03/09/2004 - Viacom Press Briefing on EchoStar Pulling Our Networks (1 Viewer)

aperry

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Viacom Press Briefing on EchoStar Pulling our Networks

March 9, 2004


Remarks by Mark Rosenthal, President and COO, MTV Networks:

For the past few months, as this situation with EchoStar has unfolded, we've been trying to take the high road, speaking just to the larger issues and trying to ignore the gross distortions and inaccuracies that Charlie Ergen and EchoStar have been flinging around. There comes a point, however, where you have to respond, if only to set the record straight. And that’s why we're here today – and we appreciate your taking the time to join us.

As we said in our statement last night, we are disturbed and disappointed by EchoStar's decision to pull the plug on our channels. This is channel yanking by a distributor on an unprecedented scale. This is not something we wanted to happen or would ever want to happen. We are broadcasters and programmers, and the most important relationship we have is with our viewers. The idea that something or someone would disrupt that relationship -- particularly in an effort to extort a better deal for themselves -- is, to us, really reprehensible. And, additionally, as consumer oriented people, it really bothers us to see a company treat its customers with such disregard.

EchoStar has been trying to paint itself as the victim in this situation. To hear them tell it, they were forced to pull the plug on our networks to protect their subscribers from the “exorbitant” rate increases and unfair carriage requirements we were trying to “foist” on them.

In a word, that's ludicrous.

Here are the facts:

First of all, EchoStar is hardly some small mom-and-pop operation that is being pushed around. It has more than 9 million subscribers -- 10% of all multichannel homes and 43% of all satellite households. It is the fourth largest distributor in the U.S. and as a result it has enormous negotiating power.

Faced with the clout that comes with having that massive distribution, we've been doing everything humanly possible we can -- for months now -- to finalize a deal with them. As I said before, the last thing we ever want to do is wind up in a situation where our viewers can't get the channels and shows they love. So in our negotiations with EchoStar, we were extremely flexible and offered substantial compromises.

Now I hope you will keep in mind that every cable and satellite operator negotiates these sorts of agreements, and we have been able to establish and maintain solid business partnerships with virtually all of them. The sole exception is EchoStar/DISH Network.

Along these lines, I would also point out that over the years there have been thousands of successful marketplace negotiations between broadcasters and cable and satellite distributors involving the packaging of retransmission consent rights with cable carriage. In all those cases, only one company ever had a problem with it. That’s right -- it was EchoStar, which complained to the FCC about the same "packaging" practices it challenged in its recent lawsuit against Viacom.

As it happens, the FCC decisively rejected EchoStar's complaint, pointing out that Congress established a detailed regulatory scheme that permits broadcasters to negotiate retransmission consent and cable carriage together. For the same reason, the Federal district court judge who is hearing EchoStar’s case against Viacom recently denied EchoStar's motion for a preliminary injunction and gave us permission to deauthorize (which we did not do) EchoStar's carriage of CBS if we were unable to work things out.

It's also worth noting that EchoStar has a history of bringing frivolous lawsuits and has been sanctioned or admonished by federal judges several times, including in a litigation with CBS when they were found by a Federal judge to have engaged in "clearly willful" copyright violations. Just this week, a federal judge sanctioned EchoStar in yet another an antitrust case they brought.

Anyway, we could not have worked harder to try to make a deal with EchoStar. And back on Jan. 15, we did make a deal with them, and then they reneged.

We don't really understand why. Because despite what they are saying now, the increases we've been asking for are both modest and reasonable -- amounting to less than 6 cents per month per subscriber for all of our services (combined) including CBS and BET. To put that in perspective, I'd point out that EchoStar recently raised its rates to subscribers by as much as three dollars per month. I'd also point out that what we were seeking for all of our multiple channels together -- which include Nickelodeon, the #1 rated cable network -- was substantially less than the $2 a month per subscriber that distributors pay for ESPN alone. In all, Americans spend more than 20% of their TV viewing time watching our networks, yet our fees amount to less than 5% of what EchoStar generates from their average customer.

Those are the facts. And the facts make it clear that EchoStar/DISH Network's decision to pull the plug on our channels shows they care a lot more about lining their own pockets than about what matters to their subscribers. Rather than negotiate in good faith like every other cable and satellite operator, they prefer to peddle insults, distortions, and outright untruths. Which is to say they are not acting in the public interest or in a commercially reasonable manner.

We would still like to reach a deal with EchoStar that would allow its millions of subscribers to continue receiving the Viacom channels and shows they love. But the ball is in EchoStar's court, and unless and until they pick it up, all we can do is inform their unhappy customers, who are calling us by the tens of thousands, about all the excellent alternative TV distribution services available to them with cable and with DirecTV.


Remarks by Marty Franks, EVP, CBS:

I'm afraid March Madness came 10 days early this year. Normally March at CBS is all about buzzer beaters and Cinderella stories.

But in this version of March Madness, time ran out at midnight last night, and despite his protestations about being the "mom and pop" victim in this fight, Charlie Ergen and Echostar are no Cinderella.

First and foremost, CBS sympathizes with our viewers who awakened this morning to find that their local CBS station had been dropped by Dish Network. We hope for their sake we can conclude a new agreement with Echostar quickly.

If not, CBS would like to remind our viewers that we are available, for free, to every viewer with an antenna, but also via DirecTV and their local cable operator.
 

AppliedAggression

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Sep 26, 2003
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Their take indeed sounds very reasonable. Although personally, $2 for those channels? HA!

I don't think it's the price Echostar disagrees with, but the increase. $2 with 40% increase over the 4 or 5 years, is $2.80.
 

Oakenshld

SatelliteGuys Family
Jan 20, 2004
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AppliedAggression said:
Their take indeed sounds very reasonable. Although personally, $2 for those channels? HA!

I don't think it's the price Echostar disagrees with, but the increase. $2 with 40% increase over the 4 or 5 years, is $2.80.

This is what the problem is. There is no mention of the 40% increase in the statement from Viacom above. Although I do understand that a business needs to make more than the rate of inflation, if my company only made revenues equal to the rate of inflation, I would effectively make no money. But what is acceptable? i contend that as a 'for profit' organization (like Viacom), your revenues are directly tied to what consumers are willing to pay. The only way to combat this is to do exactly what CE is doing. CE is Viacoms customer and we are CE's customer. If we want the programming, we need to call and say we are willing to pay, and vise-versa.
 

AdamB

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Mar 9, 2004
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As an existing dish customer, I had to wait over 2 months on a pre-order list for my HD 811 receiver. The reason according to DISH? Each time I called, the reason ranged from "We don't have any info" to "There is an extreme shortage".

The real reason was confirmed multiple times by myself and a friend. We both called as new customers the last 3 weeks and each time was informed that we would have an HDTV receiver installed inside a week. When I called them on this, a supervisor told me that ALL the 811s were reserved for NEW customers only and apologized if it seemed unfair. :mad:

I finally got ahold of the corporate number and "vented" on the first person that answered the phone. The first thing out of her mouth was "Will next Sunday work for you?" LMAO!

I know this seems off track but this is just one example of Dish's relentless determination to acquire new customers and place us existing folks on the back burner.

What does this tell us? Priority 1 is making money with customer retention and service down a few rungs on the priority ladder. They know the existing customer will probably stay and therefore focus all the efforts on the new blood. New blood = MONEY! Call DISH as a new customer and the red carpet unfurls whereas existing customers have to call the corporate office for resolution. Too funny.

Bottomline, I wouldn't trust either of them as far as I could throw them when they talk about OUR best interests. Both are in business to make money. Plain and simple.

AdamB aka Jackie-O
 

aperry

Thread Starter
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Sep 26, 2003
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I'm gonna throw myself on the floor, scream, and pound my fists! :)

Seriously though, AdamB has some good points, and I agree that Dish has a long-standing tradition to cater to the new customers. And I think that the reason for that is touched on by him as well. Dish may lose a bit of money in getting new customers set up, but so does Direct. But as Adam says, once someone signs up with Dish, chances are they are not gonna change for a while...
 

Randy_B

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Sep 8, 2003
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Just the fact that Viacom is so quick to toss out HARD numbers like .06 cents during confidential negotiations make this pure and simple propoganda and makes anything they say highly questionable. Didn't Viacom first raise this threat JUST before the Super Bowl. Now it comes up AGAIN just before NCAA tournament. Coincidence? Blackmail is more like it.
 

A_Noland

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Sep 8, 2003
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In really reading this close it is amazing how these guys can spin this stuff so they are arguing different points.

VIACOM said:
First of all, EchoStar is hardly some small mom-and-pop operation that is being pushed around. It has more than 9 million subscribers -- 10% of all multichannel homes and 43% of all satellite households. It is the fourth largest distributor in the U.S. and as a result it has enormous negotiating power.

In Chat Monday night, Charlie's complaint was that some of the Mom and Pop companies were getting a better deal then E*.

VIACOM said:
We don't really understand why. Because despite what they are saying now, the increases we've been asking for are both modest and reasonable -- amounting to less than 6 cents per month per subscriber for all of our services (combined) including CBS and BET. To put that in perspective, I'd point out that EchoStar recently raised its rates to subscribers by as much as three dollars per month. I'd also point out that what we were seeking for all of our multiple channels together -- which include Nickelodeon, the #1 rated cable network -- was substantially less than the $2 a month per subscriber that distributors pay for ESPN alone. In all, Americans spend more than 20% of their TV viewing time watching our networks, yet our fees amount to less than 5% of what EchoStar generates from their average customer.

I would really like to know how both VIACOM and E* are doing the math. There are 2 parts of this paragraph that bother me. He says "all of our services (combined)", and "20% of their TV viewing time watching our networks." Is he talking about the 6 or 7 services that are out of contract, or all VIACOM networks, even TV Land and Spike. And does it include all CBS stations, even the non CBS O&O I watch. And just to be fair, I think Charlie's numbers are exaggerated also. Are they getting the 6cents/sub buy taking all services and dividing it by the 9mil subs? If so, that would be bad math. Is Charlie taking the largest single station increase and multiplying by 9 mil subs? If so, more bad math.

VIACOM said:
which include Nickelodeon, the #1 rated cable network

Rated number one by whom and in what demographic. Another statistic used out of context?

My point is, both sides are going to manipulate the "facts" to suite their cause.
 

dswallow

Active SatelliteGuys Member
Sep 28, 2003
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This was my best guess at making the math look consistent:


A 7% increase per year over 5 years would be a 40.2552% increase in the 5th year over the initial amount prior to the 1st increase.

http://www.forbes.com/business/newswire/2004/03/05/rtr1288924.html
EchoStar Chief Executive Charlie Ergen told reporters this week Viacom had asked for a 40-percent rate increase over an undisclosed multi-year period. But one of his own lawyers admitted in a San Francisco court Viacom was asking for an average 7-percent rate increase.

For example:

Code:
$0.857143 + $0.060000 (7%) = $0.917143
$0.917143 + $0.064200 (7%) = $0.981343
$0.981343 + $0.068694 (7%) = $1.050037
$1.050037 + $0.073503 (7%) = $1.123539
$1.123539 + $0.078648 (7%) = $1.202187

$0.857143 + $0.345044 (40.2552%) = $1.202187

The percentages work out no matter the amount, but I chose the amounts such that this years increase is $0.06, since that's what Viacom has been saying.

So, by the end of the agreement (presuming 5 years), you get a 40.2552% increase over today's rates, which is what Dish Network has been saying.

So, assuming this is to be paid for 9,000,000 customers monthly (ignoring projected subscriber growth):

Code:
Year 1  $8,254,285.71/month    $99,051,428.57/year  ($6,480,000.00/year increase)
Year 2  $8,832,085.71/month   $105,985,028.57/year  ($6,933,600.00/year increase)
Year 3  $9,450,331.71/month   $113,403,980.57/year  ($7,418,952.00/year increase)
Year 4  $10,111,854.93/month  $121,342,259.21/year  ($7,938,278.64/year increase)
Year 5  $10,819,684.78/month  $129,836,217.36/year  ($8,493,958.14/year increase)

TOTAL  $569,618,918.28/5 years  ($37,264,788.78/5-year increase)

In the 3/8/2004 Charlie Chat, Charlie Ergen mentioned some numbers:
Outrageous Demands: over $200,000,000 in additional fees, and $350,000,000 more for lower viewership channels.
Those amounts are twisted somewhat, representing the sum total over 5 years of the amount to be paid for Viacom channels, not in the sense of the increase, but in the sense of making the channels available to all subscribers even those in the lowest tier. He's probably dividing out things per channel, and looking at some of the new channels as being a percentage of the total fee, and multiplying that across 9,000,000 subscribers, over 5 years, representing an average of $0.64815 per subscriber per month in "additional" costs due to making all channels available to lower tiers.

Partly, Dish Network quoting these "outrageous" sums is because Viacom wants all these channels as part of the basic backage, not only in a higher tier, so Dish Network would have to pay the full amount for every subscriber, rather than some portion for every subscriber and some portion for upper tier subscribers who're getting more of the Viacom channels.

And partly there's some other portion representing channels he doesn't want to carry, and he's assigning some per-subscriber per-month value to those.

I say all this roughly because there's probably a little difference in how this is all to be accounted for since some of Viacom's programming are the CBS stations, which would be paid only based on subscribers to them in those geographic areas.

But notice how the numbers all kind of match with rhetoric coming from both sides?

Now before Dish Network pulled the channels, it was reported Viacom was offering closer to a 5% annual increase.

http://finance.lycos.com/qc/news/story.aspx?symbols=NASDAQ:DISH&story=200403060221_RTR_N05472956
Analysts said Viacom has demanded rate increases closer to a mid-single digit percentage rate. A source familiar with the negotiations said Viacom has now offered a 5-percent annual rate increase for its cable channels.

So running those numbers using the starting amount we derived above, what we might really be talking about now are:
Code:
$0.857143 + $0.042857 (5%) = $0.900000
$0.900000 + $0.045000 (5%) = $0.945000
$0.945000 + $0.047250 (5%) = $0.992250
$0.992250 + $0.049613 (5%) = $1.041863
$1.041863 + $0.052093 (5%) = $1.093956

$0.857143 + $0.236813 (27.6282%) = $1.093956

Now none of that seems all that outrageous financially to me. About the worst part of it is Viacom's desire to see all their channels within a basic tier, not spread across multiple tiers. And that does have slightly more effect on the total amounts involved, since it entails Dish Network paying the entire fee for additional subscribers, perhaps as many as 40%-60% of the 9,000,000 subscribers, instead of just on some subset.
 

gpflepsen

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All hail dswallow, King of the abacus! :)

That's what I was thinking. Makes perfect sense to me. Getting holed into a multi-year contract with automatic yearly rate increases of 25-75% above inflation can add up quick. Where the hell do we go after the seventh year? We are the bottom feeders in the entertainment foodchain, and as we move up the higher level predators just get fatter and fatter. You see it in sports and this is what viacom is doing. They are a victim of the system and I don't want to pay any more. Free market is great and I think here we have met the breaking point for exorbitant entertainment cost.

How can the rich get richer? If we keep paying them more and more is one way.
 

dlsnyder

SatelliteGuys Pro
Sep 8, 2003
1,826
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Moreno Valley, CA
One thing that makes me wonder is this quote from the Viacom statement above:
As we said in our statement last night, we are disturbed and disappointed by EchoStar's decision to pull the plug on our channels.

To hear Charlie tell it he was legally obligated to pull the channels when the restraining order exipired on the 8th. If this is true then what is disturbing or disappointing about it? If Echostar had continued running the channels they would have been in violation of Viacom's copyright and would have been sued immediately. If not true then Charlie could have continued carrying the channels while negotiations continued indefinately. Was Viacom disturbed or disappointed that they couldn't sue Charlie? Or perhaps because he didn't cave immediately the way everyone else did?
 

aperry

Thread Starter
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Sep 26, 2003
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dlsnyder said:
Was Viacom disturbed or disappointed that they couldn't sue Charlie? Or perhaps because he didn't cave immediately the way everyone else did?
I think you hit the nail on the head with these last two statements...

IMHO, both companies are being snivelling brats, throwing their tantrums, putting their own spin on the numbers to support their case, general name-calling, etc.. Makes me wonder if there is so much animosity between these two, how on earth will they come to a reconciliation?
 

bcshields

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Nov 28, 2003
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It's a typical little guy-good/big guy-bad argument.

Both have their ploys. Little claims victim, big guy claims immature.
 

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