Dish CEO Charlie Ergen On HBO Fight: “Anti-Competitive Play” By AT&T Meant “It Would Be Malpractice” To Re-Up

Dish Network CEO Charlie Ergen, long known for his free-spoken, sharp-elbowed management style, described the company’s carriage dispute with HBO as the result of “purely an anti-competitive play” by the premium network’s new parent, AT&T.

Last week’s blackout marked the first time since HBO went on the air in 1972 that it has gone off the air on any platform due to a carriage dispute. Ergen addressed ongoing batttles with HBO and Hispanic TV giant Univision during a conference call with Wall Street analysts to discuss Dish’s third-quarter results. The quarterly numbers topped estimates but revealed some ominous subscriber trends.

With HBO, Ergen didn’t divulge exact numbers but he said the premium network had insisted in negotiations that Dish guarantee a certain number of subscribers and pay accordingly. About 2.5 million out of Dish’s total footprint of just under 13 million customers (most of whom live in more rural sections of the U.S.) subscribe to HBO, according to sources familiar with the numbers. That 18% share distinctly lower than the more typical 30% HBO level seen at other pay-TV distributors.

Asking for a minimum guarantee “wouldn’t be unusual in the environment of 20 years ago,” Ergen said. But with the traditional bundle atomizing due to technology advances and operators straining to stem subscriber losses, inking such a pact in 2018 “would be malpractice. There’s no company that would sign up to a deal like that. In addition, HBO sells direct to consumers” via HBO Now for $15 a month. “You can’t put an antenna up and provide HBO,” he added. “That’s why it’s anti-competitive.”

A ruling by U.S. District Court Judge Richard J. Leon rejected arguments by the Department of Justice that AT&T’s acquisition of Time Warner would harm both rivals and consumers. Dish and Sling supported the suit, with top executive Warren Schlichting warning in his testimony during the trial last spring that AT&T could use HBO as a weapon to punish rivals like Dish. The DOJ has appealed the ruling, and a federal appeals court will hear arguments in December before ruling in early 2019.

Pressed for the financial impact of the HBO dispute on fourth-quarter results, Ergen did not get specific. “It’s essential programming and we’ll lose customers,” he conceded. “There will be a negative impact, we just don’t know how much.”

As far as Univision, Ergen said recent top-to-bottom management changes at the private equity-backed media company coincided with negotiations ahead of the July expiration of the carriage agreement. Along with the management factor, Dish also has “long voiced our frustration” with some soccer games being streamed free on Facebook and also took issue with Univision’s declaration that it is the No. 1 Hispanic network. “We knew that wasn’t true of our customers,” Ergen said. “The No. 1 channel was actually Netflix and Telemundo had also surpassed them in some dayparts.”

That mix of elements created “an unrealistic expectation” for carriage fees on Univision’s part, the CEO said. “We have to fight for our customers. Our customers expect us to fight for them. They’re not telling us they want more programming. They’re telling us they’re not seeing the value of linear TV today.”

Ergen noted that since the impasse began in July, Dish has offered subscribers antennas so they can receive Univision broadcast signals over the air. Many customers have also defected to rival services, he said. Given that drift, “We’re in a weird position,” Ergen mused. “We would actually face backlash if we put Univision back up again. The problem is compounded. It’s not that both management teams haven’t tried to figure something out.”

Asked if dropping Univision would wind up to be a financial benefit given reduced programming costs, he replied, “In the short term, the answer to that is yes.” However, he added, “it’s not as rosy as that. … You continue to lose customers over time. The worst pain is the first four months.” Longer-term, he added, “If you don’t have the product you don’t get new customers.”

While many investors and Wall Street analysts see DirecTV as being quick to pull out of carriage negotiations, citing previous disputes with Sinclair Broadcast Group, Viacom and CBS, Ergen disputed that characterization. ‘We probably have fewer than some, if you look at the math.”

At the same time, Ergen maintained that tension over carriage deals is the new normal. “When the financial guys start looking at deals … it’s not going to be business as usual,” he said. “You’re going to see a lot of disputes in this industry. … Linear TV is going to be challenged. The model’s changing and our industry is not doing enough to keep up with it and working together enough to stave off the new entrants.”