Dish Network CEO Charlie Ergen, the TV Disrupter
The Card-Shark-Turned-Dish-CEO Isn't Afraid to Use Tech to Change the Industry Landscape
Charlie Ergen was once a blackjack player and poker player. Though the Dish Network founder stopped playing professionally years ago, his traits at the gambling tables -- pugnaciousness, high tolerance for risk and don't-back-down determination -- have shaped his legend as an industry maverick.
Never one to shrink from litigation, Mr. Ergen has famously gone toe-to-toe with cable networks to thwart the rising carriage fees that threaten his company's value proposition for subscribers and battled regulators over their insistence that satellite companies include local TV stations in subscriptions.
Barrier-breaking Dish in 2001 was the first satellite provider to offer two-way high-speed internet access, and was the first to introduce a digital-video recorder in a set-top box. In 2011, Dish decided it could provide its own content, paying $320 million for Blockbuster with the hopes of turning it into a Netflix competitor, but the plan fizzled.
In short, Mr. Ergen has sought to upend the pay-TV model at every turn, the latest attempt being Dish's AutoHop technology, which allows viewers to remove commercials during recording. The so-called Hopper is challenging the status quo of TV advertising and retransmission fees, the rate cable and satellite companies pay to carry over-the-air broadcast TV networks. It's also trying the industry's patience.
"The Hopper is a message from Charlie that we need to change retransmission agreements with broadcasters," said a cable affiliate-sales executive who has worked with Mr. Ergen. "When he has an issue with how business is being done, he uses technology and innovation to change the direction. He probably doesn't care if he wins or loses in court -- he is trying to disrupt things and is sending the message that broadcast fees are out of control."
But Mr. Ergen isn't stopping with the Hopper. Faced with rising content costs and stagnating subscriber growth, the 59-year-old is now rolling the dice on wireless. Dish has been scooping up wireless licenses and is waiting for the Federal Communications Commission to grant it approval to use its spectrum to transmit voice and data. The company has the support of the FCC chairman, and is awaiting the approval of the agency's four other commissioners, though Dish has criticized FCC rules as "significantly flawed."
Dish, meanwhile, is pursuing a partner to build out a wireless network. Google has been named as a potential partner in published reports, while analysts speculate AT&T could also be another logical fit.
The question is whether Mr. Ergen will see that grand plan through. "The wireless-spectrum play is interesting, and the acquisition of the Blockbuster brand made some sense. ... But now it all seems fairly tabled or benign," said a former News Corp. executive familiar with Dish. "Sometimes Charlie seems to have the "vision' thing down, only to fail in the day-to-day will to execute."
From the get-go, Mr. Ergen has been an industry innovator. After he was banned from a Las Vegas casino for alleged card counting, he eventually began selling satellite dishes door-to-door across Colorado from the back of a truck with his future wife, Cantey McAdam, and friend Jim DeFranco. EchoStar, the predecessor to Dish Network, was the first to sell satellite receivers for under $200, making satellite TV more accessible to the masses. Mr. Ergen became known for giving away free satellite dishes to woo customers from competitors. Previously, satellite dishes stood like massive eyesores in backyards, but in a stroke of ingenuity Mr. Ergen introduced ones that could be affixed to the side of a house.
He has, in fact, been compared to another industry innovator also known for butting heads: Ted Turner. Like Mr. Turner, he's "a bit of a maverick and very smart; strong middle-class-type ethics with ideas of fairness and value," said the former News Corp. executive. But that 's where the similarities end. "One of the great paradoxes about Dish is that Charlie has the same sort of passion and sometimes vision of someone like Ted Turner, but also the frugality that often undermines it."
Using the example of sports, the exec said, "Dish will get out of the expensive [regional sports networks] in New York (and so far in Los Angeles), but then cut a deal for something like Pac-12 Network because its Big Ten relationship was up at the same time. Just when you think Charlie is going to stake out a long-term cohesive and big-picture strategy, Dish sells itself out for fear of losing some immediate subscribers to DirecTV or a cable or telco competitor."
Perhaps his most controversial subscriber-retention strategy -- and the one giving the ad industry the most fits -- is AutoHop. When Dish introduced the device in May, broadcasters filed lawsuits claiming the technology violates copyright law. Fox also sought a preliminary injunction to block the service, but a judge denied this request. Fox did win a partial victory, with Judge Dolly Gee agreeing that the AutoHop does likely infringe on copyright and breaks the contract between the two companies. ABC is now also seeking a preliminary injunction to block the device and CBS's CEO, Leslie Moonves, has already threatened to pull the network from Dish if it continues promoting the technology.
Carriage fights over AutoHop could get ugly for everyone involved and AutoHop could be a useful tool in retransmission negotiations.
Broadcasters are pushing for an increase of $2 per subscriber per month, noted Janney Capital Markets analyst Tony Wible. That could amount to a 25% increase in programming costs over a short period of time. "That would be difficult to pass on to subscribers," he wrote. "AutoHop could help curb this massive source of inflation."
"Disrupters are good for consumers and business," said Preston Padden, the former chairman and CEO of American Sky Broadcasting, which merged with Dish in 1998. "I have enormous respect for Dish Network, but if I was a broadcaster I wouldn't give retransmission to a distributor promoting automatic ad-skipping technology."
Mr. Ergen, worth $9 billion as of September, according to Forbes, is challenging sports rights in a similar way, with rumors he is considering the possibility of rolling out an a la carte streaming internet service that doesn't include sports. Discussions with Viacom for an à la carte internet product have been ongoing for over a year, according to the affiliate-sales executive, who's familiar with the conversations.
"[Mr. Ergen] could have pushed it out in a day if he wanted," the person said. "He has the technology to do it and the money, but ... a deal isn't imminent. It seems more about changing the sports dynamic than launching a service."
Mr. Ergen also floated a merger with rival DirecTV. During Dish's most recent earnings call, Mr. Ergen said both companies "have to consider" a deal, but noted no discussions are taking place.
An attempted 2002 merger was blocked by regulators, but the industry has changed in the past decade and if the FCC approves the use of Dish's wireless spectrum, it could be used as a bargaining chip.
"A promise to join forces to develop a fixed wireless broadband network to compete with cable and DSL, even if only in limited portions of the country, would surely be a seductive one to regulators," Bernstein Research analyst Craig Moffett wrote in a research note on Nov. 6.
Dish's lackluster results in its core business are also a selling point to regulators, he noted. Dish, the third-largest pay-TV provider behind Comcast and DirecTV, lost 19,000 subscribers in its third quarter and now boasts about 14 million subscribers. The company is expected to post its lowest profit in three years in 2012, thanks to industry-wide pressure brought on by media fragmentation and a swath of new over-the-top competition, such as Netflix.
"Charlie can take more risks than other distributors," the affiliate-sales executive said. "He has never been managed by Wall Street and is not trying to get the stock to any particular point. But his risks are calculated."
Ultimately, Dish is still a founder-led organization; even though Mr. Ergen stepped down as CEO last year and was replaced by Joe Clayton, he remains the biggest shareholder of the publicly traded company and continues to kick up a fuss. "In every point in the history of communications, there has been a renegade insurgent player," Jonathan Askin, associate professor of clinical law at Brooklyn College. "It's an important role. MCI was the epitome of this, leading to the breakup of the AT&T monopoly. Too many companies proclaim they fight each other, but actually act more like a cartel."
In Mr. Akin's view, Mr. Ergen is just the kind of rabble-rouser the communications industry needs. "The industry is trying to hang on to this archaic cable model," Mr. Akin said. "But the company that recognizes consumers want unfettered access will pave the way. That's the importance of a player like Dish."
ALWAYS UP FOR AN INDUSTRY FIGHT
Dish isn't afraid to litigate -- and the longer the battle, the better the outcome.
Charlie Ergen has spent a fair share of time in the courtroom, using litigation to ensure that his voice is heard. Among Dish's long-running cases are a five-year patent dispute with TiVo, a nearly decade-long case over distant network TV signals and the recently settled trial over Voom, a series of HD networks owned by Cablevision.
"He is the most litigious distributor out there," a cable TV executive said. "He will use the courts to force a change."
One example is Dish's long-running and recently settled dispute with Cablevision, which initially sued Dish when the satellite provider dropped Cablevision's Voom HD channels in 2008; more recently the companies tussled after Dish dropped AMC Networks when its carriage agreement expired (AMC was spun off from Cablevision in July 2011). Dish claimed it was motivated by lackluster ratings ; AMC contended it was being used as leverage in the Voom settlement.
"Dish had time on its side -- the longer AMC stayed off the air, the more it hurt the network. ... Having AMC off the air was a good strategic move by Dish in litigation," said Tom Claps, litigation desk analyst at Susquehanna Financial Group.
Ultimately, Dish agreed to pay Cablevision $700 million -- significantly less than the $2.5 billion Cablevision was seeking -- and resume its carriage of AMC Networks. The terms of the new carriage deal were not disclosed.
"If you are thinking of suing Dish, you better make sure you have the time and resources, because they will fight you in every channel and won't settle quickly," said Barclays analyst James Ratcliffe. "There's value to being known as not being a pushover."
Here's a look at some of Dish's other battles:
May 2012 to present
The Big Four broadcasters filed suit against Dish Network following the launch of AutoHop, its technology that records broadcast programming and plays it back sans commercials. CBS, Fox, NBC and ABC contend the technology violates copyright law. Dish Network also filed a suit in New York seeking a declaratory judgment affirming the legality of the technology. Fox also sought a preliminary injunction to block the service, but a judge denied this request. Fox did win a partial victory, with Judge Dolly Gee agreeing that AutoHop does likely infringe on copyright and breaks the contract between the two companies.
2004 to May 2011
After years of appeals and injunctions, Dish Network finally settled its patent lawsuit with TiVo, agreeing to pay TiVo $500 million for unlawful infringement of its "Time Warp" DVR technology. As part of the settlement, Dish gets a license to continue using the patented technology.
1998 to October 2006
In October 2006, a court ordered Dish to remove all out-of -market distant network channels for the CW, ABC, CBS, NBC, PBS and Univision, among others. The networks successfully argued that Dish was in violation of copyright law because it was bypassing local affiliates to air programs that originate from stations outside of the local market.
On Aug. 4, 2009, Dish Network sued ESPN for $1 million, alleging the sports network had breached its contract by not extending the same carriage terms it provides to other pay-TV providers for ESPNU and ESPN Classic. ESPN said it is in full compliance with the agreement and that Dish's sole purpose is to get a better deal. Dish moved ESPNU from its "America's Top 250" package to its "America's Top 120" package a month later, but claimed the move had something to do with the lawsuit. The case has yet to be resolved.
CORRECTION: Charlie Ergen was a onetime blackjack player, not a blackjack dealer, as reported in an earlier version of this story. We regret the error.