quarterly subscriber losses ever reported by a major U.S. satellite-TV provider. The results highlight a strategic problem that is prompting Chairman and Chief Executive Charles Ergen to weigh another attempt to merge with rival DirecTV Group Inc., people familiar with the matter say.

Study Projects Greater Reliance Of Cable-TV Subscribers on DVRs
By ANDY PASZTOR
July 16, 2007 10:30 a.m.

LOS ANGELES—U.S. cable-television providers increasingly are relying on digital-video recorder technology to compete against satellite-television broadcasters, according to a new report.

Growing acceptance of personal video recorders by cable subscribers—with so-called DVRs projected to be used by roughly half of those customers by 2010—is an important new trend highlighted in a study slated to be released later today by The Carmel Group, a Northern California consulting firm. Over the next three years, the study forecasts that the number of cable homes with DVR devices will roughly double to around 32 million, versus the current 17.6 million.

By contrast, the number of satellite-television customers with such devices is projected to total about 17 million, up from today’s 10 million, over the same period, according to the report.

Currently, the report estimates another 1.3 million or so users are buying their DVRs directly from retail outlets or getting them from telephone companies. And the report projects this segment also will grow significantly.

The development could put the nation’s satellite-broadcasters, which originally championed the use of DVRs, at a disadvantage as cable operators capitalize on their size and marketing prowess to adopt and push the same technology for their own purposes, according to the report. “This is a remarkable turnaround for cable,” according to the report.

Initially considered a market discriminator for satellite-TV, the latest projections suggest that DVRs instead could end up providing a significant boost for resurgent cable systems, particularly if the devices eventually are marketed in conjunction with burgeoning video-on-demand systems.

DVRs permit viewers to record, store and playback video programs on their home television systems, skip over commercials and offer other enhancements to the viewing experience. Video-on-demand systems enable subscribers to access programming stored in central locations by cable operators.

The consulting firm, which has closely tracked the spread of digital video recorders since the devices became widespread in the late 1990s, boasts especially strong ties to the satellite-television industry.

But in an interview, Jimmy Schaeffler, the consulting firm’s chairman, said “this is the first time we’ve noticed this turnaround” in DVR usage. Satellite broadcasters “got into DVR technology early, tried to hold the high ground,” but after six or seven years are now steadily being overtaken in this arena by cable rivals, he said. “The bottom line,” according to Mr. Schaeffler, “is that this is not a good trend” for satellite broadcasters.

According to the report, telephone companies seeking to expand their video offerings also are expected to use DVRs as a way to attract and retain customers. The report is based on a nationwide survey and information gathered from industry officials.

“Not unlike a black-and-white TV user who migrates” to a color television set and then “refuses to return to a black and white model, people who get used to watching TVs with a DVR don’t want to return to watching TV without a DVR,” the report says. It goes on to predict consolidation among the five largest suppliers of consumer DVR boxes.

Until a few years ago, large U.S. cable systems shied away from DVR technology partly on the grounds that such recorders couldn’t adequately protect against unauthorized distribution of programming. In 2001, according to the report, nine one of the top 10 cable-TV systems “weren’t seriously considering including DVRs as part of their future business models.” But now, according to the report and comments by Mr. Schaeffler, cable systems have proved adept at quickly adopting the technology and, in many instances, surpassing rival satellite broadcasters in using it to retain customers. The switch in direction “cable has orchestrated during the past five years has been somewhat remarkable,” according to the report.

About 28% of today’s cable subscribers have DVR-enabled boxes, according to the report, and that percentage is expected to exceed 50% by 2010. DVR penetration isn’t expected to reach higher levels among satellite-TV providers over the same period, despite the fact that satellite broadcasters embraced the technology much earlier.

The two leading satellite broadcasters—EchoStar Communications Corp. and larger DirecTV Group Inc.—for years have focused on using DVRs to attract and retain customers willing to pay a premium for extra services. As in previous studies by the consulting firm, the updated projections continue to show sharp increases in the use of portable digital video recorders.

“The overall TV experience is quickly morphing toward near-ubiquitous deployment of DVRs,” according to the report, with such devices nearly becoming what it calls a “fixed commodity within the average U.S. household.”

The report concludes that the ability of cable systems to “merge a DVR storage function from both in-home and...(regional) centers,” places cable-TV providers in a position “to actually offer a superior DVR product relative” to satellite competitors.

Write to Andy Pasztor at andy.pasztor@wsj.com

Mr. Ergen “is more hemmed in than ever,” says Jimmy Schaeffler, head of the Carmel Group, a California satellite consulting firm.

"They definitely have leverage,” says Jimmy Schaeffler, an analyst with the Carmel Group, an industry consulting firm. He expects the network to play up “all those wealthy Republicans living in the nice neighborhoods....watching its shows.”

"Inevitably, you’re looking at more homogenous content,” says Jimmy Schaeffler, a senior analyst with the Carmel Group, a consulting firm.

Jimmy Schaeffler, an industry consultant with Carmel Group, said the EchoStar filing reveals “the beginning of a major shift in strategy.” Mr. Ergen has decided “he can be a middleman in wholesaling incremental capacity and still do quite well.”

Challenges in Europe abound. An effort by another Luxembourg company, Global Radio SA, to launch satellite radio in Europe collapsed in 2003 as a result of lack of funding. A company would need to raise a minimum of $750 million to pay for the satellites, launch and infrastructure, estimates Jimmy Schaeffler, an analyst at the Carmel Group, a Carmel, California, consulting firm. Any service would need to broadcast in several languages. Dealing with individual-country regulatory authorities could prove a logistical nightmare…

“It’s going to take some time to hone the business model,” says Mr. Schaeffler, of Carmel, who ultimately expects satellite radio to do well in Europe. Sirius Satellite Radio Inc. and XM Satellite Radio, while not yet profitable, have more than 10 million subscribers between the two of them, nearly all in the U.S.

With satellite-television broadcasters continuing to ramp up marketing of digital video recorders, a new report projects that roughly half of their U.S. subscribers will have such devices by 2010, up from an estimated 28% currently.

The study also predicts accelerating spread of the devices among cable-television households, with about 50% of those customers also having them by 2010. The report estimates that today, roughly 10% of cable households have so-called DVRS, which permit viewers to record, store and playback video programs and offer other enhancements to the television viewing experience…