Upset Dealers Suing DirecTV Over Big Fees.

A lawsuit filed against DirecTV accuses the satellite television subsidiary of El Segundo-based Hughes Electronics Corp. of trying to put its independent dealers out of business in a move to cut costs.

The $300 million suit, filed this month in Los Angeles Superior Court on behalf of the 30,000 independent dealerships nationwide that helped build DirecTV to a subscriber base of about 10 million, said the dealers have been hit with devastating "chargebacks" on their commission agreements with the satellite TV firm. The chargeback is a fee equal to the amount of the independent dealer's. original commission on each subscriber if the subscriber temporarily stopped payments or canceled service for any reason.

"DirecTV ... has been slowly but surely squeezing these guys out of existence," said Brian Lysaght, a partner at the Santa Monica law firm O'Neill Lysaght & Sun LLP representing the class action. Lysaght said his firm has received calls from about 100 dealerships with the same contract disputes - many of whom are now out of business.

Specifically, the lawsuit claims that now-defunct Direct Satellite TV of San Antonio initially signed a contract with DirecTV in 1996 to provide direct home satellite television services. DirecTV changed the original contract thereafter so that Direct Satellite had to pay DirecTV a "chargeback" fee, Lysaght said.

In addition, DirecTV was consistently late in paying monthly residual payments to Direct Satellite TV since amending the original contract, he said. And while the contract originally said such monthly residual payments would be paid as long as the subscribers stayed as customers, the new contra t limits those payments to five years.

DirecTV spokesman Bob Marsocci had no comment on the lawsuit.

Firm's losses increase

Lysaght said Dire TV is eliminating the independent dealers because they have become an unnecessary expense to the company, which has seen increasing net losses all year.

Hughes, a division of General Motors, widened its net loss t $227.2 million for the third quarter; compare to a net loss of $93.8 million in the like year-earlier period. Revenues were $2.1 billion vs. $1.69 billion a year ago.

Also in the third quarter, Hughes reported average revenue per DirecTV subscriber declined to $54.70 from $55.30 in the previous three months. And the company raised slightly its conservative full-year expectations for additional U.S. subscriber to 1.2 million from 1.1 million after cutting i s expectations from 1.7 million in the second quarter.

Rural dealers also sue

Many of the dealers in the most recent suit are in urban areas throughout the country and are separate from the rural resellers that have pending lawsuits against DirecTV since June 1999. Those resellers h ad exclusive agreements to sell DirecTV service, while the dealers in the most recent suit compete with major retailers like Blockbuster Inc. and Circuit City Stores, Inc. to sell Dire TV service.

Up to six lawsuits are pending against DirecTV in federal court in Los Angeles regarding contract disputes between the satellite TV company and the electric and phone companies selling DirecTV service in rural communities, hose companies are all part of the National Rural Telecommunications Cooperative, and 80 percent of them have subsequently old their contracts to Pegasus Communica ions Corp. Pegasus has also sued DirecTV , which subsequently countersued.

The six suit against DirecTV likely will go to trial collectively i August 2002, said Len Venger, equity partner in litigation at Manatt Phelps & Phillips LLP, which is representing the cooperative.

DirecTV started t sell services through its major retailers more quickly than its competitors, particularly EchoStar, said Michael Goodman, a senior analyst at the Yankee Group in Boston.

"It's a love-hate relationship," Goodman said, of DirecTV's relationship with its dealers. "They'd love to do i all by themselves, but at the same time they need a presence in these markets. [Independent dealers]...are not going away. They've been around for 10 to 15 years, and they'll be around for another 10 to 15 years."