EchoStar Turns Up the Heat on Cable Rivals
EchoStar's planned purchase of Sling Media is likely to step up a battle between the satellite TV provider and a raft of rivals. It may also bring EchoStar a few new ones.
EchoStar (DISH) said on Sept. 24 it will pay $380 million for Sling Media, maker of the popular Slingbox TV device that connects to a home TV set, letting users watch what's on that TV—whether it's stored on a video recorder or being broadcast live—by way of an Internet-connected PC from anywhere in the world.
Although considered something of a curiosity at the outset, the so-called place-shifting concept behind Slingbox is taking off. On average, Slingbox owners watch 1.6 hours of TV on their laptops each day, and 40% of that time at home, as opposed to on the road. "People are turning their laptops into kitchen TVs," says Sling Media CEO Blake Krikorian. In the last year the business has also grown to include services that let customers watch shows on mobile phones from the likes of Palm (PALM), Nokia (NOK) and those running Microsoft's (MSFT) Windows Mobile software.
Sling Media's customers so far number only in the "hundreds of thousands," Krikorian says. No matter. The plucky Foster City (Calif.) startup has secured plenty of venture capital from the likes of Hearst, Mobius Venture Capital, Hercules Technology Growth Capital (HTGC) and EchoStar.
New Products on the Way
EchoStar has said little about its precise plans for Sling Media, but adding place-shifting features would give its lineup a clear competitive advantage over rival DirecTV (DTV) and cable operators like Comcast (CMCSA) and Time Warner Cable (TWC). EchoStar CEO Charlie Ergen said in a statement that the deal enables his company to offer "innovative and convenient ways to enjoy programming on more displays and locations, including TVs, computers, and mobile phones, both inside and outside the home."
To that end, Sling Media has a new stable of products teed up. Soon it will announce the availability of software that works on mobile phones running the Symbian operating system, which includes most of Nokia's advanced wireless phones. Also coming down the pike: Slingbox Solo, a low-cost version of the Slingbox with standard-definition and high-defintion features. Another is the SlingCatcher, which pushes content from one Slingbox to an additional TV in the house over a home network.
Splitting Up the Company?
Besides beefing up EchoStar's arsenal vs. satellite and cable providers, Sling Media could bring EchoStar to new competitive terrain. EchoStar said on Sept. 25 it's considering splitting its businesses into two separate, publicly traded companies. One would be the consumer-focused subscription-TV operations, while EchoStar would spin off international operations and the division that makes set-top boxes. SlingMedia would likely become part of the new entity, packing its software and features into set-top boxes that would compete against those from Motorola (MOT) and Scientific Atlanta, a unit of Cisco Systems (CSCO).
The hope would be to unlock more value for shareholders by letting the two units go their separate ways. Todd Mitchell, an analyst at Kaufman Brothers in New York, estimates that the move could be worth $2 to $3 per share for EchoStar investors. The company's core unit, the Dish Network TV service, has been under pressure not only from DirectTV but from aggressive cable companies and the entrance of telecom players like Verizon (VZ) into the subscription TV market. EchoStar stock picked up $2.82, or nearly 7%, on the news.
EchoStar is adding subscribers at a respectable, but slowing, clip. It lured 170,000 new customers in the quarter ended June 30, vs. 195,000 a year earlier. "Things have been humming along pretty well at EchoStar, especially given the high penetration of the market already," says Pacific Crest Securities analyst Steve Clement, who rates EchoStar "sector perform." "They're doing well considering that it's a mature market."
Legal Woes May Loom
Maturing markets demand innovation and differentiation—qualities Sling Media offers in spades. But there's something else the acquisition may bring: legal hassles. Major League Baseball has made threatening noises against Slingbox. Ever protective of its exclusive broadcast-rights contracts, MLB's position is simple: Watching a game remotely via a Slingbox constitutes "rebroadcasting," which it strictly forbids.
That's debatable, but what's not debatable is that a Slingbox owner pays nothing beyond the fees levied by a cable or satellite TV provider for watching what's on TV from the comfort of a PC or other remote computing device. Meanwhile, a subscriber to MLB's Web video service is subject to a long list of blackout restrictions as well as a fee of about $10 to $30 a month. "When Sling was a small company with only a few hundred thousand customers, MLB probably wouldn't bother suing," says Michael Gartenberg, an analyst at Jupiter Research. "Now that it's going to be part of this bigger company—and will presumably grow its customer base—MLB may want to take a closer look." Consider the spate of lawsuits filed against YouTube once it was purchased by deep-pocketed Google (GOOG).
It's a risk EchoStar is willing to take at a time when competitors are beefing up their roster of services. Comcast and Time Warner have signed on to Pivot, a wireless service that offers customers of Sprint Nextel (S) access to their TV lineups on a mobile phone. Eventually it's intended to allow remote programming of a DVR and place-shifting viewing à la Slingbox, but so far, Pivot has had trouble just getting out of the blocks (BusinessWeek, 8/20/07).
Microsoft is poised to add remote-viewing capabilities to its Media Center PC software, and it won't be long before Apple (AAPL), which has sold more than 300 million TV episodes through its iTunes store, starts thinking about on-demand offerings via devices like its Apple TV. "Consumers want their content wherever they are and on more than one screen," says Jupiter's Gartenberg. "All the service providers have the same channel lineup and the same programming and they're all offering HDTV. Now they're starting to look at what else they can offer to stay ahead of the competition."