Charlie Ergen, the Best Show in Town

EchoStar's CEO is playing consumer advocate these days, but will it be enough to get the better of Disney and secure his grip on DirecTV?

By Ronald Grover

His staff calls him Elvis -- although only behind his back. But there's no denying that Charlie Ergen -- EchoStar Communications' (DISH ) Tennessee-born chairman -- has a certain rock star quality, at least in the fast-graying world of media moguls and electronics geeks.

Trailing behind him as he waded through a sea of admirers at the Consumer Electronics Show (CES) in Las Vegas, I felt like I was watching a superstar -- albeit one in khakis and a blue shirt -- at the peak of his popularity. The athletically trim, 47-year-old Ergen couldn't take a step without grasping the out-held hand of a well-wishing executive, Wall Street analyst, or quote-seeking reporter.

Ergen clearly understands the populist role that he's being forced to assume -- the cable guy trying to keep monthly rates low for subscribers, while the corporate suits try to grab more and more power. Indeed, with cable icon Ted Turner but a shadow of his former "Mouth of the South" self, Ergen is the only media executive around to speak his mind on behalf of consumers. And on Jan. 9, as he popped in and out of various press conferences, sessions, and presentations on the floor of the Las Vegas Convention Center, he was more than up to the task.


  On this day, he had in his sights Walt Disney, which is renowned in cable and satellite circles for being a hard-fisted negotiator that insists on hefty annual price hikes. Ergen has been battling with Disney for months over a 15% increase Disney was seeking for its ESPN Classic Channel -- the cable-sports equivalent of an oldies station. That amounts to about 2 cents a month for each of Ergen's 6 million subscribers, but he refused to pay the extra money and dropped the sports channel when the contract expired on Dec. 31.

Referring to the replays of old college football games that are standard fare on ESPN Classic, Ergen half-jokes: "I don't think the 1979 Nebraska team is asking for increases for their games." He's also trying to yank Disney's newly acquired ABC Family Channel (formerly, the Fox Family Channel) from his satellite service, saying he needs the space to provide local TV channels as mandated by the federal government. He's invoking a provision in the contract EchoStar signed with the Family Channel some years back that he says allows him to pull the channel should it be acquired. Disney, unhappy at the prospect of being dropped, has filed suit.

The media giant has unleashed a public-relations blitz against Ergen. Disney is saying, among other things, that it never threatened -- as Ergen alleges -- to "march on Washington" in an attempt to block EchoStar's pending $30 billion merger with DirecTV if Ergen didn't extend the ESPN Classic contract.


  Ergen admits it may be "political suicide" to take on Disney in the midst of his megamerger, which would give him some 17 million satellite subscribers and has already raised antitrust concerns. Ergen figures that Disney most likely will file its motion of opposition with the Federal Communications Commission (FCC) in late January, although Disney so far says it's staying out of the fray.

Still, Disney has a history of flexing its lobbying muscle, as it did in 2000 to oppose -- and then reshape -- the merger of AOL and Time Warner. Déjà vu? Back then, Disney was fighting with Time Warner because it had pulled Disney's ABC Network from eight of its cable-TV systems.

As the war of words between Disney and EchoStar escalates, Ergen is doing his darndest to make his case as a consumer crusader. And he knows full well that a lot of cable folks out there are secretly hoping he can make Disney back down. The cable operators claim Disney's rate hikes force them to raise the prices they charge consumers faster than they would like to.


  "There is a huge imbalance between the programming world and distribution world," Ergen says sternly as he strides through the CES exhibit floor, citing his company's own 9% hike in programming costs last year. "I'm eating most of those rate increases," he laments as he heads to EchoStar's booth at the trade show. EchoStar will increase its rates by 3%, he says, but he must be moderate to continue his campaign to siphon off viewers from cable.

The fight over the ABC Family Channel could have huge implications as well. Disney is using the Family Channel to air shows a week or so after they first air on Disney's ABC Network. "Repurposing," as it's euphemistically called, is hot with moguls right now, who see it as crucial for their companies' bottom lines. Ergen sees it quite differently. "They are doing exactly what one of my customers could do with a VCR," he says. "Why should my customer pay more for Disney to do it for them?"

And Ergen is old enough to have a head full of memories: "Heck, I remember as a kid paying $10 to get into Disneyland and walking up to Mickey Mouse and getting his autograph," he said at one point. "Today, it costs a heck of a lot more than that, and, if you're lucky, you get to see Mickey Mouse on a stage, way up there for 15 minutes before he takes a 10-minute break."


  Taking on Disney, he says, is a fight on behalf of shareholders in his company (of which he owns 90%) and for his satellite customers. "I have to look myself in the mirror and do what I think is right," he says. "I wasn't going to pay them hush money."

Those are fighting words, and the stubborn Ergen best be careful. If he doesn't back down or reach an amicable resolution with Disney, the Mouse may indeed head to Washington. Then again, Ergen says he values the relationship he had in prior years with Disney, which was among the first to sell him cable channels in the early '90s, when he was launching his satellite service. So maybe, just maybe, a compromise might be possible somewhere down the road between the two.

In the meantime, watching Ergen-cum-Elvis is great theater. To me, he sounds a lot like Turner in his prime -- an earthy, plain-talker who disguised a lot of pure brilliance with his Dixie drawl. But this much is certain: Ergen's act is convincing, entertaining, and bound to leave his adoring throng all shook up.

Grover is Los Angeles bureau chief for BusinessWeek. Follow his weekly Power Lunch column, only on BusinessWeek Online

Edited by Patricia O'Connell

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