Satellite

Charlie Ergen’s Inside Man

How Clayton Minded the Store While Dish Chairman Went Wireless 3/30/2015 8:00 AM Eastern
TakeAway

Dish Network founder and chairman Charlie Ergen says outgoing CEO’s Joe Clayton’s day-to-day focus and flair for marketing gave him the space to plot a new course.

Dish Network founder and chairman Charlie Ergen had a problem.

 

“There came a point in time when I realized, four years ago, that for Dish to transform itself into more of a connectivity company, that transformation was going to take 100% of my efforts,” Ergen said.

 

So Ergen reached out to longtime friend, industry veteran and fellow Southerner Joe Clayton to be his No. 2.

 

“I asked Joe if he would be interested in becoming CEO of Dish. It was at a board dinner on Thursday night. He said he was going to fly home and talk to his wife and get back to me. On Sunday, he was in Denver, ready to take the job on.”

 

That decisiveness convinced Ergen, who in the past had tapped other executives as Dish’s president and chief operating officer with limited success, that he had the right man for the job.

 

Four years later, Clayton leaves just as what could be the next transformational product for the industry — subscription over-the-top service Sling TV — gains steam.

 

‘KNEW HOW TO MAKE DECISIONS’

 

“What was different was that Joe had been a CEO and so Joe knew how to make decisions,” Ergen said. “Whereas a lot of executives will say they have to think about it and analyze it; a month later they give you an answer and two months later they move. When Joe got here, he got a monthly hotel room and a few weeks later he had a house [in the Denver area].”

 

Clayton has spent a career making decisions, including some industry-transforming ones, harking back to his days as executive vice president of marketing and sales at Thomson Consumer Electronics, where he was instrumental in the development and launch of consumer equipment for the first directbroadcast satellite TV service, DirecTV.

 

From there, Clayton moved to Frontier Corp., where he spent two years as CEO, moving to Global Crossing as president after it acquired Frontier in 1999. He served as CEO of Sirius Satellite Radio from 2001 until 2004 and was chairman of the company until 2008, when it merged with XM Satellite Radio.

 

“He was in many ways the grandfather of the DBS [direct-broadcast satellite] business,” Ergen said. “In terms of the history, he should get a lot more credit for the success of the DBS business than he does.”

 

Clayton joined Dish at a time of transition, what Ergen at the time called his “Seinfeld Strategy,” referring to the TV show’s habit of not revealing what episodes were truly about until the final minutes.

 

Ergen had spent the past few years assembling wireless spectrum assets, and analysts and investors were searching for clues into Dish’s ultimate strategy.

 

“I’ve been watching what Charlie has been doing, putting this amalgamation of assets together,” Clayton said back in June 2011, shortly after taking on the Dish job. “I’m here to help run the day-today operations. My job and my challenge is to improve the financial and commercial performance and save some time for Charlie to help put the grand vision together and complete the puzzle.”

 

And it has been a rousing success. Dish’s stock price has more than doubled in value since Clayton came on board — it closed at $27.89 per share on his first day on the job (June 20, 2011) and grew to $72.20 per share as of March 24.

 

While much of Dish’s stock appreciation over the past four years is largely due to its wireless pursuits, Clayton has played a key role in keeping the core satellite-TV business intact while laying the foundation for new products and pursuits, such as the company’s Hopper digital video recorder and the Sling TV product.

 

THREE YEARS TURNED INTO FIVE

 

But when Clayton accepted the Dish position, he initially said he would only stick around for three years.

 

“At the end of three years, I knew there were a couple of auctions coming up in 2015,” Ergen said, referring to the federal AWS-3 wireless-spectrum auctions, in which Dish was a major bidder. “I told him I needed to do the auctions, and once the auctions were over, we’d be ready to move on without him. He stayed with us an extra nine months to help us through the auction process.”

 

Those auctions could prove to be the next stepping stone in Dish’s ongoing transformation — the satellite- TV company spent about $10.5 billion in securing licenses across the country, spectrum that could be used to bolster its fledgling fixed wireless broadband service (dishNET, which now has about 577,000 subscribers mostly in rural areas) or a broader wireless product that would most likely require a partner.

 

Wunderlich Securities media analyst Matt Harrigan, who has followed Ergen and Dish for years, said that while the jury is still out on the ultimate value of the spectrum, Dish still has several opportunities to use the spectrum outside of the obvious options of selling it or building it out.

 

“I believe him [Ergen] when he says it’s not two alternatives; it’s more a matter of 10 alternatives,” Harrigan said, adding that he expects a more firm decision in the next five years. “He’s not going to get anything done by 2017, so that accelerates into 2020.”

 

Ergen, who controls the majority of Dish’s vote and has played a role in every major decision at the company since he founded it in 1994, has been largely and rightly credited with its success. But without Clayton and the rest of his team taking over day-to-day operations and embracing tasks that Ergen himself said were outside of the chairman’s own skill set, he said, Dish wouldn’t be where it is today.

 

One of Clayton’s tasks was to improve employee communications and communications throughout the company in general, something Ergen said he was unable to do.

 

“Joe’s biggest contribution to Dish is that he built on the culture we already had, but he improved it,” Ergen said. “Because this was a fulltime job for him, he was a better CEO in terms of how he communicated to employees, and he had a good eye for talent and he had a good eye to improve that talent.”

 

That culture is unlike any other Fortune 200 company, Ergen added, but perhaps because of their shared southern roots — Clayton is a Kentucky native and Ergen is from Tennessee — Clayton meshed well with the Dish mindset.

 

“We’re different than a lot of companies in the type of people that we want,” Ergen said. “We’re quite a bit different than the average Fortune 200 company. We’re looking for individuals who are willing to go on the adventure with us and who are willing to tolerate risks.

 

“That’s the epitome of the Dish culture — we’re all-in,” Ergen continued. “Once he made the decision in his mind to be all-in, he was all-in.”

 

CEO DRESSED FOR SUCCESS

 

Dish isn’t the type of company that likes to talk a lot about its plans — it would rather just go ahead and execute them, Ergen added, a concept that Clayton embraced immediately. But Clayton, who is not quite as casual a dresser as his chairman, also made his own imprint in the company.

 

“Joe’s a formal guy; he came to work every day in a suit and tie,” Ergen said. “Within a few weeks, I started noticing there were a lot more coats and ties around here. A simple thing like that probably made the discipline a little better.”

 

Clayton also brought a level of enthusiasm that was would have been unheard of under the low-key Ergen’s helm.

 

When Dish launched its Hopper digital video recorder in 2012 at the Consumer Electronics Show in Las Vegas, Clayton made the announcement holding a live kangaroo.

 

And when he heralded the latest product — Sling TV — Clayton was followed on the CES stage by a marching band and a team of actors dressed as kangaroos, a situation Ergen admitted he would be unlikely to see himself in.

 

“He’s a great promoter,” Ergen said. “That’s not a skill set I have. He improved the morale and the enthusiasm of the workforce.”

 

But Clayton wasn’t just a cheerleader. He also proved to be a valuable counsel to the chairman and one who was unafraid to point his boss in new directions.

 

Ergen remembered the initial meetings around the Hopper, a whole-home DVR that allowed customers to record entire seasons of shows and to skip commercials in select shows after their original air. It was a controversial and revolutionary product, but at first it had an extremely run-of-the-mill name.

 

“The Hopper was to be called basically the model 5000,” Ergen said. “Joe said the consumer won’t know what ‘5000’ means; either call it something scientific or call it something fun. And he said you need to make the product fun.”

 

Clayton came back a few days later with a list of possible names he and his team had drawn up, including the Hop Box — Ergen said he at first thought Clayton said “Hot Box,” which puzzled him until the CEO explained it was named for the ability to “hop” the signal across DVRs in the home, like a kangaroo. That eventually morphed into the Hopper. Ergen came up with the Joey name for the Hopper’s slave receivers, a play both on the kangaroo theme of the Hopper and (a joey is a baby kangaroo) on Clayton’s first name.

 

Even as Clayton heads off into the sunset, Ergen is still not finished with his grand vision for Dish.

 

“We’re in year four of a 10-year transition of the company, which is to transform from being strictly a video satellite-TV company to a total wireless company with connectivity at its core,” Ergen said. “Our industry is probably going to change probably more rapidly in the next four years than it has in the last four years. We have to transform with that. That’s quite of an adventure to do that because we will obsolete some of our current business.”

 

Dish’s move into the over-the-top arena with the Sling TV, a streaming video product with a core of about 20 channels including ESPN, for $20 per month, could be seen by some as a replacement for traditional pay TV. But Ergen said its main goal is to get younger viewers used to paying for what they watch.

 

“Our goal is to make sure our programming partners have a longer-term business and make more money and more revenue than they otherwise would had they not done it with us,” Ergen said, adding that Dish also is striving to get younger viewers into the pay TV universe at an earlier period in their lives. “It’s much easier to get somebody into the pay TV universe when they start college or get their first apartment, because they grow up with you,” Ergen continued. “The product this generation wants is a much different product than the one I grew up with. These people are not going to go to a grid guide and wait for American Idol to start at 7 o’clock. They grew up with Google search.”

 

Ergen doesn’t see Sling TV as the tool to dismantle the existing programming bundle either. He added that is already happening.

 

“There are plusses and minuses,” Ergen said. “We’re going to get more people into the pay TV universe, and we’re going to have more meaningful content to deliver to customers that is more personalized for them. But it’s competition to the big $100 bundle for television. That big bundle isn’t going to go away anytime soon, but it probably a mature product.”

 

TV PROVIDERS NEED TO KEEP UP

 

Ergen added that it is up to the industry to keep abreast of customer needs, something he said the Sling TV team is doing every day.

 

“We’re now getting feedback on pain points within Sling TV,” Ergen said. “We’ve eliminated a lot of the pain points in contract and ease of install and immediate gratification and so forth. But now people would like to have more streams, they would like to have the ability to record [shows] in the cloud, they would like this channel or that channel. With our partners we’re going to have to look at all of these issues.

 

“I think IPTV will be a big factor in our industry,” Ergen continued. “It will be as big as DBS was. There was cable, then there was DBS and then phone companies and what I call managed networks. Now we’re moving to the Internet and IPTV itself. Unmanaged networks, I think, are going to have a dramatic impact on our industry.

 

“Like anything else, when you have dramatic impact, there are going to be winners and losers. And our job at Dish is to make sure we’re on the winning side.”

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