EchoStar's Charlie Ergen: Odd Man Out in the Satellite Game?
His employees sometimes call him Elvis, though not to his face. And like the King, Charles W. Ergen, the Tennessee born chairman of satellite-TV service EchoStar Communications Corp. (DISH ), can play to the crowd. Every other month, he stars in his own show, Charlie Chat, part infommercial, part call-in show that's beamed to the nearly 5.3 million subscribers to EchoStar's DISH Network. During one recent show, Ergen gave a smooth-talking pitch for pay-per-view movies one moment, a free trip to Ireland the next; one viewer received free installation for equipment upgrades, another got Ergen's interpretation of Byzantine Washington legislation. Then the boyish-looking Ergen turned serious as he described his feud with the owner of a small chain of TV stations whose tough negotiating position had forced Ergen to take two of its stations off his system. "They said to us: `Your customers don't count,"' Ergen intoned darkly, urging viewers to call the station owner.
By turns populist and iron-fisted businessman, Charlie Ergen has spent much of the past two decades facing down threats to his company from bigger, richer rivals. The former professional blackjack player is nothing if not shrewd; he built the nation's second-largest satellite TV service with junk bonds, cut-rate prices, and audacious decisions. Along the way, he has managed to swipe customers from cable titan John Malone and beat News Corp.'s Rupert Murdoch in a high-stakes legal battle after a deal collapsed. Now, Ergen, 48, is suddenly a key player in the drama that may dramatically alter the landscape of the satellite business. He could link up with Murdoch if News Corp.'s (NWS ) shaky deal with General Motors Hughes' DirecTV unit falls through. Or he could find himself on the outside as those two link up against him.
"MUSICAL CHAIRS." The satellite TV business, which has been gaining in subscribers for five years, will probably undergo a massive consolidation soon. Murdoch wants to merge his far-flung satellite holdings in Europe, Asia, and elsewhere with DirecTV, but talks have dragged on for months. If GM Hughes decides instead to spin off DirecTV, then EchoStar could become a hot commodity. The spun-off unit then might consider a merger with EchoStar, if they can work out anti-trust concerns. Murdoch might also seek an EchoStar deal as a backup plan. Each could use EchoStar's subscribers, but there's one big hitch: Ergen. "I don't think Charlie is a seller," says News Corp. President Peter Chernin. "He's having too much fun."
Ergen earned his place in the consolidation game with the 91% stake in EchoStar's voting shares he controls. His company had revenues last year of $2.7 billion, but it also lost $621 million as it paid for new satellites and service centers and piled up $4 billion in debt to edge out DirecTV in adding subscribers.
But Ergen, who gave up his blackjack career in the late '70s after he was booted from a Vegas casino for counting cards, seems addicted to taking risks. The big one now: If Murdoch and DirecTV find a way to merge, can he continue to take on a global media giant with his cut-rate service and heavy debt load? Ergen isn't talking about it. But he has been in discussions with potential equity partners, say Wall Street insiders, just in case. And if GM Hughes decides to spurn Murdoch and spin off from its parent company, GM, Ergen might do the outrageous and bid for DirecTV himself, they say. "Ergen has always wanted to be the guy that the big guys have to go through," says Stephen Keating, whose 1999 book Cutthroat chronicled the empire building of Murdoch, Malone, and others.
HARD ROAD. That kind of dealmaking looked absurd back in 1980 when Ergen, his wife Candy, and poker-playing buddy James DeFranco started selling large dish satellite systems door-to-door in Colorado, Utah, and Wyoming. They lost their first dish when it toppled off their trailer on the highway. A decade later, with $200 million in sales, Ergen jumped to the big time, raising $335 million in junk bonds to join a federal auction for orbital slots; that let him sell smaller dish systems to aggressively compete against cable TV operators. After going public in 1995, EchoStar took on industry leader GM Hughes by cutting the price of a dish and set-top receiver to $199 from $499. Soon he was giving them away to customers who signed up for a year's worth of service. By 1997, he had 1 million subscribers, according to the industry newsletter DBS Investor. "He turned the economics of the business on its ear," says Jimmy Schaeffler, president of the digital-media research company Carmel Group.
Trained as a CPA, Ergen has always been the cheapest exec in TV. His headquarters was once a shopping mall in Littleton, Colo., that he bought in a bankruptcy proceeding. Employees fly red-eyes for cheaper rates, and Ergen makes them double up in hotel rooms. He has been no less rough on rivals: In 1996, for example, he offered everyone in Boulder, Colo., a free dish just days after the city voted to deny Malone's Tele-Communications Inc. a franchise there. Ergen also keeps lots of lawyers around to sue those he thinks have wronged him. In his most infamous battle, he settled a $5 billion suit with Murdoch following their failed '97 merger attempt, receiving two satellites and an uplink center in return for Murdoch's 8.5% stake in the company.
Little wonder then that Ergen isn't eager to join up with Murdoch again. But if the terms were right--namely, if Ergen retains control of EchoStar--he might change his mind. And he may launch his own takeover, especially if Hughes succeeds in spinning off. To help EchoStar through the almost-certain antitrust review, Ergen has hired hotshot antitrust lawyer David Boies. Audacious? You bet. But it would be a show that may keep even Elvis from leaving the building.
By Ronald Grover in Los Angeles