The disruptive spat between Time Warner's (TWX) cable operations and Walt Disney's (DIS) - Get ReportABC this past week may not be cable's Waterloo, but it certainly didn't help the industry's cause in its battle against the satellite television companies threatening its dominance.



EchoStar Communications

(DISH) - Get Report

, the two biggest satellite TV companies, leapt at the chance to pry more subscribers away from

Time Warner Cable

this week. Both began offering special discounts to angered Time Warner subscribers, who as of 12:01 a.m. Monday found themselves without ABC programming as the result of a dispute between the two companies over retransmission rights and money.

(Time Warner

restored the ABC signal by Tuesday afternoon as part of a temporary agreement that assures no further blackouts at least until mid-July. The

Federal Communications Commission

ruled Wednesday that Time Warner had violated federal rules by yanking ABC in the midst of the "sweeps" period during which local advertising rates are set.)

EchoStar began offering special discounts to new subscribers to its Dish Network, and Disney-ABC cut a separate deal with DirecTV to subsidize part of the cost of offering $198 rebates to Time Warner Cable subscribers for DirecTV equipment and installation. Disney-ABC ran ads in local newspapers touting the offer that read: "If Time Warner can dish it out, so can we."

While neither EchoStar nor DirecTV could offer exact numbers, both are saying demand this week has been especially strong in those markets affected by Time Warner's blackout of ABC, including New York and Los Angeles.

The vulnerability of cable delivery that was highlighted by the clash of the media titans is the second big piece of news for the satellite companies in the last six months. In November, they got a large boost when Congress passed a law that gave satellite TV companies permission to air local TV signals for the first time, putting them on an even footing with cable companies that already carry local TV channels.

While the practical result of the past week's events will not approach the importance of the passage of that law -- EchoStar's stock has jumped 60% since the day it passed -- there is little doubt that the dispute highlighted the advantages of satellite linkups in a highly tangible way.

"Anything that focuses the public mind on why they hate their cable companies is terrific for satellite companies," said Michael Harkins of the hedge fund

Levy Harkins

, whose single largest stake is in EchoStar. "It's more fuel on a lit flame."

"It did have the effect of making cable subscribers sit up and say 'I really don't like my cable operator'," said T.J. Carmichael, analyst at

Credit Suisse First Boston

. If the fight had lasted longer, the implications could have been greater, he added. (Carmichael rates the firm a buy, and his firm co-managed EchoStar's secondary offering in November.)

"All these types of events help even the playing field," said Keith Clougherty, chairman and co-founder of privately held online electronics retailer

, one of the largest retail distributors of DirecTV. Clougherty said he combs the newswires for news to take advantage of potential rifts between cable companies and their customers.

Time Warner executives have shrugged off the potential erosion of its subscriber base the fight may cause, but to assuage its customers, the company said Thursday it would give rebates to all subscribers in the affected markets on their next bill to "thank our subscribers for their patience and understanding." The company is also launching special promotions of premium and digital services in the seven blackout markets.

"Either one

DirecTV or Dish Network is so much more TV for so much less money," said hedge fund manager Harkins. "It's just a drastically better value." Harkins estimated that while a satellite customer pays an average of $44 a month for the hookup, Time Warner subscribers pay more than $60.

Both EchoStar and DirecTV are adding subscribers at a rapid rate. In the first quarter, Littleton, Colo.-based EchoStar added 455,000 new subscribers, a 40% increase over the same period a year ago. El Segundo, Calif.-based DirecTV, a subsidiary of

Hughes Electronics


, itself a subsidiary of

General Motors

(GM) - Get Report

, added 405,000 new subscribers. DirecTV has more than 8 million subscribers, while EchoStar's Dish Network has around 4 million.

Cable, however, remains the dominant player, with roughly 70 million subscribers in the U.S. and more than 80% of the market.

"There's no question that satellite providers are a strong competitor, but in the long run nothing will change," said David Beckwith, a spokesman for the

National Cable Television Assocation

, the cable industry's biggest trade group. "Cable will remain the dominant provider of video signals" because of the broadband pipes the cable companies have spent billions of dollars building, Beckwith added.

"We don't think

satellite can be dominant, but we think it can expand significantly," said Thomas Watts, satellite TV analyst at

Merrill Lynch

. He said Merrill projects that satellite TV companies will double their number of subscribers in the next six years. In the next year or two, satellite companies will begin offering two-way Internet access to compete with the cable modems offered by the cable companies, which will further ratchet up the competition, Watts said. (He rates EchoStar a buy; Merrill has not done any underwriting for the company.)

The ability of satellite companies to compete with the cable companies--specifically with the behemoth that will result from the merger between

America Online


and Time Warner--as distributors of content is not lost on the other big media companies.

News Corp.,

(NWS) - Get Report

which has a broad array of satellite holdings abroad, has confirmed that it is planning to form an umbrella company to house its satellite units.

The satellite companies have retransmission agreements of their own to forge, however. As a result of the legislation passed last year, the satellite companies have until May 29 to reach retransmission agreements with broadcasters. If they do not, the satellite companies will be forced to remove the signals from their systems. Sound familiar?