Wall Street Analyst: Fox News Blackout On Dish Could Drag On

Courtesy of Harold Vogel
Harold Vogel predicts the Fox News-Dish fight may linger

Harold Vogel says this dispute could be prolonged because the two CEO's strong control over their companies and histories of not backing down

The blackout of Fox News Channel on Dish Network may linger for a while.

That is because the leadership on both sides — Dish chairman Charlie Ergen and 21st Century Fox CEO Rupert Murdoch — can both tough out this kind of bitter dispute in ways other public company heads would find unthinkable.

"They are both founders of their companies, and that makes for a tougher negotiation and less backing off any kind of position," says Harold Vogel, a veteran Wall Street media analyst and author of Entertainment Industry Economics: A Guide for Financial Analysts, which this month publishes its 9th edition.

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The blackout, affecting 14 million homes, began Dec. 21.

"It is founder against founder," Vogel tells The Hollywood Reporter. "That's a different dynamic than we've seen in a lot of these fights, and it points to a much longer, more brutal battle than we've had in previous similar instances."

Both sides have something to lose, but factors that might push others to settle appear to mean a lot less in this case.

For Dish, first it is a matter of losing subscribers. Fox News has been circulating data it says shows Dish has already lost quite a few subscribers. Others are finding out they are under contact and Dish has the right to change channels. In this case, Dish has already substituted Glenn Beck's The Blaze for Fox News.

For Fox, it is first of all a matter of ratings. While Fox News is far and away the ratings leader in cable news, its viewership has been down over the past year and dipped again in December. Some of that has to do with holiday viewing, but Derek Blaine, senior analyst for SNL Kagan, says the loss of about 13 percent of the homes that view the channel has to have an impact. "You lose a major distributor," says Blaine, "ratings naturally are going to go down."

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When ratings go down, so does advertising revenue — and eventually a ratings decline can even impact subscriber fees paid by cable and satellite providers. In this case that doesn't appear to be imminent.

Both parties could potentially see a hit to their stock price, but Vogel says that is exactly where they are able to be most resistant because both founding moguls control enough stock in their companies to exercise majority control.

Murdoch and his family control about 30 percent of the Fox empire through a special class of voting share, more than enough to maintain control. Ergen has just over 50 percent, so his control of Dish is undisputable.

Murdoch split his holdings into two companies last year: So far, 21st Century Fox is up two or three points and sister company News Corp is actually down. But both continue to show strong operations, and this battle is only a small hit to his empire.

Ergen is in an even more interesting position in terms of his stock. In December when the U.S. government (specifically, the FCC) auctioned off some electronic spectrum, the prices were much higher than expected. That sent Dish stock up because it controls a large amount of spectrum acquired at lower prices.

Stock market analysts estimate that the Dish spectrum is worth $25 billion or more now, while the entire market cap of the company is only a little over $30 billion. That means the stock market values the entire satellite operation at about $5 billion or barely one-sixth of the entire company.

"[Ergen] might not be happy if his stock drops," says Vogel, "but he can handle it, he can stand the heat.

"You've got to hand it to both Ergen and Murdoch," adds Vogel, "they're innovative guys. They think things through and they're quite creative in the solutions they come up with. They are also tough characters [in business]. They aren't easily intimidated. They're not afraid of their stock dropping 10 percent or 15 percent. No one likes to see that, but they're not concerned to the same extent ordinary mortals would be. That's the way it is."

Vogel points out that both Ergen and Murdoch have a history of spending money to invest in business areas in which they believe there is long-term potential.

Ergen did it when he started Dish, recalls Blaine. He says in 1996 when the satellite service launched, there were people on Wall Street laughing at Ergen. They aren't laughing any longer.

Murdoch built Fox from the ground up by taking risks on things like pro football rights and more recently cable channels including the 2014 startups Fox Sports 1 and FXX.

"These guys can hold out for a very long time," says Vogel. "They have no fear of the markets. They are willing to take losses for many years until things turn around. They have proven it time and time again."

Fox News, run by Roger Ailes, who has a political background and a history of fighting battles until he wins, is being blacked out on Dish over a carriage dispute involving FXX and Fox Sports 1.

Fox also is using the news channel, which dominates cable news with very loyal subscribers who share a political point of view with Ailes and Murdoch, to pressure Dish to boost the fledgling Fox Business Channel.

There is also the issue of The Hopper. While CBS and ABC, among others, have worked out deals with Dish in recent months to end litigation and long-running disputes over the DVR device, which allows viewers to skip over commercials, the battle with Fox has lingered in the courts. Dish has won a series of legal challenges against Fox, but that certainly has not helped their relationship.

From the start this particular battle has been openly bitter and ugly in a very public way. Within the first day the News and Business channels were dropped, Fox accused Dish of lying about who caused the blackout and of "intransigence." In a statement, Tim Carry, executive vp distribution for Fox News Channel, added: "Dish's record speaks for itself, and makes it rhetoric about ‘reasonable' agreements ring hollow."

Dish responded in a statement that Fox acted improperly: "Fox blacked out two of its news channels, using them as leverage to triple rates on sports and entertainment channels that are not in this contract."

"Usually the distributor [Dish] bears the brunt of the public displeasure and eventually caves to at least part of these strong demands," says Vogel. "Ordinarily that is the case. But in this fight I can see where it's going to be a close call.

"What you have here," says Vogel, "is a different fight than what we have seen before. I don't know how this will turn out. It may drag on a lot longer than we thought it should."

Jan. 3, 1 p.m. A source at Fox News says the dispute is over carriage of Fox Sports 1 and the FXX Network, not over Fox Business Channel as stated in an earlier version of this article.

Jan. 3, 3 p.m. A previous version of this article identified Charlie Ergen as Dish's CEO.

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