News

It's Show Time for Ergen

5/16/2008 8:00 PM Eastern

Charlie Ergen is about to find out whether his competitors — cable operators — will become his customers.

Ergen's technology company, EchoStar, will be selling its first product for the cable industry, the SlingModem, at The Cable Show in New Orleans this week.

This is the first time EchoStar, which was spun off earlier this year from Ergen's satellite service Dish Network, has been an exhibitor at the cable confab. The vendor will be demonstrating its CableLabs-certified DOCSIS 2.0 modem with “Sling” capabilities.

By connecting the SlingModem to a coaxial cable input or set-top, cable customers can “place-shift” TV programming to Internet-connected devices — like personal computers or mobile devices — and watch it.

On the one hand, Dish Network chairman Ergen competes with cable companies — and DirecTV and telcos — for video customers. But he's also chairman of the new separate public company EchoStar, which is looking to sell not only modems, but also set-tops to the cable operators that are Dish Network's rivals.

The set-tops, like the modems, will likely integrate the place-shifting capability of Slingbox, Sling Media's first product.

Even Ergen has conceded that cable companies may be reticent to buy his SlingModem and set-tops.

“My experience has been that normally companies get emotional about decisions, so they don't always make the long-term choices,” Ergen said during EchoStar's first-quarter call last week.

“We'd be happy to talk to them, and they'd certainly get a fair deal,” he said. “We buy programming from our competitors, so it's not an issue for most management teams. But emotion does come into play, I think.”

EchoStar Technologies, an EchoStar unit, claims that even in advance of the show, it has already had preliminary talks with officials at major cable companies about its new modem.

Those “chats” can be a little difficult at first, because cable executives still remember some of the ads that Dish Network has run in the past that harpooned cable, like the TV spots that depicted cable as a hungry pig ravaging through a home, according to Mike Hawkey, vice president of sales and marketing for EchoStar Technologies.

He is the one on the road pitching SlingModem, which was unveiled at the 2008 Consumer Electronics Show in Las Vegas in January.

“There is a lot of — I'll use the word trust — that needs to be built up with the [multiple-system operators] and the IP people because hey, he [Ergen] still owns the other company,” Hawkey said.

“That said, we've already had several meetings with top management across the Top 5 MSOs and after the round of chuckling and the 'Well, we remember the old cable pig ads,' when we get down to brass tacks, what do we offer that would entice them?” Hawkey said. “We offer the place-shifting technology with Sling.”

Ergen and Hawkey believe EchoStar's SlingModem and set-tops can overcome cable-operators' qualms because the place-shifting feature is a differentiator that will give them a competitive edge over other video providers.

Hawkey wouldn't discuss SlingModem's pricing.

EchoStar includes Dish's former set-top and fixed satellite businesses, along with Sling Media, which was acquired last fall for $380 million. Right now, EchoStar sells its set-tops to Dish Network, the Canadian satellite provider Bell ExpressVu and some international customers.

Some analysts still predict that EchoStar will have a tough time selling modems and set-tops to domestic pay TV providers.

“I think internationally they probably have a lot more potential,” said Derek Baine, an SNL Kagan analyst. “The U.S. market is really hard to break into. Particularly, trying to sell an EchoStar box to a cable operator would not be a real easy proposition.”

Janco Partners analyst April Horace has similar reservations.

“I think that's been a question that many have asked from an investor standpoint: Who is EchoStar's first customer going to be beyond Dish and Bell ExpressVu?” she said.

“What EchoStar's going to have to do is prove that their boxes are equal to or better than existing set-tops boxes and compete on price,” Horace said. “He's [Ergen] just becoming a new entrant, similar to Pace and Samsung and Panasonic. Each of those companies have all had to prove over time that their set-top boxes are equal to or better than the existing Motorola and Scientific Atlanta set-tops. And they've also had to compete on price.”

Hawkey argues that unlike other set-top makers, EchoStar has the insight of having been part of a Dish Network, a company that runs a pay-TV service, one with 13.8 million subscribers. That gives EchoStar operational experience that most set-top makers don't have.

“The most compelling thing that I tell them [cable operators] is, I have scale, I build millions of boxes a year, I can get you a great price,” Hawkey said. “But what if I show you ways to save two or three bucks a month on servicing your customer, on supporting your customer, on variable costs.”

According to Hawkey: “At the end of the day, these guys are all businessmen. They've got a bottom line to meet, too, and if I can show them those ways and prove the ability to cut their operational costs, bygones are bygones and they're open to working with us. Is it going to happen overnight? No.”

With Sling technology possibly getting wider deployment via modems and set-tops, analyst Baine said EchoStar may face problems from TV programmers who object to the content being place-shifted from TV sets.

“That's another 20 lawsuits waiting to happen,” Baine said. “It's a cool technology, but programmers are not really too happy about having their content slinged around all over the place.”

But Hawkey denied there are any legal issues with TV networks, pointing out that the Slingbox product has been out in the market for two years.

“Place-shifting for yourself has no further legal concerns,” he said. “It's clean for us. We're not having any lawsuit issues at this time and we don't anticipate any.”

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