Deathstar's demise, Sky service hits the skids as alliance breaks down

The EchoStar/News Corp. alliance-less-than-affectionately dubbed "Deathstar" by the cable TV industry-ran out of gas last week following two lawsuits filed by direct broadcast satellite carrier EchoStar against Rupert Murdoch's media monolith.

After first filing for a declaratory judgment confirming News Corp.'s obligation to lend it $200 million, EchoStar expanded its lawsuit to a $5 billion claim due to lost profits.

The lawsuit charges that News Corp.'s failure to meet terms of the agreement leaves EchoStar without sufficient capital to fulfill its business plan, a claim that some industry analysts say is likely true.

"[EchoStar will] be able to make a clear claim to a lot of damages because it had a lot of suitors and presence in the marketplace. It wasn't able to proceed with that because it had done a deal with Murdoch," said Jimmy Schaeffler, DBS analyst with The Carmel Group, Carmel, Calif. "Plus it spent 12 weeks concentrating only on this deal, which meant it wasn't preparing for the third- and fourth-quarter marketing of its product.

With the Sky alliance all but dead in the water, both parties are scrambling for new partners. During a press conference last week, EchoStar head Charlie Ergen named several categories from which he might find a new mate, including cellular carriers, Bell regional holding companies, satellite manufacturers, and spectrum holders and programmers. Satellite companies and telcos will be the two most likely matches, according to Schaeffler.

But John Aronsohn, senior analyst at The Yankee Group, believes that Ergen's drawing power has dimmed. "It will be difficult for EchoStar to attract another partner after this episode," he said.

Schaeffler believes that Murdoch will stick to his dreams of getting into the U.S. market, but he isn't sure how Murdoch will pursue that goal. Earlier news reports speculated that News Corp. was negotiating with Primestar Partners, despite Murdoch's notoriously bad relationship with Primestar's cable operator owners.

A News Corp./DirecTV alliance is unlikely, given that the two companies compete elsewhere in the world, Schaeffler said.