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Dish goes after signal pirates

Satellite TV provider targets traffickers, cuts out 23 retailers

By Jeff Smith, Rocky Mountain News (Contact)

Published November 15, 2008 at 12:05 a.m.

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A Dish Network satellite sits on display as a customer looks over a selection of televisions in a Radio Shack store in New York. Dish Network, the country's second-largest satellite TV provider, is cracking down on signal piracy and fraud, which it says have become a substantial financial problem.

Photo by Daniel Acker / Bloomberg News/2004

A Dish Network satellite sits on display as a customer looks over a selection of televisions in a Radio Shack store in New York. Dish Network, the country's second-largest satellite TV provider, is cracking down on signal piracy and fraud, which it says have become a substantial financial problem.

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Dish Network Corp. is going after satellite TV pirates and retail fraud to stem a problem that has grown since early 2007.

The country's second-largest satellite TV provider has terminated relationships with at least 23 retailers across the country since September. The Douglas County-based Dish says it believes those resellers engaged in fraud and misrepresented customer accounts.

Separately, Dish announced recently that a North Carolina cable TV operator was sentenced to 14 months in federal prison for pirating Dish signals.

CEO Charlie Ergen also has made a point of saying the company is cracking down on people who allegedly are trafficking devices that enable people to watch Dish channels for free.

"I think we're being more vocal about our efforts," said Jeff Blum, a Dish vice president and associate general counsel. "We want others to know there are consequences if you steal our signal or engage in fraud."

The spate of activity comes at a particularly critical juncture: Dish recently reported a net subscriber loss for only the second time in its history as a public company. Ergen cited signal piracy and fraud as factors in a high customer churn rate, along with the weakening economy.

Craig Moffett, a telecommunications analyst with Sanford C. Bernstein in New York, noted that Dish historically has been aggressive in going after piracy and fraud.

"The satellite industry has been plagued by piracy from way back in the old C-Band days," Moffett said, "and nobody has done more to combat the problem than Charlie Ergen."

C-Band refers to a low-power frequency used in the early days. Many Americans received TV signals for free by installing huge microwave dishes in their yards.

Rival DirecTV has launched aggressive attacks of its own against signal piracy, most notably in 2003 when it sued thousands of individuals across the country. Some defendants claimed they were wrongly accused.

Dish encrypts or electronically scrambles its signals using proprietary technology developed by a vendor.

The security information is programmed onto a subscriber's set-top box smart card. The smart card has information about the subscriber and descrambles or provides access to the programming the subscriber has ordered.

Dish periodically has had to issue new smart cards to try to stay ahead of hackers and is sending out a new round of cards as another prong in its counterattack.

Dish declined to disclose how much money it thinks it loses because of piracy and retailer fraud or how much it will cost to issue new smart cards. But the consensus among experts is that it's a costly problem.

"By some estimates, the number of Americans stealing satellite service is into the millions," Moffett said. "There is a virtual underground economy of pirate Web sites, hackers, smart card thieves, set-top box makers and resellers."

Ergen told analysts in a conference call this week that the current wave of piracy became a substantial financial problem around the spring of 2007.

"Piracy tends to grow," he said. "So if not stopped, it tends to grow a little bit each quarter."

The North Carolina case was particularly egregious.

Glenn White, who ran Wagram Cable in Wagram, N.C., admitted he intercepted at least 17 Dish Network channels and rebroadcasted them to all 242 of his cable TV customers between May 2005 and July 2006. He was scheduled to surrender to the U.S. marshal's office this month.

Several lawsuits filed in California federal courts during the past year or so may indicate a larger, more sophisticated problem. There, Dish alleges certain companies and individuals have trafficked illegally hacked codes, software and devices that enable users to watch Dish channels for free.

"We've sued the largest (free to air) distributors" of such alleged illegal technology, as part of Dish's effort to "make it as hard as possible for pirates to steal our signal," Blum said.

Just last month, a federal judge in California issued a permanent injunction against NDS Group from intercepting or decoding Dish's signals without authorization. The injunction stemmed from a 5-year-old case alleging that NDS, part of Rupert Murdoch's News Corp., had hacked Dish's signals at a time that Murdoch owned rival DirecTV. John Malone's Liberty Media now controls DirecTV.

Blum said Dish's crackdown on retailers isn't atypical, but it's being publicized more. Dish, he said, has about 15,000 retailers across the country that legitimately distribute its products and services, and the company wants to make sure retailers know it won't tolerate improper sales tactics.

It's unclear whether Dish's current efforts to crack down on piracy and fraud will have a material effect on its business. But Ergen told analysts he believes the company is doing a better job of going after piracy and fraud and "that will pay dividends for us next year."

Dish started sending out new set-top box smart cards in August, first among subscribers in high-piracy pockets, as part of a program that will take about a year.

Moffett predicted the company will enjoy just temporary relief.

"The satellite operators and the pirates are engaged in a high stakes arms race," Moffett said. "Every time Dish Network swaps out its smart cards, the pirates are beaten back and flushed out. But only for a while. It's just a matter of time before they've retooled their hacks and they're back online."

Ergen and Blum said the new smart cards will re-secure the company's signal, but they acknowledged fighting piracy is an ongoing battle.

Ergen said Dish was slow responding to the problem that emerged in early 2007 but won't make that mistake again.

"We should have always assumed that the pirates will beat us," Ergen said. "And we should always have a next-generation system ready to go."

Satellite-TV piracy

* What it is: When someone receives satellite TV signals without paying for them.

* How a satellite-TV provider tries to prevent it: Scrambles the signals through encryption. Subscribers get set-top boxes with smart cards that are programmed to give the subscribers access to the channels they ordered.

* How piracy occurs: A variety of ways, including hacking into the encryption security system or creating software that reprograms the smart cards.

* How much piracy costs the industry: Uncertain, but estimates have ranged in the hundreds of millions of dollars a year.

* How piracy is combated: Satellite-TV companies such as Dish and DirecTV sue alleged pirates and issue new smart cards. In one recent example, a North Carolina cable-TV operator was sentenced to 14 months in federal prison for pirating 17 Dish Network channels and rebroadcasting them to his 242 cable customers.

Broken relationships

Dish Network has terminated relationships with at least 23 retailers across the country since September.

The company hasn't disclosed specific details but in general said it believes the retailers engaged in fraud and misrepresented new customer account information.

In one recent example, a California retailer was sentenced to 33 months in federal prison for falsifying new customer accounts and collecting more than $2 million of commissions and equipment from Dish Network.

Comments

  • November 15, 2008

    5:20 a.m.

    Suggest removal

    syber writes:

    The one thing about Directv is that they chose people whom they knew did nothing wrong. Then, because there complainant to the court was made up making it a fraudulent complainant, settlements had to prevent people from asking that directv be prostituted for fraud. Because a suit against someone you knew was innocent is a crime, The Justice department has refused to stop the illegal practice. The best thing an individual can do is next time they are a juror is do what Justice has done and ignore justice. Next time you are a witness, do what justice does and ignore justice and not be a witness. Justice has to step up to the plate for victims of a fraudulent suit designed just to take ones money. Where Justice ignores a crime victim, the victim has to then ignore justice.

  • November 15, 2008

    7:20 a.m.

    Suggest removal

    Ike writes:

    syber, I believe it was Oliver Wendell Holmes who is credited for saying, "This sir, is a court of law, not a court of justice." If pirates ignore the law they then do so at their own peril. Though it is doubtful that there are in truth innocent people caught up in this latest effort to halt piracy, they just thought they'd never be caught. You would have a hard time convincing a jury whose rulings are based in law and not your concept of justice that these lawsuits are indeed groundless as you assert.

  • November 15, 2008

    8:21 a.m.

    Suggest removal

    syber writes:

    You will then need to read treworgy V. Directv US Circuit court of appeals, Atlanta where Directv attorney's admit that they have made a mistake in 10% of the cases. There have been no studies which indicate just how many were falsely accused and those number can go higher then the 10% Directv told the court of appeals. You say it is doubtful that there is truth innocent people are caught up. The problem is until a study is conducted to see just how many, we will not know. Usually, where a number of innocent people win at trail, do we know innocent people have been falsely accused.

    Problem is in these cases, that individual does not have the money needed to pay an attorney to get to trial. It is the intent of the plaintiff to force the defendant into settlement by first forcing them out of money. Further, the plaintiff has known of people who were innocent and still took there settlement money.

    If you would be willing to back me, I would, just to prove the point would make up a story, sue an individual and using your money to drive up litigation costs, will force the defendant out of litigation money long before any trial. I can demonstrate just how easy it is for a corporation to simply bankrupt the individual before they can ever reach a trial which would demonstrate innocence.

    This is why I say, for the innocent person who does not have the $50,000 needed to bring the case to trial cannot prove the fraud in the summons and complaint. Trial is the only place this can be done. And because the summons and complaint contains claims the plaintiff knew not to be true, this then is a crime and the defendant become the victim of a fraudulent lawsuit. As a victim of crime, any reporting of the fraudulent suit to the justice system is ignored. Lastly, it is not legal to file a claim you know to be false to a court in an effort to profit from that false complaint. That is why the Justice system needs the wake up call to protect people from such false claims. It is not a good thing when some has considerable evidence of such a false claim and has to sign a settlement stating "I will not request that I will not ask a prosecutor to prosecute any crime arising out of this action."