Billionaire Ergen Revisits Dish-DirecTV as Options Run Out

Billionaire Charlie Ergen, who scrapped plans 11 years ago to merge his Dish satellite business with DirecTV because of regulatory concerns, is at it again.

This time, he’s got less room for backing out.

The cable rivals of Ergen’s Dish Network Corp. are getting bigger, with Comcast Corp. and Time Warner Cable Inc. preparing for a $45 billion merger. Potential partners in the wireless business have spurned him. And a host of new competitors, from phone companies to Internet-video providers, are luring away his subscribers.

That’s all putting increasing pressure on Ergen, a former professional gambler from Oak Ridge, Tennessee, to coax a skittish DirecTV into a deal. At the same time, he has to convince regulators that a satellite merger wouldn’t harm competition.

“You’ve got a whole different dynamic than 10 years ago,” he said in a 2012 interview. “I would be relatively optimistic you could put a deal together if there was a desire with DirecTV that makes sense for the government to approve.”

Ergen, 61, recently reached out to Mike White, DirecTV’s chief executive officer, to discuss a combination of the two largest satellite TV providers, according to several people with knowledge of the matter, Bloomberg News reported this week. While White hasn’t ruled out a deal, he’s reluctant to push forward with formal talks out of concern regulators would block the combination again, the people said. Government regulators forced Ergen to scrap the merger in late 2002.

Cable Advantage

The Comcast deal represents a “seismic” shift in the pay-TV industry, Ergen said on a conference call last month. It “increases the risk to everyone in the content distribution business,” said the billionaire, who co-founded the company more than 30 years ago.

“We will be facing a much more challenging environment if that deal is approved,” he said.

Comcast and Time Warner Cable operate in different cities and don’t overlap, potentially making their merger more palatable to regulators than a Dish-DirecTV deal that would eliminate a pay-TV option for consumers. The cable merger will give the combined company greater leverage in negotiations to carry programming from cable networks, reducing expenses.

That will make competition with cable even tougher in an industry that is losing paying customers. Last year was the first time the total number of subscribers to cable, satellite and fiber-optic TV services dropped in the U.S. Rising prices and the growing popularity of streaming services such as Netflix Inc. have put pressure on the industry.

‘Satellite Dying’

“Time isn’t on Charlie side,” said Roger Entner, an analyst with Recon Analytics based in Dedham, Massachusetts. “He knows satellite TV is dying and he had more time when the cable industry was more fragmented.”

Guessing what Ergen has up his sleeve is an industry parlor game. The billionaire, the son of a nuclear physicist, used to be so good at counting cards that he was once tossed out of a Las Vegas casino, he has told reporters.

On Dish’s most recent conference call, he was cagey about how he would respond to Comcast’s move.

“There are a number of options our team and our board will have to look at,” he said.

Befitting his country roots, Ergen drives a late-model Chevy Tahoe and regularly brings his own lunch to work at Dish’s headquarters in Englewood, Colorado, where showing up late for work is verboten. For many years, Ergen signed all the company’s personal checks himself.

14-Year High

Dish is now the second-largest satellite TV provider in the U.S., with 25,000 employees and 14.1 million customers. Despite stagnating subscriber growth, the stock last week reached its highest close in almost 14 years, a reflection of the faith investors have in Ergen’s ability to put his assets to work. The shares rose almost 1 percent to $61.80 at the close in New York today.

In one sign of Ergen’s ambition, Dish struck a deal with Walt Disney Co. for a wider range of distribution rights for programming, putting the satellite company in the lead in the race to start providing a cable-like TV service over the Internet.

Ergen played hardball to seal the deal, threatening Disney’s advertising revenue. Dish’s AutoHop service lets users skip commercials, and Disney was one of several TV programmers that went to court to stop it. In their transaction, Dish agreed to disable AutoHop for Disney programs for three days after their air date, and the parties said they would drop litigation over the matter.

‘New Ulcer’

The agreement is a core building block Dish plans to use for an Internet-based TV package to sell to consumer -- a new option for customers to go around cable, satellite and phone companies to get access to their favorite channels.

“Charlie was probably getting a new ulcer every time he saw a new movie offered on Google Play or another Netflix ad,” said Entner.

While he works on the rights to programming, Ergen is also investing in new ways to connect to consumers. Starting in 2011, he began scavenging bankrupt companies for wireless airwave licenses, accumulating spectrum worth almost $26 billion, according to Bloomberg Industries. Finding a partner to help Ergen get into the wireless business has been tougher; he was outbid by SoftBank Corp. in his attempts to take over Clearwire Corp. and Sprint Corp.

While those bidding wars created animosity, Sprint has since worked with Dish to test a wireless Internet service, suggesting Ergen isn’t ruling out any options. Still, he has made clear he prefers to compete rather than settle for partnerships.

“We’re not a peace company,” Ergen said in the 2012 interview. “It just wouldn’t be any fun.”

Before it's here, it's on the Bloomberg Terminal.