The Dish Network chairman made his plea on Monday in meetings with all five FCC commissioners and several staffers, according to a Dish filing today. Comcast’s $45B deal for Time Warner Cable “presents serious competitive concerns for the broadband and video marketplaces and therefore should be denied,” Dish told regulators, according to its account of the talks. “There do not appear to be any conditions that would remedy the harms that would result from the merger.” Charlie Ergen said that Comcast could hobble Internet video services at three choke points: The cable company would control last-mile connection to the home and the point where content providers access Comcast’s network. In addition, it could squeeze potential rivals by devoting lots of its web capacity to special high-speed lanes for favored services. “Each choke point provides the ability for the combined company to foreclose the online video offerings of its competitors,” the filing says.
Dish Network chairman Charlie Ergen was peppered with questions in his quarterly call with analysts and reporters about the recent deal with Disney opening the way for a Web-delivered, low-priced personal video service that will offer a slimmed-down collection of pay TV channels. He says there’s still some work to be done on the technology, and in lining up programming partners in addition to Disney. “We’re comfortable launching with what we have, but think there may be some more programmers who’ll want to experiment with this,” Ergen says. It’s designed to appeal to people who don’t subscribe to cable or satellite, especially those who consider them to be too expensive.
The goal is to make it profitable by charging high rates to advertisers who want to target their sales pitches by owner, location, or other metrics. “We know if you’ve had a car for eight years or you’ve gone to look for a car, [and] we can download a car ad — as opposed to if you just bought a car last week….We can do local commercials down to the address of the house.” The ad pie “someday will be huge.” And it would be “malpractice” for Dish to “put our head in the sand and obsolete ourselves.” Although pay TV subscription numbers are holding up, the phenomenon of cord-cutting is “like the lobster that gets boiled. You don’t know that you’re dead and boiled until it’s too late.” Meanwhile, the deal with Disney repaired a key alliance. “Disney was our worst relationship with a programmer and now I hope it’s our best relationship,” he said.
Possibly, but the smart money today is betting that AT&T would prefer Dish. DirecTV shares are up 5.5% in mid-day trading following a Wall Street Journal report that the telco giant initiated conversations about a deal that could be worth $40B. But Dish Network is up even more at 7.5%. “We scratch our heads” at AT&T’s motivation to team with DirecTV because the satellite company “does not have wireless spectrum,” Wells Fargo Securities’ Marci Ryvicker says. She suspects the approach to DirecTV is a way “to perhaps ‘flesh out’ [Dish Chairman Charlie Ergen] to pursue some sort of transaction with Dish.” Guggenheim Partners’ Paul Gallant also says that AT&T would prefer Dish, which has been amassing rights to spectrum in the hope of creating a wireless broadband business. That could be important for AT&T because “it is not immediately obvious where new spectrum comes from after the FCC’s broadcast spectrum auction in 2015.”
Wunderlich Securities’ Matthew Harrigan believes an AT&T-DirecTV combo makes sense. AT&T’s U-verse has just 5.7M video customers. Teaming with DirecTV, with 20.1M U.S. subs, would “offer a premium demographic national video solution that supports first to market 4K TV capabilities while allowing AT&T’s U-verse plant to be entirely dedicated to broadband.” (Its systems now allocate 15 Mbps to video and 10 Mbps to Internet.)
UPDATE, 5:20 PM: The companies have officially announced a “wide-ranging” deal, which “will result in dismissal of all pending litigation between the two companies, including disputes over PrimeTime Anytime and AutoHop.” The agreement calls for Dish to disable AutoHop functionality for ABC content within the C3 ratings window. The pact also for the first time allows Dish customers to access Disney’s authenticated live and VOD products. The full release is below the original story.
PREVIOUS, 3:59 PM: They both made big concessions as part of a new — and long-awaited — program carriage deal that Dish Network cut with Disney, The Wall Street Journal reports. It says that Dish Network has agreed to disable the Hopper DVR’s “Auto Hop” feature for ABC shows for the first three days after they air. Disney, in return, will drop out of broadcasters’ suit against Dish. They’ve said that the DVR’s feature that automatically jumps past ads on some recorded shows infringes on their copyrights and violates carriage contracts. Dish Chairman Charlie Ergen has steadfastly cast himself as a champion for his customers’ interests, saying that Hopper simply automates what DVR owners already can do with their remote controls. Now that Dish and Disney have agreed to allow ad zapping after three days, we’ll have to see whether other broadcasters can accept similar terms. CBS chief Les Moonves said in November that he’s “very flexible. We’re willing to negotiate.” Last month Ergen said that he was “cautiously optimisic” about striking a deal with Disney, in part because CEO Bob Iger — who’s also a member of Apple’s board – “has looked at [terms] in ways that others have not.”
Chairman Charlie Ergen made the comment to analysts today noting that Comcast’s proposed $42.5B acquisition of Time Warner Cable would concentrate broadband, video, and content in “a single company…That’s going to send a seismic shift across our industry in ways we can’t predict today.” While he isn’t ready yet to take a formal position — he wants to see the companies’ formal filings and talk with his board first — he says a merger “increases the risk to everybody else” in the business. It also “doesn’t hurt” the case for a merger of Dish and DirecTV. If it’s OK to combine the No 1 and No. 4 pay TV companies, then it’s “hard to see why you couldn’t put the No. 2 and No. 3 providers together.”
Ergen challenged Comcast and TWC’s claims that they don’t compete. “They certainly do. They compete for content.” For example, last summer, if CBS had to negotiate a new carriage contract with Comcast and TWC — as opposed to just TWC — then “CBS would probably be paying them to keep it up. Dish doesn’t have that kind of scale…We send our check every month with a smile.” He added that one “reasonable concession for the Comcast team to make” would be to tie the rates it pays for programming to the prices that other distributors pay — known as a Most Favored Nation agreement. “The merger is of enormous scale …
The CBS chief is taking Dish Network Chairman Charlie Ergen at his word after he said this week that there’s a way for broadcasters to benefit from his Hopper DVR, which automatically zaps ads on recorded shows. “We’re very flexible. We’re willing to negotiate,” Les Moonves told investors today at the Guggenheim Securities TMT Symposium. Calling Ergen “a very smart man” he says “if there’s a way to do this that benefits everybody, we’re very open to it.” But the bottom line has to be that “we need to get paid for our content…. We spend $4M an episode for NCIS. I have to pay for it.” Broadcasters have sued Dish alleging that the Hopper infringes on their copyrights; Dish counters that it simply automates the ad skipping that DVR viewers already do. The fate of the device is an issue in Dish’s current program carriage negotiations with Disney. Ergen says the Hopper “has built-in technology that can target commercials to customers in a better [way]” and “give the broadcaster more revenue” — although he added that “it’s not a proven concept yet.”
Don’t include Charlie Ergen among the small but growing group of industry watchers who believe cable and satellite companies could soon face competition from a company that offers a similar bundle of channels via the web. “It’s going to happen at some point in time,” the Dish Network chairman told analysts today. “But most programmers have been hesitant to embrace that kind of dramatic change. In the short term, it’s unclear that that’s going to happen.” Intel is one of the companies that wanted to become an online power — but now hopes to sell its venture, called On Cue. Verizon and Liberty Media are said to be interested. Dish isn’t. “We’re not in any discussions with Intel about their over-the-top product,” Ergen says. Still, he evangelized about the value of keeping one’s options open. Although “we’re not trying to drive over-the-top,” he says that “if things are going to change, then we want to be involved with it.”
Dish Network’s chairman seems to be in sync with Disney CEO Bob Iger’s comments last week: Both execs say that they’re making progress toward a new program carriage agreement with Charlie Ergen telling analysts today that he’s “cautiously optimistic that we’ll get a deal done.” The companies agreed to keep talking, without a programming black out, at the end of September when their previous deal expired. Everyone’s been waiting to see how the companies would fare: Disney’s one of the broadcasters that sued Dish after it introduced its Hopper DVR which can automatically jump past ads in recorded programs. “Disney has not been one of our best relationships and part of that is my fault,” Ergen says. He wants to change that. “Otherwise it doesn’t make sense. I’m getting too old to do business with people we don’t have a good relationship with just to make a buck….You don’t marry everyone you date. And Disney’s a very pretty girl.” As for the talks, “there’s always economic issues,” Ergen says. But they’re also looking at a lot of what-if questions regarding the future of television because Disney likes long term deals. “We don’t want to have to go back to Disney to ask permission to do something,” Ergen says. Since Disney is “further along in the technology curve” it’s been “a great negotiation because it’s forcing us to think of things.” And the Hopper isn’t a big …
Dish Network, its chairman Charlie Ergen and several Board members were slapped this week with a potential multi-million dollar complaint by shareholders. And they want him and the individual Board members to pay up personally. In a verified shareholder derivative filing (read it here) on behalf of all Dish shareholders, the pension fund of Daytona Beach Police Officers’ and Firefighters Retirement System allege that since April 2013, Ergen has quietly been buying up more than $1 billion worth of debt from bankrupt wireless network company LightSquared, who Dish has a bid in for. Besides this big potential personal windfall for the Dish founder and controlling shareholder, the four-count complaint filed in federal court in Colorado on September 26, says Ergen also used a front company to put in a $2 billion bid for LightSquared in May 2013 to push up the auction price. “Thus, with this substantial debt purchase not only did Ergen take for himself (in stealth-like fashion) a strategic opportunity that was otherwise available to Dish, he did so knowing that his personal risk was minimized because the Company’s strategic plans already included purchasing more spectrum,” says the dense and detailed complaint. On July 23 of this year, Dish put in a $2.2 billion bid for LightSquared’s assets after a committee the company formed to look into a conflict of interest by Ergen was suddenly disbanded by the Board two days before.
Investors are becoming so obsessed with the idea of a DirecTV-Dish Network merger that it seems to be just a matter of time before the companies succumb. Questions about the possibility kept popping up in Dish Network’s quarterly earnings call yesterday. Company watchers “seem to be fixated” on the subject, Brean Capital’s Todd Mitchell says. And execs don’t seem to mind. Last week DirecTV CEO Michael White said he’d “never say never.” And Evercore Partners’ Bryan Kraft says he has “never heard [Dish Network Chairman Charlie Ergen] speak as openly and positively regarding the possibility of a combination with DirecTV” as he did yesterday. The FCC blocked a satellite TV merger in 2002 on the grounds that it would leave many rural subscribers, who don’t have cable, with just one pay TV provider. But Ergen says that the business is “materially different” than it was then. Verizon FiOS and AT&T U-verse serve many markets. “And then of course, you have almost an unlimited number of people now on digital Internet getting into the business, whether it be from Netflix to Hulu to Amazon to everything else that you can do on the Internet,” Ergen says. “And that’s only going to grow.” Later he added that “there’s not any question that putting Dish and DirecTV together makes a lot of sense…. If you just wanted to create short-term value, that would be probably your No. 1 option.”
John Malone is the largest individual investor in DirecTV and a former kingpin of pay TV, so why not offer advice to the satcaster’s lone rival? That’s just what he did Thursday at Allen & Co.’s annual mogul gathering in Sun Valley. The Liberty Media chairman told reporters that he urged Dish Network chairman Charlie Ergen to merge with DirecTV for the greater good of the pay-TV industry. “It would be good if DirecTV could combine with Echo or Dish or whatever Charlie calls it now just because scale economics in the media business drives down costs and makes it possible for larger investment,” Malone said, according to Bloomberg. “You need larger — I’m not saying monopoly players — but you need larger players.” Combining the satellite rivals would create the world’s largest pay-TV company, which Malone says would give the merged company increased power over programming and carriage decisions. It also would provide Dish with an opportunity to grow following its failed efforts to buy Sprint and a major stake in wireless broadband company Clearwire. But the FCC might object to a Dish-DirectTV combo. Regulators rejected their merger effort 11 years ago saying it would leave many rural viewers with just one pay TV provider. Malone clearly has deals on his mind. He’s known to be exploring …
The announcement provided a slight upward jolt to the satellite company’s stock this morning. Dish says that it will sell $1B in senior notes — details will come later in an SEC filing. But the press release pointedly says that the cash may be used for “wireless and spectrum-related strategic transactions” in addition to the boilerplate “general corporate purposes.” Dish Chairman Charlie Ergen has been amassing spectrum rights to launch his own wireless broadband network. He has said that he’d like to team up with a someone already in the business, and made a bid for Clearwire — although the smart money is betting that the wireless venture will end up with Sprint. If that happens, Ergen has said that “we think we have other options” to build a service.
Here’s something you rarely see in Big Media: Dish Network — one of the industry’s most frugal companies when it comes to executive compensation — cut the outlays for most top execs, with CEO Joe Clayton down 90.8% to $907,000. Chairman Charlie Ergen‘s package was up 35.7%, to just $1.3M, the company says in its proxy filed at the SEC. For contrast, this morning Dish’s chief competitor, DirecTV, gave CEO Michael White a 200% raise to $18M. Dish’s packages are relatively simple. Ergen received $900,000 in salary and $400,186 in other compensation. Clayton also had a $900,000 salary, with just $7,000 in other compensation. Ergen’s compensation was 2.8 times the median for Dish’s four other highest paid execs, below the threshold that raises concerns among corporate governance activists. Dish shares appreciated 27.8% last year. The company says that its “overall executive compensation trails that of its competitors in the areas of base pay, severance packages, and short-term incentives.” Still, it provides execs with lots of stock that “may be competitive over time” and ensures that they have “appropriate incentives tied to the value realized by our shareholders” and that “mitigate(s) excessive risk-taking.” Ergen controls about 88% of Dish’s voting shares.
The Dish Network chairman says he missed the boat with his strategy for Blockbuster: He told AllThingsD’s “D: Dive Into Media” conference today that he bought the video chain out of bankruptcy because he wanted to use the stores to sell a new wireless broadband service he’s developing. But that became moot when his effort took longer than he envisioned. Meanwhile, “we were too late” to the streaming business. “Under the radar [Netflix] got critical mass and [now] can buy any program that they want to,” Ergen says. “We didn’t have the guts to buy the content and start from scratch.” That doesn’t mean Amazon’s streaming service is doomed. “They both can be successful….Amazon can subsidize it.” But Ergen says he’s a “fan” of Netflix and its business model. The financing of the original series House Of Cards was “brilliant…I feel stupid that we didn’t think of it first.” The man behind the Hopper ad-skipping DVR — being challenged in court by broadcasters who say it violates their copyrights — also got some laughs by noting that Netflix has no commercials. “They’re not getting sued. You can watch 60 Minutes in 40 minutes.”
That long-debated question on Wall Street took on new urgency today after Bernstein Research’s Craig Moffett bet that the companies will make a deal, and that it will be approved by the FCC and antitrust officials. This morning he raised his target stock price for each company by $9 (to $72 for DirecTV and $37 for Dish) “to reflect the increased probability of a merger.” Why now? Dish seems to have leverage over the FCC, which wants to promote competition in broadband and telephony more than it wants to block media mergers. Charlie Ergen’s company has been amassing wireless spectrum that “offers the prospect of either a fixed wireless broadband network to compete with cable, or, alternatively, a new competitor for mobile wireless to compete with Verizon and AT&T,” Moffett says. “Either would be a tremendous regulatory (and political) win” for the government. By year-end regulators likely will help their cause, and Ergen’s, by giving Dish permission to use its spectrum for terrestrial services. But the approval will include a timetable requiring Dish to deploy its services quickly. That gives Ergen the opportunity to tell regulators that he’ll proceed — but only if they enable Dish to combine with DirecTV, Cost savings and other benefits could amount to $3.5B a year, which Moffett says is “a staggering sum.”
Dish Network Chairman Charlie Ergen can change his tune on an issue more elegantly than just about anyone in the media business. Consider how easily he just reversed himself in an analyst call where he explained his company’s agreement to resume carrying AMC Networks’ channels, which he dropped in June. He brought them back as part of the $700M deal to settle AMC’s breach of contract suit against Dish after it ended a 15-year agreement to carry the now defunct VOOM HD networks. Ergen noted that AMC’s hit The Walking Dead is “off the charts.” If the channel has more shows like that “then it will be a fair deal for us.” And he likes the AMC folks. “Absent the litigation we probably wouldn’t have gotten to that point” of dropping the channels. That’s a head-spinning shift from three months ago when he said it was a question of cost, not courts. AMC’s networks were too expensive, he said then, especially since “our customers are not looking at zombies in New York City… They live on farms and ranches.” What’s more, he preferred doing business with Mark Cuban, whose HDNet channels took the slots formerly held by AMC’s services.
Dish Network Chairman Charlie Ergen warned analysts in a conference call today that his company will lose some customers — or have trouble attracting new ones — since it dropped AMC, IFC, WEtv, and Sundance in late June. But he says the decision was a “no-brainer” that will pay off for Dish in the long run. “Our customers are not looking at zombies in New York City”, he said referring to AMC’s hit The Walking Dead. “They live on farms and ranches”. Ergen added that he might have renewed AMC, but bucked at the company’s requirement that Dish also carry the other networks. “There hasn’t been a time when anyone in our family has watched one second of those channels”. He was also dismissive of AMC which has acclaimed series including Mad Men and Breaking Bad. “They’re critically acclaimed but not viewed as much by our audience”, he says. “And our customers can go to iTunes and get Mad Men the same time it’s on. We could pay the entire iTunes bill and it would be cheaper” than carrying the AMC Networks channels. Indeed, Ergen says that by not carrying the AMC channels Dish will be “several dollars cheaper than our competition that’s carrying those channels”.
After years of eschewing the public spotlight, Dish Network Chairman Charlie Ergen showed today at a congressional hearing that he hasn’t lost his keen debating skills. He skewered broadcast stations for acting as “a government-sponsored monopoly” when demanding higher fees from pay TV providers under the federal retransmission consent rules — and withdrawing programming when negotiations break down. “The problem is only getting worse — with more blackouts and more broadcaster abuses,” he told the House Energy and Commerce Subcommittee on Communications and Technology’s hearing today on the Future of Video. ”From where we sit, the broadcasters cling to the status quo instead of meeting consumer demand and embracing new technologies and business models.” Ergen added that while stations demand payments for pay TV carriage of their over-the-air signals, their commitment to localism “has gone down” — for example many stations have begun to share newscasts. “The retransmission consent regime is a prime example of an outdated government policy in need of an overhaul by Congress and the FCC.” One way to fix things, he says, would be to allow pay TV companies to import signals from network affiliates in other markets when negotiations with the local station break down. “Then you have the free market system working.”
UPDATE, 11:00 AM: AMC Networks tells me that CEO Josh Sapan didn’t mean to leave an impression that he might help digital streaming services – and therefore promote pay TV cord-cutting — if Dish Network drops his channels. He really meant that he would only consider helping another traditional pay TV provider when he responded to a question about how he’ll deal with “other distributors who might want to capture subscribers who want access to (AMC’s) programming.” His answer: “We think that the potential absence of our service and services on any platform by definition creates a sort of competitive opportunity for another platform. It is a very competitive world for multichannel video. So we’ll watch it as it goes. Of course, we’re contemplating it and making all sorts of contingency plans.”
PREVIOUS, 8:40 AM: Talk about Mad Men, or even Walking Dead: AMC Networks CEO Josh Sapan vaguely hints this morning that he might promote pay TV cord-cutting if Dish Network follows through with its plan to drop AMC, IFC, WeTV, and Sundance Channel in June. Sapan’s making contingency plans, and they apparently include offering more programming to a streaming service — in effect, encouraging consumers to cancel their pay TV subscriptions. Dish’s decision “creates a competitive opportunity for another platform,” Sapan says. “AMC is among the most critical services one can have to succeed” in pay TV and in the streaming world. “We’re in a fairly strong position.”
It was a pointed rebuttal to Dish Chairman Charlie Ergen’s damaging comment early this week that he plans to drop AMC’s channels because set top box data shows they have low viewership — suggesting that other pay TV providers also might consider them expendable. Sapan says that’s bogus. “We think today AMC in particular is one of the most popular services on the television dial.” The real issue, he says, is that Ergen wants to force AMC to scrap its 4-year-old $2.5B breach of contract suit which involves Dish’s decision