LodgeNet Buyout Of On Command Gives Company Virtual Monopoly

By Adam Kirby, Associate Editor -- Hotels, 6/1/2007

LodgeNet Entertainment Corp. is spinning the US$380 million acquisitin of its main North American competition, Ascent Entertainment Group Inc. and its subsidiary On Command Corp., as a boon for hoteliers and guests, and it may well be. In creating a network providing interactive TV and broadband solutions to 11,000 hotels in the United States, Canada and Mexico, LodgeNet is now better able to leverage economies of scale to increase its offerings of niche and specialized entertainment. "We now have 1.8 million rooms instead of 1 million rooms, and we can get some programming now into markets that we couldn't before," says Steve Truckenmiller, senior vice president of programming for Sioux Falls, South Dakota-based LodgeNet.

That sounds great, but the merger also gives LodgeNet a virtual North American monopoly on guestroom movie, video game and pay-per-view television options, save for a handful of considerably smaller players like NxTV, MatrixStream and KoolConnect. And with little serious competition, hoteliers worry that LodgeNet will begin charging exorbitant amounts for its services. Some upscale hotel brands are already beginning to revolt, setting up their own in-house movie rental programs. Other hoteliers are exploring the possibility of adopting a satellite service, bypassing LodgeNet's cable package. "Hoteliers want freedom of choice, and they feel they're not getting freedom of choice with only one vendor to choose from," says Les Spielman, CEO of Los Angeles-based Hospitality Automation Consultants Ltd. "The only true competition that they do have is strictly content-only delivery of movies and TV from DirecTV."

To fund the On Command purchase, LodgeNet secured a US$675 million credit facility, which will be used to refinance debt and to fund general corporate growth, the company says. The On Command transaction follows last year's US$15 million purchase by LodgeNet of broadband provider StayOnline Inc.