Satellite

Balance Shifts On Programming Front

4/21/2006 8:00 PM Eastern

When Dish Network was readying its direct-broadcast satellite service a decade ago, it needed all the help — and programming — it could get to build its brand and a subscriber base. Large programmers had the upper hand in contract talks.

Twelve million subscribers and a proven business model later, the balance of power has shifted, although it’s hard to find anyone who says it’s a slam-dunk for either side.

“When we were the new guys, people would take days to return our phone calls,” said Michael Schwimmer, CEO of SíTV and a former programming executive vice president at EchoStar Communications Corp. “Later, they would take our calls while at the movies with their families.”

Although considered an upstart by cable operators and many in the media when it launched Dish Network in 1996, EchoStar had actually been negotiating cable network contracts for years as a C-band equipment and programming distributor.

“He’d already had programming contracts in TVRO [television receive only] and had clauses for DBS in those contracts,” said Tellus Ventures Associates president Steve Blum.

“He had the best of both worlds,” Blum added, with grandfathered TVRO contracts and help from DirecTV [Inc.’s] two-year head start in legitimizing the DBS process.

Coleman Breland, executive vice president of sales and marketing for Turner Network Sales, said his first experiences with EchoStar were when it was still a C-band distributor.

“We’re proud to say Turner was one of the first to sign with Dish,” Breland said. The company’s background in C-band was helpful, Breland noted. “They knew what it took to get someone to buy a dish and put it in their yard, and later, with DBS, on their roof.”

From the beginning, EchoStar “had a strong voice in what they expected from programmers,” Breland added.

Former EchoStar vice president of marketing Barbara Sullivan Roehrig, now a multichannel industry consultant and career coach for BG Marketing Inc., said the Dish team “had to prove to programmers we were going to be viable” because the company was referred to as an “upstart” in the media for about a year following its launch.

“Thank goodness Carl Vogel [currently EchoStar vice chairman, who was also with the company at launch before leaving to join Liberty Media Corp. and later Charter Communications Inc.] and [former EchoStar programming vice president] Larry Smith had such good relationships with programmers,” she said.

Sullivan Roehrig credited Vogel with the decision to make Dish the first distributor to offer Disney Channel in a basic programming package. “It was a way for us to differentiate ourselves from cable,” she said. “People loved it.”

After Dish successfully launched its second satellite in 1996, it had more bandwidth to expand its channel lineup. The growth was good not only for channel-hungry consumers and Dish’s own bottom line, but offered an opportunity for programming partners to create brand extensions.

Vogel said along with DirecTV, Dish helped programmers level the playing field in negotiations with cable companies because it offered an alternative platform on which to launch a new network.

When Dish launched in 1996, direct-broadcast satellite was considered enough outside the mainstream that programmers were able to get away with charging a DBS rate tax. “That’s what new guys go through,” Schwimmer said.

A decade ago, operators and programmers co-existed in a “very clubby atmosphere,” Schwimmer said. “Cable operators could pass through rate increases from programmers at will. It made for friendly relationships. They’d take the increases and pass them onto their customers, and everybody was happy.”

EchoStar decided against joining the club in favor of giving customers a better product at a better price, Schwimmer said, noting, “It made for a much more tense relationship than the cable programmers were used to.”

Over the years, EchoStar has not been afraid of the tension, seeming at times to relish it during high-profile disputes with programmers. In some cases, as the recent carriage disagreement with Lifetime Television, Dish has temporarily pulled popular networks from its lineup.

“It’s a lesson to programmers,” Sullivan Roehrig said. “You cannot increase more than EchoStar says you can, or they’ll just kiss your channel good-bye. At their first year, they didn’t have that kind of leverage.”

DirecTV has a relationship with News Corp. and some operators have ownership ties to large programmers. Dish Network’s status as largely a pureplay distributor has benefits when it comes time to negotiate contracts.

“Not having those relationships, they can keep everybody at arm’s length, and negotiate with everybody on the same terms — on the same tough terms,” Blum said. “And it doesn’t matter which programmer plays hardball. They can play hardball right back.”

That’s not to say programmers are finding an easy time of it elsewhere.

“Discussions today are more sophisticated,” Breland said. “They’re tougher for everybody. We’ve always been able to find common ground.”

Dish recently sought help from programmers in launching a family-friendly tier of programming. EchoStar chairman Charlie Ergen said some programmers were not willing to make their family programming available without putting their more adult-oriented content in the same package.

The DishFamily tier carries two Turner networks, Breland said, Headline News and Boomerang. Breland called the tier “a consumer-friendly thing to do, identifying programming that plays well in any home in America.” He added he wasn’t surprised that Cable News Network wasn’t included among the tier.

“News can touch on very sensitive and graphic subjects,” Breland said, noting that Headline News is not as graphic or in-depth as CNN.

EchoStar wants to extend programming choice beyond the family tier. Ergen argued that subscribers should be allowed to pick and choose their favorite networks a la carte, but said most contracts with larger programmers don’t allow that today.

“Consumers don’t truly want a la carte,” said Leichtman Research Group Inc. president Bruce Leichtman. “Nobody wants less for the same price. The reason consumers have gone to DBS and digital cable is they want more.”

Ergen countered that subscribers were offered a la carte choices in the C-band days. And he noted that some large networks are starting to sell their own content over the Internet.

“Like all his great ideas, I’m sure he has this all well thought out,” Schwimmer said of Ergen’s push for a la carte.

But Schwimmer said he hasn’t seen any a la carte programming plans that would protect young, independent networks such as SíTV, which targets a young Hispanic audience that prefers to watch TV in English.

“The whole model for a la carte is let the consumer choose,” Schwimmer said. “The customer can’t choose unless the customer knows. Marketing costs money, and young independents don’t have money for marketing and original programming. What packaging does is allow a small network to gain viewers on the pull of larger networks.”

Schwimmer added that a la carte would eliminate channel surfing, which exposes viewers to channels they might otherwise miss altogether.

“Even the larger media companies would tell you a la carte doesn’t work for them because the amount they would have to charge to make up for the lack of advertising revenues would be prohibitively expensive,” Schwimmer said.

EchoStar has been successful attracting some of its customers with a la carte programming, offering about 100 international channels in dozens of languages. Though foreign-language programming may not hold appeal to the masses, it represents a loyal customer base.

Blum, who lives on a former military base in California, recalls the days immediately following the Sept. 11, 2001, terrorist attacks. “As I was riding through the neighborhood, I could see EchoStar dishes popping up on the roofs pointing off at odd angles,” he said. “Those were all people who wanted to tune to Al Jazeera.”

Many of Dish Network’s foreign-language services are relegated to orbital slots outside the core Dish system at 119 and 110 degrees west longitude and require separately positioned satellite dishes for reception. Bandwidth constraints don’t allow Dish to place all networks on its core platform. But through advances in compression technology, Dish continues to add new channels to its top packages on a fairly regular basis.

Recent additions to Dish include a free preview of the Tennis Channel and a quiet primetime launch of The Water Channel, with such features as dolphins and scuba diving.

Dish launched ESPN Deportes, the sports giant’s Spanish-language network, last year, said David Preschlack, senior vice president of affiliate sales and marketing for Disney and ESPN Media Networks. The two companies held a joint promotion in Miami at a Calle Ocho street festival with attendance of about 1.5 million people, demonstrating ESPN Deportes and ESPN’s two high-definition television networks.

“We helped them take leads,” Preschlack said. “They even signed up some customers on site.”

When Dish launched ESPN2 HD in January, ESPN dedicated on-air inventory for its simulcasts to Dish, identifying them as a sponsor and encouraging viewers to sign up for Dish to get HDTV.

Much of EchoStar’s recent programming push has been to HD, both on the national front and in local broadcast channels.

“They are much further than people give them credit for,” HDNet president Mark Cuban said in an email exchange. “They have a large and quickly growing user base.”

Dish carries HDNet and HDNet Movies.

Along with fellow satellite provider DirecTV, Dish was an early supporter of HDTV, offering simulcasts of premium networks Home Box Office and Showtime for no additional charge to customers with the required HD hardware who already subscribed to the premium channels in standard definition.

Dish and DirecTV are also pushing as fast as they can to launch local broadcast channels in HD. At press time, Dish Network’s 13 local HD markets included New York; Los Angeles; Chicago; Denver; Atlanta; Boston; Philadelphia; Minneapolis; Nashville, Tenn.; Washington, D.C.; Kansas City, Mo.; Albuquerque, N.M.; and Salt Lake City, Utah.

Dish has reconfigured its HD packaging, grouping all 15 channels of Rainbow Media Holdings LLC’s Voom HD Networks into a larger package that includes 23 total national feeds and local HD broadcast feeds where available.

“It’s the largest offering of HD by any provider we’re aware of, certainly the largest nationally,” said Greg Moyer, general manager of Voom HD Networks.

Some analysts suggest Dish Network’s HD packages promote quantity over quality.

“The individual [Voom] channels probably have marginal appeal,” Leichtman said. “Having brands people know, sports and movies will clearly appeal more to people. But as a block, Voom does have some value.”

Last May, Dish offered a 10-channel tier of Voom HD channels after Voom turned off its standalone HD DBS service. EchoStar took over the Rainbow 1 DBS satellite from Voom, and now owns a 20% equity stake in the HD programmer.

Moyer said he applauds Dish Network’s relationship with Voom for making it possible to fulfill the “fairly audacious dream” of Voom founder Charles Dolan, chairman of Cablevision Systems Corp.

Although Dish does not have an operating role in Voom, Moyer said the two companies have “five weekly conversations on marketing tactics,” and the programmer helps train Dish Network’s salespeople.

“It’s really fun to work with these people,” Moyer said. “They have a strong can-do attitude. When they have momentum behind them, watch out.”

Dish and its programmers also continue to discuss how the DBS company’s push into interactive television will affect their negotiations going forward.

Both Preschlack and Cuban acknowledged they were talking with Dish about interactivity, but declined to elaborate on specific plans. Interactivity “is an incredible opportunity for distributors and partners to extend their brands and to grow their partnerships like never before,” Preschlack said.

Although there are many new elements for programmers to put on the table with Dish, programming negotiations “have changed but they haven’t,” according to Turner’s Breland. “Their core element is still the same. Charlie [Ergen] is still willing to take risks.”

According to Breland, Ergen doesn’t walk into the room for every negotiation with programmers — and hasn’t over the years — although it’s clear he plays a role in the process.

Breland was quick to add that he always gives Ergen his due whenever he’s at EchoStar headquarters. Whether it’s to catch up on the old C-band days or just say hello, Breland said, “I’ll always go in to see Charlie every time I go to see Dish.”

September