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Echostar buys startup Sling Media

Firm may spin off company's digital business

EchoStar took aim at satcaster rival DirecTV on Tuesday when it snapped up a coveted new-media startup and said that it may spin off its digital biz into a separate company.

EchoStar, which operates the Dish Network sat-TV service, first said it would buy Sling Media, a startup well regarded by analysts for its tech savvy. The disclosed price of $380 million in cash and stock, however, came in higher than the figure at which some had valued the firm, which is thought to have revenues of $50 million. EchoStar was previously a minority investor in Sling.

Later in the day, EchoStar said it was exploring a move in which the firm would split into two companies: its consumer-aimed Dish service and a tech development operation, with the two traded as separate stocks.

The goal would be to increase revenue in a way that the company –which, with 13 million customers, lags behind DirecTV — could not in a traditional head-to-head battle with its bigger rival. Liberty Media is close to finalizing a deal to acquire a majority stake in DirecTV from News Corp.

Idea also in effect rebuffs the conventional thinking on satcasters, which had been that EchoStar will be in the best position to compete with cable operators if it merges with DirecTV. FCC already rejected a proposed merger of the two in 2002 when EchoStar tried to buy a controlling stake in DirecTV from then-owner Hughes Electronics.

EchoStar topper Charlie Ergen said in a statement that customers shouldn’t see a change as a result of any split.

EchoStar chose not to comment further about either the acquisition or the plans for a spinoff.

The spinoff would be an unusual move that, ironically, would create something akin to how John Malone runs his Liberty Media empire, with the new-media businesses held in a separate portfolio from the traditional content biz. (Liberty is finalizing its acquiring a majority stake in DirecTV from News Corp.)

Wall Street, which has agitated in the past for another stab at a DirecTV-EchoStar merger, liked the idea of two EchoStars almost as much: It sent the stock up 7% on Tuesday, but it fell 1.5% on Wednesday to $43.47 after rating agency Standard & Poors put EchoStar on its “creditwatch” list, saying that it did not have enough information about the deal and hinting that debt could be a looming problem for the company.

A spinoff would probably be months away; announcement was primarily intended as a trial balloon on Wall Street.

Still, as TV viewing habits change and cable-operator competitors extend into broadband and telco service, the possibility of two firms highlights the dilemma satcasters face: Should they look to distinguish themselves via technological advantages or invest in new businesses distinct from their main operations?

DirecTV has mainly taken the first approach, investing heavily in high-def programming. It has created HD clones of 100 basic networks, offering those nets’ programming in somewhat sharper resolution.

But with time-shifting and on-demand viewing becoming a more important part of consumer behavior, satcasters also feel like the second realm can be lucrative.

In Sling, EchoStar has a property that it believes could be a cornerstone of its digital company.

Company’s main product is the Slingbox, which essentially makes cable TV portable, allowing travelers to access their home roster of channels and/or DVR programming while on the road via a broadband-capable computer.

Product is a fave among customers, though some nets have privately said they worry about the effects of nontraditional television viewing.

Silicon Valley firm has also been developing other businesses besides including a social-networking product that allows viewers to share clips; the company struck a deal earlier this year with CBS to sample some of the net’s programming.

In an interview, Sling chairman-CEO Blake Krikorian highlighted the imminent release of Sling Catcher, a company that allows Web video to be watched on a set-top in the manner of Apple TV.

Krikorian also said that while he expects EchoStar to market Sling services to customers and possibly even integrate functionality, the deal would not preclude peddling Sling to non-Dish customers.

“A lot of cable companies compete on one end and do business on the other,” he said, pointing to cable operators that carry networks owned by rival operators. “That’s how we want to do things with Dish.”

Sling has one deal with DirecTV, for a program that allows premium subscribers of its Sunday Ticket NFL package to watch games online; Krikorian said he does not expect that to change.

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