By Gerry Smith and Scott Moritz
December 7, 2018, 5:00 AM EST
Charlie Ergen may be the most-loathed negotiator in TV. Clashes between his Dish satellite service and the most-popular channels on air have led to blackouts that rankle subscribers and deprive them of their favorite shows. His Spanish-speaking customers haven’t been able to watch Univision for months.
But even for an executive once called “The Most Hated Man in Hollywood,” the co-founder of Dish Network Corp. has stunned the media industry with his latest standoff. For over a month, HBO has been unavailable to Dish’s 12.7 million subscribers because of a contract dispute. Before Ergen, no one had ever dropped the network in its 46 years.
“There’s a view that he’s almost walking away from the video business,” said Macquarie analyst Amy Yong, who has the equivalent of a sell rating on Dish shares. “You just don’t go dark on HBO.”
By going to war with HBO and Univision, Ergen is sending a message to his suppliers -- media titans like CBS Corp., 21st Century Fox Inc., Walt Disney Co., and AT&T Inc., the parent of HBO. As cord cutting erodes Dish’s subscriber base, Ergen is determined to keep the price of his service down -- even if it means going nuclear. If a network is available elsewhere, either online or free with an antenna, the owners better not ask Dish for more money.
Charlie Ergen may be the most-loathed negotiator in TV. Clashes between his Dish satellite service and the most-popular channels on air have led to blackouts that rankle subscribers and deprive them of their favorite shows. His Spanish-speaking customers haven’t been able to watch Univision for months.
But even for an executive once called “The Most Hated Man in Hollywood,” the co-founder of Dish Network Corp. has stunned the media industry with his latest standoff. For over a month, HBO has been unavailable to Dish’s 12.7 million subscribers because of a contract dispute. Before Ergen, no one had ever dropped the network in its 46 years.
“There’s a view that he’s almost walking away from the video business,” said Macquarie analyst Amy Yong, who has the equivalent of a sell rating on Dish shares. “You just don’t go dark on HBO.”
By going to war with HBO and Univision, Ergen is sending a message to his suppliers -- media titans like CBS Corp., 21st Century Fox Inc., Walt Disney Co., and AT&T Inc., the parent of HBO. As cord cutting erodes Dish’s subscriber base, Ergen is determined to keep the price of his service down -- even if it means going nuclear. If a network is available elsewhere, either online or free with an antenna, the owners better not ask Dish for more money.
“We’re not hard negotiators,” Ergen, Dish’s chairman, said in an interview Thursday at Bloomberg’s New York headquarters. “We’re practical negotiators.”
HBO Blackout
The HBO blackout stems from Ergen’s refusal to meet the network negotiators’ demand that Dish pay for a minimum number of subscribers -- even if the number who actually want the network is smaller.
But Dish’s spat with HBO is about more than just the fine print in a programming contract. It’s also about the tensions flaring up in an industry that feasted for years on ever-rising pay-TV rates and now must compete with low-cost competitors like Netflix Inc., which offers a deep library of movies, TV shows and new original programming for $14 a month.
To compete with these new rivals, media and telecom companies have been bulking up: AT&T paid $85 billion for HBO’s parent company, Time Warner Inc., which also owns CNN and Warner Bros. Disney is paying $71 billion for much of Fox.
Opposed Deal
Dish, the fourth-largest traditional U.S. pay-TV service, opposed the Time Warner merger, arguing it would give AT&T too much power to raise prices for networks like HBO and CNN. AT&T owns DirecTV, which stands to gain subscribers if blackouts at Dish send customers looking elsewhere, Ergen said.
“They’re doing what any capitalistic, Machiavellian company would do,” Ergen said. “They’re saying, ‘I’m going to get your customers by offering you a deal you can’t take.’”
Ergen added that it’s unfair to demand that Englewood, Colorado-based Dish sell HBO for $15 a month when AT&T has made that channel available at a discount to its own wireless customers.
In a statement, HBO Chief Executive Officer Richard Plepler said his company offered to extend the contract deadline so the parties could continue negotiating, but Dish refused. Plepler added that the terms of HBO’s proposal were better for Dish than the current deal.
“The notion that AT&T had anything to do with our inability to reach a reasonable deal with Dish is simply not true,” Plepler said. “It seems to be a silly but transparent attempt on Dish’s behalf to muddy the waters for reasons only they can explain.”
Charlie Ergen may be the most-loathed negotiator in TV. Clashes between his Dish satellite service and the most-popular channels on air have led to blackouts that rankle subscribers and deprive them of their favorite shows. His Spanish-speaking customers haven’t been able to watch Univision for months.
But even for an executive once called “The Most Hated Man in Hollywood,” the co-founder of Dish Network Corp. has stunned the media industry with his latest standoff. For over a month, HBO has been unavailable to Dish’s 12.7 million subscribers because of a contract dispute. Before Ergen, no one had ever dropped the network in its 46 years.
Frequent Fights
Such disputes have become common as cord cutting pressures both TV distributors and programmers to obtain the best possible deal. Dish has become especially aggressive in recent years, with disputes so frequent that “they are now the rule rather than the exception,” said Craig Moffett, an analyst at MoffettNathanson LLC who also recommends selling the stock.
Ergen is a former professional card player, and fighting with HBO may seem like hitting in blackjack with a pair of 10s. But the Dish executive says he’s relying on his background as a former financial analyst. His stand makes sense, he said, and not just because blackouts can pressure channel owners to meet his terms. The savings can exceed the revenue lost when subscribers cancel, he said.
Before beginning negotiations, Dish calculates the value of a TV channel based on how many hours its subscribers tune in. These days, Ergen also takes into account the growing impact of media companies offering their programming to consumers online.
Overexposed ‘Friends’
For example, AT&T’s WarnerMedia recently signed a new contract to supply the popular sitcom “Friends” to Netflix. The show is also available to Dish subscribers on AT&T-owned TBS and on the Paramount Network, owned by Viacom Inc.
“If ‘Friends’ is available on Netflix and 90 percent of our customers have Netflix, do they need to pay for that twice?” Ergen said. “It decreases the value of TBS.”
Dish refused to pay Univision a higher rate because the network’s ratings had declined and consumers could get the channel free with an antenna or for $7.99 a month online without a TV package.
“Univision made every reasonable effort and beyond to reach an agreement, but Dish refused to make a deal that is consistent with our rate in the marketplace and that was in the interests of our mutual consumers,” the Spanish-language broadcaster said in an email.
Customer Losses
In the short term, Dish will lose customers who cancel to watch Univision elsewhere. But in the long term, Ergen said, Dish will gain by lowering subscribers’ monthly bills while giving them a free antenna to watch the network that way.
Ergen may be well-positioned to take a hard line with media companies because investors value Dish largely on wireless spectrum it has acquired and less on its satellite-TV business. He plans to build a wireless network that will deliver ultrafast 5G broadband service, as well as connect driverless cars and dozens of other web-powered gadgets.
But with every channel blackout, Dish’s subscriber losses mount. And even if a network comes back, it’s an open question whether those lost customers will, too. So far this year, Dish has lost 740,000 satellite-TV subscribers, while gaining 158,000 at its lower-priced Sling TV streaming operation. Customer loses totaled almost 430,000 in 2017.
And until the 5G service is available, Dish may be especially vulnerable because the company, unlike pay-TV rivals such as AT&T, Comcast Corp. and Charter Communications Inc., doesn’t have a growing broadband businesses. Dish basically only sells TV service. While Ergen pioneered the idea of a lower-cost “skinny bundle” of channels with Sling TV in 2015, the service has only slowed his customer losses, not reversed them.
Charlie Ergen may be the most-loathed negotiator in TV. Clashes between his Dish satellite service and the most-popular channels on air have led to blackouts that rankle subscribers and deprive them of their favorite shows. His Spanish-speaking customers haven’t been able to watch Univision for months.
But even for an executive once called “The Most Hated Man in Hollywood,” the co-founder of Dish Network Corp. has stunned the media industry with his latest standoff. For over a month, HBO has been unavailable to Dish’s 12.7 million subscribers because of a contract dispute. Before Ergen, no one had ever dropped the network in its 46 years.
Media executives who deal with Ergen say he’s the rare chairman who gets deeply involved in programming negotiations. They describe the Tennessee native who speaks with a slight Southern drawl as smart and charming. They also say he’s ingrained in his staff that they must drive a tough bargain.
But investors may be starting to lose patience while they wait for his ambitious 5G wireless plans to unfold. Dish shares are down 60 percent from their peak in November 2014, while the S&P 500 Index is up 30 percent during that period.
“De-emphasizing video is fine for cable operators; they have broadband to fall back on,” said analyst Moffett. “Dish Network doesn’t. They’re a pure-play video provider.”
Source