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DirecTV Being Investigated by 20 States

Consumers: Task force is looking into whether satellite TV firm used bait and switch on subscribers.

September 04, 1997|From Bloomberg News

DirecTV, the nation's largest satellite television provider, is being investigated by 20 state attorneys general for removing some channels from a pre-sold package of programming and selling them at a higher price.

The multi-state group, which includes California, is looking into whether the General Motors Corp. unit pulled a bait and switch on its subscribers when it removed seven Encore movie channels from its most popular package of programming and added them to a more expensive pack, state officials said.

The change may violate state consumer protection laws prohibiting deceptive and unfair practices, since subscribers had paid for the programming and the special satellite dish as part of a binding contract, state officials said.

The investigation comes as satellite operators are cutting prices to woo more subscribers. The industry also is facing increased competition from cable providers that are starting to offer more channels through digital programming.

A spokesman for DirecTV on Wednesday acknowledged the investigation, saying the Los Angeles-based company is providing information to the states.

Details of the investigation were first reported in the Wall Street Journal on Wednesday.

"DirecTV has suffered a little bit from confusion regarding their packages to begin with. They don't need this," said Ted Henderson, an analyst at Janco Partners.

DirecTV beams programming to about 2.7 million subscribers through 18-inch satellite dishes attached to their homes.

DirecTV is part of General Motors' Los Angeles-based Hughes Electronics division, which is in the process of being purchased by Raytheon Co. GM's Class H shares were unchanged at $65.25 on the New York Stock Exchange.

State attorneys in Florida are leading the multi-state investigation, which also includes Arizona, Arkansas, Connecticut, Delaware, Illinois, Indiana, Kentucky, Louisiana, Massachusetts, Michigan, Missouri, New Jersey, New Mexico, Ohio, Oregon, Pennsylvania, Vermont and West Virginia.

The task force began looking into this issue in July after receiving complaints from consumers.

The investigation focuses on a $200 rebate DirecTV started offering in August 1996 to lure new subscribers. The company applied the rebate to customers who purchased a satellite dish and related equipment and its Total Choice programming package.

In April, it moved seven Encore channels from Total Choice, which costs $29.99 a month, to a new package, priced at $33.99. The company, which ended the offer in July, gave subscribers a 30-day notice that it would replace the Encore channels with six others.

"The whole electronic industry now is forming these unilateral contracts where you take it or leave it and we can change our program and prices at any time and you're stuck," said Jack Norris, chief of multi-state litigation for the Florida attorney general's office.

"In this case, if you attract people to purchase equipment and subscribe to certain programming and then take out the most attractive channels after you've locked them in, then you're improperly amending the contract and getting unfair advantage over the consumer," he said.

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