Dish Network's Charlie Ergen Is the Most Hated Man in Hollywood
His company has been labeled the "worst place to work in America," he's being sued by all four networks, and his ad-skipping Hopper could decimate TV industry economics as THR examines the troubling potential outcome of the entertainment business' ugliest fight.
Dish was named "America's worst company to work for" by the website 24/7 Wall Street, based on scathing reviews on the job site Glassdoor.com. Employees have been subjected to "badge reports," where they are red-flagged for showing up minutes late. When they travel, staffers are asked to take red-eye flights, share hotel rooms and reimburse the company if they tip more than 15 percent. One field-service specialist tells THR, "In my office, you are not even allowed to use the restroom in the mornings before leaving on your route or in the evenings until you're off the clock." (A Dish rep says the company abandoned its badge reports in January and disputes that employees are forced to take red-eye flights and aren't allowed bathroom breaks.)
After Dish was hit with bad press, management attempted to intervene. Dish CEO Joe Clayton sent employees an email that stated in part, "If you are happy here at DISH and believe the company is moving in the right direction, log on to Glassdoor.com and provide feedback."
At Dish's Colorado headquarters, company leaders shoot down questions about whether Dish truly is the meanest of mean companies.
"I think it is a challenging place to work," admits Dave Shull, a Dish senior vp in charge of content acquisition deals. He says it's common for meetings to get "animated" but embraces the company's aggressive ethos. "You can always be a follower, a slave to competition and hope for the best," says Shull. "Or you can lead the charge, try to expand market share and innovate. When you ski or ride horses, what happens when you sit back is that you lose control. We lean in."
After several years of growth, Dish, like the rest of the cable and satellite industry, has been facing new challenges. In 2012, pay TV providers added only a few tens of thousands of subscribers, according to analyst estimates. And the overall trajectory isn't good. In reaction, Dish has been aggressive in keeping customer bills lower than those of its rivals. Dish's subscriber-related expenses increased to $7.25 billion in 2012, up 6 percent from the previous year, which the company attributes to rising programming costs. By comparison, DirecTV spent more than $13 billion on programming in 2012 (and another $2 billion on service), about a 12 percent increase. "I'd venture to guess that Dish's programming increases are among the lowest in the business," says Jayant.
Still, that might not be enough. Dish now competes with such Internet-based TV services as Netflix and Hulu (subscribing to both costs only about a third of the $49.99 for a basic Dish package) as well as web-and-TV combos offered by the likes of Time Warner Cable and Comcast.
Unlike its rivals, Dish has struggled to expand into businesses other than satellite TV service. In 2011, it completed an acquisition of Blockbuster but couldn't leverage the brand into a viable Netflix competitor. Dish has been attempting to do more with its wireless spectrum assets, which it has paid roughly $3 billion to acquire, but has been frustrated by FCC roadblocks. The company lately has been attempting to get a wireless network service off the ground, holding talks with Google and making an aggressive bid to acquire part of 4G network pioneer Clearwire Corp.
For now, though, Dish remains a "one-trick pony," in the words of analyst Jayant. Unlike Comcast, it doesn't create any programming itself; unlike Time Warner Cable or Verizon, it isn't able to offer triple play of television/Internet/phone service. What it has is the Hopper, which leads one lawyer defending the networks to conclude, "Ergen would rather ask for forgiveness than permission."
Some legal observers believe that Dish will succeed in court. In November, a federal judge declined to grant a preliminary injunction to stop the Hopper and said that Fox faces an uphill road in arguing that Dish has committed copyright infringement and breached its contracts with the network. The judge wasn't totally convinced of the legality of Dish's system, however, and some attorneys believe the broadcasters ultimately will prevail. "I think a court is going to side with the networks because of the economics, though a new [legal] test might need to be fashioned because this doesn't fit the usual standards," says Bryan Sullivan at Early Sullivan.
As the lawsuit plays out, Dish's ability to stay in the game might depend on the outcome of coming carriage negotiations. Ergen will be making a multibillion-dollar bet that Disney can't afford to walk away from Dish's 14 million subscribers, but if it signs a new deal, it will send a signal that broadcasters have been a tad hyperbolic when it comes to the threat they allege the Hopper to be.
If the offer is not right, Dish could head down a new path. It might stream Disney's ABC anyway, without a contract but in partnership with a company like Diller's Aereo, whose own technology of capturing over-the-air TV signals and transmitting them privately online likely will be hashed out in a messy trial. (Dish and Aereo reportedly have held talks with each other recently.) Or Dish could abandon the quickly growing cost of licensing ESPN's live sports to further position the satellite distributor as the cheap alternative in the marketplace. But that's undoubtedly risky.
Analysts are getting a little edgy. On a recent earnings call, Dish's management was asked to address what's going to happen.
"We are a big customer of Disney's," answered Clayton. "I would not expect them to take it down with the AutoHop as the reason." Added Ergen, "Our checks are pretty big." Dish pays Disney roughly $1 billion a year for ESPN alone. But that's not quite enough to settle the analyst community. "I have no idea what is going to happen," admits Jayant.
As the recent Dish-ESPN lawsuit highlighted, thanks to "most favored nation" provisions (which guarantee that no rival will get a better deal), subscriber rates are intertwined throughout the TV industry. If Disney accepts less than market value from Dish, it likely will have to give discounts to other distributors, too. And walking away from Dish might not necessarily mean losing all 14 million pay TV consumers if some of them defect to rival services. A recent survey by Lazard Capital found that 41 percent to 48 percent of pay TV subscribers would cancel or switch their service if they lost a top broadcast network, and 35 percent would cancel if they lost ESPN. "If anything, content's leverage over distributors is strengthening," concludes analyst Barton Crockett.
The last time Disney and Dish made a deal, in 2005, the negotiations took a year. Now, there's just a few months until the license expires in September, and the very dealmakers who will be meeting with one another just sat uncomfortably side by side for three weeks in a courtroom.
Disney declines comment about whether it would look past the Hopper, whose legality likely will not be settled before the two sides need to make a deal. A Disney spokesperson says any renewal with Dish would "be consistent with established marketplace terms." Dish's Shull won't say whether Ergen or his execs have met with Disney, but says he hopes that the two companies will be able to work out their differences.
Is Ergen about to get comeuppance for his nasty behavior? Or will broadcasters bow to what many believe is the inevitable evolution of the ad business? By year's end, the outcome of the Disney-Dish negotiations could signal where the industry is headed.
"For some folks, it becomes personal," says Shull. "For me, it's business. There's always some difference of opinion, but with billions of dollars at stake, greed usually wins out."