Netflix and the rise of online video has taken its toll on what used to be a household name in DVD rental.

DISH Network Corporation today announced its subsidiary Blockbuster will close its 300 remaining retail rental locations and end its DVD-by-Mail rental service in mid-December.

“This is not an easy decision, yet consumer demand is clearly moving to digital distribution of video entertainment,” said Joseph P. Clayton, DISH president and chief executive officer. “Despite our closing of the physical distribution elements of the business, we continue to see value in the Blockbuster brand, and we expect to leverage that brand as we continue to expand our digital offerings.”

At its peak in 2004, Blockbuster had nearly 60,000 employees and more than 9,000 video rental stores. The company’s inadequate response to the rise of Netflix, which rented out its DVD’s by mail, caused revenue to plummet and Blockbuster filed for bankruptcy in September 2010.

Legendary investor Carl Icahn called Blockbuster “the worst investment I ever made.” DISH may feel the same way.

After acquiring the remnants of Blockbuster for $233 million and assuming $87 million in debt and liabilities at a 2011 bankruptcy auction, DISH found itself quickly in retreat, closing 200 Blockbuster rental stores in 2011, 500 more in 2012, and another 300 this year. Despite efforts to compete head-on with Netflix, Blockbuster’s DVD-by-Mail business never achieved much success because Netflix maintained a better selection and faster delivery from a more extensive network of regional distribution sites.

Today’s announcement marks the end of Blockbuster’s retail rental experience and its DVD rental distribution centers will close by early January as customer DVD rentals are returned in the mail.

Over the past 18 months, Blockbuster has divested itself of assets in the United States, as well international assets, including operations in the United Kingdom and Scandinavia. DISH will continue to support Blockbuster’s domestic and international franchise operations, relationships and agreements.

DISH will keep licensing rights to the Blockbuster brand, and key assets, including the company’s significant video library. DISH will focus on delivering the Blockbuster @Home service to DISH customers, and on its streaming service, Blockbuster On Demand.

LightSquared, the ill-fated venture to bring nationwide 4G wireless broadband to the masses may be all but gone and forgotten in bankruptcy reorganization proceedings, but the wireless spectrum it controls and the drama surrounding it is not.

A battle between billionaires and the hedge funds they support has broken out over who will ultimately control the failed venture — a hedge fund manager deep in LightSquared debt or the richest man in Colorado that often finds a way to get his way.

Harbinger Capital Partners’ Phil Falcone

Falcone

Phil Falcone earned his first fortune trading junk bonds in the 1980s. In 2001, he launched Harbinger Capital Partners and by 2007, Falcone and his investors were well-positioned for a blizzard of cash betting against sub-prime mortgages just before the housing collapse and credit crisis that followed. Falcone took home $1.7 billion in compensation that year while an epidemic of foreclosures and upside down mortgages was just getting started.

In late 2008, when the economy was in free-fall, Falcone suspended or limited withdrawals from his largest funds, upsetting investors who couldn’t get their money out. But Falcone reportedly gave special treatment to certain large investors (sources say Goldman Sachs is among them) who were able to clear out their exposed accounts before the losses piled up.

By 2009, Falcone was again making money — so much he vastly underestimated his federal and state tax bills. What’s a cash-strapped billionaire to do? Quietly loan himself $113.2 million from one of his investment funds at a favorable interest rate and keep it a secret from investors for five months. When they eventually found out, they were understandably disturbed. Falcone had barred those same investors from cashing out of the fund he borrowed from.

The Securities and Exchange Commission was not happy either and filed charges against Falcone.

“Today’s charges read like the final exam in a graduate school course in how to operate a hedge fund unlawfully,” Robert Khuzami, director of the S.E.C.’s division of enforcement, said in a statement. “Clients and market participants alike were victimized as Falcone unscrupulously used fund assets to pay his personal taxes, manipulated the market for certain bonds, favored some clients at the expense of others, and violated trading rules intended to prohibit manipulative short sales.”

Despite the publicity generated by the SEC, investors who appreciated Falcone’s ability to earn them money allowed them turn a blind eye to the ethics questions and pour money into Falcone’s latest venture — a wireless network known as LightSquared.

LightSquared was preparing to launch a unique nationwide 4G LTE mobile broadband network powered by satellites and ground-based cell towers, selling wholesale access to third-party wireless companies able to market the service under their own brand. Falcone’s funds poured nearly $3 billion dollars into the venture while getting a waiver from the government to operate high-powered transmitters on the “L” band — 1525-1559 MHz. LightSquared’s plans alarmed the next door neighbors — GPS satellites facing interference issues that would hurt the accuracy of precise location information provided to millions of tracking devices on the “L1” band — 1559 to 1610 MHz.

Initial testing showed that significant interference from the prototype ground-based transmitters would occur and potentially could cripple aviation and public safety GPS users. The FCC eventually withdrew permission for LightSquared to run its network as planned, a potential death-blow to the venture.

Creditors grew anxious wondering how LightSquared would be in a position to repay its loans when it was unable to launch its wireless network.

In May 2012, creditors forced the issue and LightSquared filed for bankruptcy protection, listing assets of $4.48 billion and debts of $2.29 billion. Falcone claimed the bankruptcy filing would give the company more time to overcome the FCC’s objections to its network operations plan. Falcone estimated it would take two years to secure a resolution. Analysts familiar with the FCC suggested Falcone might die of old age before the agency gave way.

Falcone’s subsequent efforts to win back control of the venture have been made more difficult because one man has been quietly buying up large amounts of LightSquared’s debt with designs on the venture’s spectrum.

Dish Networks’ Charles Ergen

With LightSquared’s debt trading at around 50 cents on the dollar, Charlie Ergen went shopping.

Ergen has been involved in the satellite business for decades. Today, he controls and runs Dish Network, a satellite television provider that has seen the back of high customer growth. Dish and DirecTV are both locked out of the “triple play” business most cable and phone companies offer customers. Neither company can offer broadband or telephone service without partnering with another provider. As cord-cutting continues to take hold, customers willing to pay for increasingly expensive television packages are in decline. That likely explains Ergen’s interest in acquiring wireless spectrum — to build Dish into a broadband, television, and telephone service provider.

In May, Dish publicly bid $2.2 billion for certain spectrum assets from LightSquared. But for more than a year earlier, Ergen was quietly buying up LightSquared’s debt through holding companies and hedge funds.

Ergen created an opaque investment entity named “SP Special Opportunites, LLC” a/k/a “Sound Point” to buy LightSquared debt. Separately, Ergen asked Stephen Ketchum, a former investment banker with close ties to Ergen, to buy over $1 billion in LightSquared debt securities through Ketchum’s hedge fund. From April 2012 until May 2013, Sound Point allegedly spent $1,013,082,326.30 to purchase secured debt for Ergen’s personal benefit and without the knowledge of Dish or its board of directors. Secured debt held by creditors is paid first in a bankruptcy proceeding, and Ergen quietly because LightSquared’s largest single secured creditor.

That puts Charlie Ergen in a major ethical dilemma.

The more Dish offers to pay for LightSquared, the more money Ergen will be paid to cover the shares of LightSquared’s secure debt. Ergen has a controlling interest in Dish, which means he can order Dish to overpay for LightSquared, personally pocketing the proceeds.

Bloomberg’s Matt Levine explains the shady deal:

“An executive going around and buying up an asset for cheap, then convincing his company to buy all of that asset for a higher price – doesn’t come up a lot because it’s so obviously shady,” Levine wrote. “If you’re supposed to be devoting your time and energy to finding opportunities for your company, it looks pretty bad to steal those opportunities for yourself.”

Falcone was outraged when he learned of Ergen’s stealthy acquisitions.

Ergen

In July, Harbinger accused Ergen of “fraudulently” becoming a creditor to block efforts by LightSquared to reorganize and emerge intact from bankruptcy. Instead, Harbinger accused Ergen of seeking to acquire the company’s assets “on the cheap.” Harbinger also points to provisions in a LightSquared debt agreement that forbids certain competitors from buying the company’s debt.

Also upset are several major Dish Network shareholders who are not pleased Ergen’s private deal could make him a lot of money while costing shareholders plenty should Dish overpay for LightSquard’s assets or worse, end up with everything but the spectrum Dish covets.

At least five lawsuits have been filed since August, accusing Ergen and other board members of casting their fiduciary duties to the wind and wasting money along the way. They are also upset Ergen and his connections purchased $1 billion in LightSquared debt at a substantial discount and will likely be repaid the full face value of those debts with Dish Network’s money. That means nearly $300 million in personal profits for Ergen.

The latest shareholder lawsuit was filed by the Louisiana Municipal Police Employees’ Retirement System. It along with the suit filed by the City of Daytona Beach Police Officers’ and Firefighters’ Retirement System claim Ergen’s near-total control of Dish’s board of directors makes it impossible for the board to meet its obligation of representing shareholder interests first.

“Ergen’s control over the company and the board is highlighted by the numerous transactions he has caused Dish to enter into with members of his family,” the lawsuit states.

Ergen and Dish’s efforts to insulate themselves from charges of conflict of interest didn’t fly with many investors.

One lawsuit noted Tom Ortolf, one of the directors on the supposedly independent committee reviewing Dish’s bid, has a daughter that works at Dish; the other, George Brokaw, chose Mr. Ergen’s wife, Cantey Ergen—a Dish director named in the shareholder suit—to be the godmother of his son.

The discomfort level at Dish reached high enough to prompt one board member, Gary Howard, to suddenly resign in early September. Howard was also on the committee formed to vet the LightSquared deal because of the potential conflict of interest on Ergen’s part.

Before Falcone could claim the high road at Ergen’s expense, this week New York’s top financial regulator banned Falcone from managing Fidelity & Guaranty Life Insurance Company of New York for seven years. Harbinger Group bought Fidelity & Guaranty, the U.S. life and annuity unit of London-based Old Mutual Plc, for $350 million in 2011.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/Bloomberg LightSquared 9-5-13.flv[/flv]

Bloomberg News discusses the high drama between LightSquared and Dish Network. (4 minutes)

Media General today issued a statement saying they have failed to reach a retransmission consent agreement with DISH Network and 18 local stations in the eastern half of the country are off the satellite provider’s lineup as a result.

The stations:

• Alabama: WVTM-NBC in Birmingham, and WKRG-TV in Mobile
• Florida: WFLA-NBC in Tampa
• Georgia: WJBF-ABC in Augusta, WRBL-CBS in Columbus and WSAV-NBC in Savannah
• Mississippi: WHLT-CBS in Hattiesburg and WJTV-CBS in Jackson
• North Carolina: WNCT-CBS in Greenville, WNCN-NBC in Raleigh-Durham and WYCW-CW in Asheville
• Ohio: WCNH-NBC in Columbus
• Rhode Island: WJAR-NBC in Providence
• South Carolina: WCBD-NBC in Charleston, WBTW-CBS in Florence-Myrtle Beach and WSPA-CBS in Greenville-Spartanburg
• Tennessee: WJHL-CBS in Tri-Cities
• Virginia: WSLS-NBC in Roanoke-Lynchburg

“Our highly rated television station is an important asset to our local community and it is unfortunate that DISH does not recognize our fair market value,” said WNCN general manager Douglas Hamilton. “Although we have successfully completed agreements with other cable and satellite operators, DISH has refused to reach a similar agreement.”

Media General has been approving extensions of DISH’s retransmission contract since it expired in June, but the broadcast station group owner denied an extra extension of the contract that expired Sept. 30.

Media General is in the process of merging with Young Broadcasting — a deal that was also originally announced in June. DISH already has a retransmission agreement with Young and hoped to bundle the extension into that agreement, but Media General refused.

“The only reason for Media General to reject that offer is to try to squeeze consumers for more money, to the tune of five times what DISH currently pays,” said Sruta Vootukuru, DISH’s director of programming. “We’re working on behalf of our customers to keep the programming at a fair price.”

Affected Media General-owned TV stations are telling viewers to use a traditional antenna or switch to one of DISH’s competitors.

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WNCN’s general manager Doug Hamilton explained to viewers why the station was no longer on DISH Network’s service in Raleigh, N.C. (1 minute)

Just weeks after Time Warner Cable and CBS settled a dispute over retransmission fees, other broadcasters and networks are preparing to make new demands for increased compensation from their cable, satellite, and telco IPTV partners at prices likely to provoke more blackouts.

Despite repeated protestations from Time Warner that over-the-air stations and networks deserve lower fees than cable-only networks, once the two parties went behind closed doors, the cable company quickly agreed to pay considerably more for CBS programming. Sources say CBS made a deal that will run up to five years and includes more than $1.50 in fees per subscriber, up from between 50-85 cents per month, depending on the city served, under the old contract. CBS had asked for about $2 a month. Effectively, the company will earn more than that because Time Warner also agreed to renew both the CBS Sports Network and Smithsonian Channel, which cost extra.

“There is a new template here. Two dollars is the new holy grail,” Wunderlich Securities analyst Matthew Harrigan told Reuters.

Fox was the highest paid network before the CBS deal, collecting close to $1.25 per month per subscriber. ABC receives 50-65 cents and NBC less than that.

Harrigan predicts the other networks will race to raise their own prices, with Time Warner Cable (and others) likely forced to raise rates early next year to cover increased costs.

In the war for compensation, programmers hold most of the leverage.

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The Wall Street Journal reports the dispute between Time Warner Cable and CBS set new industry precedents on the value of broadcast stations and networks and how their programming is distributed on digital platforms. (2 minutes)

There have already been local station blackouts in 80 cities so far this year, with the likelihood last year’s record of 91 markets will be broken before Thanksgiving. In almost every instance where a popular network is involved, the pay television provider eventually capitulates because of subscriber complaints or cancellations.

Moonves

Time Warner Cable admits its dispute with CBS cost the company business, both from prospective new customers going elsewhere and customer disconnects. Time Warner also spent money advertising its side of the dispute and paid to distribute free antennas to affected subscribers.

CBS’ Les Moonves had predicted Time Warner would eventually meet most of the network’s compensation demands before football season arrived. He was right.

“CBS is the winner. Content owners always win these negotiations, it’s just a matter of how much they won,” said Craig Moffett of Moffett Research. “They have all the leverage. Consumers don’t get mad and trade in their channel when these fights drag on. They go looking for a different satellite or telephone company.”

Almost 200,000 Time Warner Cable television customers left during the second quarter, and company officials admit that trend continued during the third quarter as the dispute dragged on. Time Warner Cable is likely to end the year with fewer than 11.5 million video subscribers, a loss of several hundred thousand this year.

Sources say one major sticking point that kept CBS off Time Warner Cable systems for nearly a month wasn’t about money. Instead, it was about digital distribution rights.

Time Warner Cable wanted CBS on its TV Everywhere app TWCTV and was also concerned about CBS selling content to online video streaming competitors that could accelerate cord-cutting.

Time Warner Cable did win permission to offer Showtime on its digital streaming platform and on apps for portable devices. But Time Warner will not get to carry local CBS-owned stations on streaming platforms, a significant blow. The cable company will also have to pay more for streamed and on-demand content.

In the end, CBS got almost everything it wanted and Time Warner Cable was handed back its largely unfulfilled wish list and a bigger, retroactive bill subscribers will eventually have to pay.

“We wanted to hold down costs and retain our ability to deliver a great video experience to our customers,” Time Warner Cable CEO Glenn Britt said in defense of the agreement. “While we certainly didn’t get everything we wanted, ultimately we ended up in a much better place than when we started.”

Moonves gloated to various trade publications and investors that CBS went unscathed after the month-long dispute.

“Our national ad dollars did not go down,” Moonves told attendees at the recent Bank of America/Merrill Lynch Media Communications & Entertainment Conference. “There were no such things as make-goods and there was no harm done financially to CBS Corporation.”

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CBS’ Les Moonves has won his dispute with Time Warner Cable, says Les Moonves in this interview with Bloomberg TV. (10 minutes)

Comcast owns both NBC and the cable companies that carry its local affiliates.

Cable rate increases are not likely to stop with the agreement with CBS. Analysts predict NBC, ABC, and FOX will be seeking similar rates when their contracts come up for renewal. Altogether, every cable, telco IPTV, and satellite subscriber could see rates increase up to $6 a month for the four major American networks.

“Any time one of these larger networks sets the new standard in terms of pricing for their programming, the rest follow,” Justin Nielson, an analyst for SNL Kagan, told Hollywood Reporter. “In most cases it’s been CBS and FOX trailblazing what the rates should be and then ABC and NBC following.”

Comcast-NBC’s Steve Burke is already there. Burke told investors affiliates should be paying 20 to 25 percent more for cable networks such as USA, Bravo, SyFy, CNBC and MSNBC .

“We’re not paid as much as we should be given our rating and positioning by cable and satellite companies,” Burke said. “I see no reason why we won’t sort of draft behind the other broadcast networks and get paid in a similar way.”

Burke predicts NBC will earn between $500 million to $1 billion annually from increased retransmission consent fees comparable to what CBS and FOX receive.

Next week, DISH Networks faces the expiration of their contract with ABC/Disney-owned channels, including the Cadillac-priced ESPN. The outcome of renewal negotiations may serve as an indicator for where rates are headed in the world of retransmission economics.

A growing number of elected officials in Washington are paying attention as they and their constituents live through one programmer blackout after another. At least four pieces of legislation have been introduced to deal with the problem in very different ways, according to Bloomberg News:

The Satellite Television Extension and Localism Act

This law, known as STELA, dates to 2004 and gives satellite companies a license to provide local TV stations, just as cable operators do. The current law is set to expire at the end of 2014, with most observers calling its reauthorization a near certainty. The debate is mainly over how “clean” the STELA reauthorization bill will be as it emerges from the legislative process, with the pay TV companies urging lawmakers to address the issue of retransmission disputes. Broadcasters are working for a “clean” bill, written narrowly to address the satellite companies’ immediate needs. “There’s nothing clean about the current retransmission system,” says Brian Frederick, a spokesman for the American Television Alliance, a coalition of pay-TV companies. Two House committees held hearings on the law this week. A final bill and vote are expected next year.

Video CHOICE (Consumers Have Options in Choosing Entertainment)

Representative Anna Eshoo, a Democrat who represents much of Silicon Valley, introduced this bill Sept. 9 aimed at ending blackouts. “Recurring TV blackouts, including the 91 U.S. markets impacted in 2012, have made it abundantly clear that the FCC needs explicit statutory authority to intervene when retransmission disputes break down,” Eshoo said in a press release. (The FCC gets involved now only if one party accuses the other of negotiating in bad faith.) The bill would unbundle broadcast stations from a cable package and prohibit a broadcaster from requiring a pay TV operator to take affiliated cable channels to obtain more popular channels. That issue is at the heart of why Cablevision sued Viacom in February, following a contentious negotiation.

Eshoo’s bill would also require the FCC to study programming costs for sports networks in the top 20 regional sports markets. The rising fees for sports programming—led by ESPN—is considered one of the major influences behind rising cable bills and the power that content creators such as Disney hold in negotiations. Cable companies have praised Eshoo’s bill, while broadcasters are not fans. Don’t expect to see it get far in a Republican-led House.

Television Consumer Freedom Act of 2013

This bill, introduced in May by Senator John McCain (R-Ariz.), would end the long era of the cable television bundle, that phenomenon by which you pay for hundreds of channels and find yourself watching only about two dozen, or fewer. This summer, Connecticut Senator Richard Blumenthal signed on as a Democratic co-sponsor, but there’s been no similar sponsors on the House side. Blumenthal explained his support of the bill in an August interview with the Hollywood Reporter:

“What I hear from cable consumers overwhelmingly is, ‘give us freedom of choice. Don’t make us pay for something we don’t want and won’t watch. Why am I paying for—you name a channel you don’t like or five or ten or them—just so I can watch the one I do want.’ That’s overwhelmingly the sentiment of people who buy this product. So this bill just gives voice and force to that sentiment.”

Next Generation Television Marketplace Act

This bill from Representative Steve Scalise, a Louisiana Republican, and former South Carolina Senator Jim DeMint, also a Republican, dates to December 2011 and would deregulate the entire television market, top to bottom. It would repeal compulsory copyright licenses, the legal mechanism by which content owners are required to let pay TV companies carry their programs, if they are paid a fee for the content. The bill, which would also dismantle the system of retransmission fees, is essentially an exercise in carrying free-market ideology to its logical conclusion. The problem? It would require a countless number of individual deal negotiations—any radio or television station that wanted to carry programming (i.e., all of them)—would need to strike deals with every programmer, yielding an inefficient system that would likely prove unworkable. Lawyers would love the bill, but don’t expect it ever to pass Congress.

In fact, none of these bills are expected to pass through both the gridlocked House and Senate this year.

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CNBC also talked with CBS’ Les Moonves about CBS’ views towards compensation and distributing content online. (13 minutes)

Cablevision has begun notifying Florida customers it is pulling the plug on its market trial OMGFAST wireless broadband and voice services Aug. 19.

The cable operator launched the venture in 2012 advertising $29.95 broadband service delivered over Multichannel Video and Data Distribution (MVDDS) frequencies it won in a 2004 FCC auction.

FierceCable learned the service had not been a runaway success, attracting only 1,600 customers in the market test conducted in Broward and Palm Beach counties.

The writing may have been on the wall for the future demise of the service after the company laid off workers at its Pompano Beach headquarters at the end of June. The 10,000 square-foot building reportedly housed about 60 employees.

Cablevision sold its MVDDS spectrum to Dish Network last fall. Dish had been leasing the spectrum back to Cablevision to keep the service up and running.

Cablevision said it was still in the process of notifying customers they will have to get their phone and broadband service from somewhere else starting next month.

OMGFAST marketed up to 50Mbps service for $29.95 a month, charging an extra $10 a month to lease the required equipment.