Nets: Schwimmer's Tough But Reasonable

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With a boss like chairman Charlie Ergen, EchoStar Communications Corp.'s top programming executive had better sign low-cost network carriage deals, or he's not likely to keep his job for long.

Michael Schwimmer has held his spot as Dish Network's top programming executive since July 1997, assuming the post following a stint in the direct-broadcast satellite company's legal department.

He was promoted to senior vice president of programming earlier this year, around the same time his name was bandied about in press accounts of EchoStar's heated carriage battle with The Walt Disney Co.

If EchoStar is able to merge with DirecTV Inc. — the merger is perceived to face a tough review with federal regulators — Schwimmer's role as "gatekeeper" could be that much greater. The roughly 7 million subscribers Dish Network presently counts could nearly triple by the end of the year, if the merger with DirecTV parent Hughes Electronics Corp. closes and DBS continues its trend of solid growth.

Perhaps more than any other DBS or cable company, EchoStar has positioned itself as the low-cost pay TV programming provider. Network executives say negotiations with Schwimmer tend to proceed more easily if programmers don't try to introduce hefty rate increases or ask for carriage on Dish Network's most basic tier, America's Top 50.

That's not just because channel capacity is limited. It's also because EchoStar wants to use the power of attractive network brands to help drive customer upgrades to its higher-priced tiers: America's Top 100 and America's Top 150.

EchoStar isn't above playing hardball even with top media companies like Disney. Some might say the company enjoys such David-vs.-Goliath struggles. Its threats to drop ABC Family were resolved in April, after a drawn-out battle.

And when a contract with Disney-owned ESPN Classic — negotiated with the channel's previous owners — expired late last year, EchoStar decided to remove the network from AT100 during the negotiations, ESPN executive vice president of affiliate sales and marketing Sean Bratches said.

ESPN held separate talks about bringing Classic back to Dish as Disney was also holding talks with the carrier about ABC Family. Dish wanted lower rates; ESPN wanted Classic carried on AT50 rather than AT100.

"He knows who signs his paycheck," Bratches said of Schwimmer shortly after a new contract was announced early in April.

Schwimmer declined requests to be interviewed for this article, and EchoStar, deferring to his wishes, did not provide a photograph of its top programming executive.

GOOD TABLE MANNERS

Although both sides in the carriage spat between Disney and EchoStar made use of the press, the public acrimony didn't rear its head when he and Schwimmer sat down at the negotiating table, noted Bratches.

As a case in point, Bratches and others from ESPN and ABC Cable hosted a party at Walt Disney World for EchoStar dealers who attended an annual Team Summit retailer convention in Orlando, Fla., in April. The party was in the works even before the negotiations were wrapped up.

"EchoStar and ESPN are glad [ESPN Classic] is back on the same level of service," Bratches said. "EchoStar is very aggressive in pushing AT100, so penetration of AT100 is growing quickly."

EchoStar's overall subscriber base is also growing, a fact that hasn't been lost on programmers.

"As any of our affiliates grow in subscriber mass, there is an attempt to extract commensurate value out of the market," Bratches said. "Size matters."

While the feud over ABC Family and ESPN Classic, which was settled in April, was among the most public of EchoStar's recent programming negotiations, it wasn't the only one.

EchoStar has refused to carry Yankees Entertainment & Sports (YES) Network, a New York-area regional sports start-up that carries the lion's share of Yankees baseball games. Its reasons are similar to those cited by Cablevision Systems Corp. — it doesn't want to be forced to raise all of its New York-area subscribers' rates for a service that only some want to watch.

But the company's been able to avoid the barrage of negative publicity that Cablevision has weathered. That's mainly because competitor DirecTV does carry YES, while Cablevision customers in most of the MSO's territories don't have a choice in cable providers. A DBS merger could put more public pressure on Dish to carry channels it might not otherwise pick up.

SIZE AS LEVERAGE

In some cases, the merger is a means for EchoStar to fend off discussions with programmers that Dish can't carry at present, because of bandwidth constraints. One basic-cable programmer that has a contract with DirecTV, but with not EchoStar, said he still counts EchoStar as a done deal, given the pending merger.

Others are not appeased as easily.

The Word Network, which earlier this year engaged the help of the Rev. Al Sharpton to wage a public battle with EchoStar over carriage, was told that Dish would carry Word following the merger with DirecTV.

"We judge people on their actions, rather than their words," said Word president Kevin Adell in a statement.

Some network executives were reluctant to say that EchoStar was using its size or the pending merger as leverage.

"I haven't been treated any differently," Starz Encore Group LLC division vice president of new media Suzanne Doss said. "I can still get him on the phone."

Game Show Network president Rich Cronin said EchoStar "has been tough right from the beginning" in its negotiations, even in the days when it didn't have the leverage it now has.

But one network executive said programmers that weren't vertically integrated were able to take advantage of DBS providers' need for programming in the early days by charging rates higher than the larger MSOs, and even collecting a DBS surcharge.

Now that EchoStar could wind up with control of the sole national distribution platform, it's in a better position to turn the tables on programmers.

EchoStar and DirecTV have not yet made post-merger personnel decisions, but some industry insiders predicted that Ergen would be likely to keep such trusted lieutenants as Schwimmer close at hand.

"I don't see [Schwimmer] maliciously flexing his muscles," Turner Network Sales senior vice president of marketing and sales Coleman Breland said. "Michael really understands it's not just one negotiation. Relationships between programmers and distributors go on for years and years."

Schwimmer's keen eye on the customer has allowed Dish to progressively get its subscribers to take higher levels of programming, network executives said.

In earlier days, Dish customers were largely rural, but now there's more of a mix that includes less price-sensitive suburban homeowners, Fox Cable Network Group executive vice president of affiliate sales and marketing Lindsay Gardner noted.

BUILT $40 PACKAGE

"Michael was a key architect of the $40 AT150 package," which has established a penetration rate of 25 percent, said Gardner. "A few years ago, no one would have thought Dish could sell a $40 package."

The more robust packages generate additional revenue for Dish, and give programmers a platform for introducing their newest products.

DBS carriage is important for emerging networks, and not just because of both providers' growing subscriber base. A launch on either EchoStar or DirecTV provides guaranteed leverage against cable operators anywhere in the country.

For instance, in areas where the cable system doesn't carry GSN, Dish uses the channel as a promotional tool to show what the local competition doesn't offer, said Cronin.

"We've been able to get launches [with local cable operators] on expanded basic, and get moved from poorly distributed tiers," Cronin said.

Schwimmer is sometimes much more motivated to close a deal than he'll let on, said Gardner.

Before EchoStar moved Fox's SpeedVision (now Speed Channel) from the AT150 tier to the more broadly distributed AT100, Schwimmer knew the company was already planning a marketing campaign that promoted its position on the cheaper tier, Gardner said.

"We added 2½ million homes with the flip of a switch, but all the while he made us nervous enough to believe we could lose the deal," Gardner said.

Heated battles like the dispute with Disney served as a training ground for Schwimmer's subsequent carriage negotiations, officials from some competing networks believe.

"His learning curve has risen along with the challenges he faces in some of the tougher network deals," Court TV executive vice president of affiliate relations Bob Rose said. "That translates to the guy who's sitting in the on-deck circle."

Added Doss: "He's a tough negotiator. He's not quick on his decisions; he thinks things through. He makes us sit here and wonder what he's thinking."

But if Schwimmer is a tough negotiator, he hasn't earned a reputation for being abrasive, as top programmers at some cable MSOs have.

Programmers said Schwimmer tries to leave network executives feeling as if they've won something. But in looking at both sides of the deal, he also expects those who come to the table to see EchoStar's position.

"Michael requests and requires for people to understand his business, and not see it as just like the cable industry," Breland said.

DBS companies, for example, don't use advertising avails in the same way as cable operators, because they don't sell to local advertisers at the system level.

Perhaps that's one reason YES had less leverage with EchoStar than it did with local cable systems in the metropolitan New York area.

EYES ON AVAILS

E! senior vice president of affiliate relations Brad Fox said Dish is interested in using the entertainment network's ad avails as a cross-promotional tool to help drive pay-per-view movie buys and expanded programming packages.

While DBS providers now have enough subscribers to sell their ad avails to national advertisers, some networks don't want DBS companies to do so, because that could be seen as competing with a network's own national sales group.

Even though DBS would be selling to a smaller number of homes, one network executive said he asks Dish to sell its ad avails as part of a larger package that includes other national cable networks, rather than quoting a price for ad time on the stand-alone service.

Schwimmer comes to the negotiating table armed with more than an understanding of his company's financial goals — he also knows the programming wish lists of his customers.

"Michael really does pay attention to the programming," said GSN senior vice president of distribution Anne Droste. "His programming team literally goes around the country on weekends, knocking on doors themselves. They really know what their customers want."

Schwimmer also makes special guest appearances on the monthly customer Charlie Chat, during which Ergen often tosses esoteric programming questions to Schwimmer, who's seated in the Dish executive peanut gallery.

Just in case one of his network partners happens to be watching, Schwimmer will often reiterate the reasons why he hasn't been able to reach a deal on a particular channel.

Then, Schwimmer or Ergen typically follow up with a quip about how Dish doesn't want to raise its programming rates for everybody just to add one new channel.

Granted, programmers who agreed to speak for this story don't have a lot to gain by publicly trashing one of their biggest distributors. Still, Schwimmer was consistently painted as one of the hardest-working executives in the industry.

Part of that can be attributed to EchoStar's reputation for being lean and mean with respect to staffing. It's also a function of Schwimmer's attempt to deliver on the company's vision of becoming a 500-channel provider within a few years of its initial service launch.

SKILLED JUGGLER

On any given day, Schwimmer is likely to be juggling talks with a broadcast TV station in the Midwest, a regional sports network out East, a public-interest channel seeking carriage and a programmer from halfway across the globe.

"He's very savvy on international programming," Bravo Networks executive vice president of affiliate sales and marketing Gregg Hill said. "It's his thing."

ESPN plans to look to Dish to help it launch a Spanish-language channel, ESPN Deportes, once the programmer develops its business model. Bratches said Deportes did not play into the recent Classic deal.

During the April Charlie Chat, Ergen said Dish might drop Polish-language service TV Polonia if the company can't negotiate a new contract.

Back in the States, Schwimmer walked the floors at the annual National Association of Broadcasters convention last month in order to convince local broadcasters to sign retransmission-consent deals. EchoStar has promised to carry local channels from all 210 U.S. DMAs after it merges with Hughes. The NAB still opposes the merger.

"Michael has a very full plate right now," Rose said. "He has to build the merger scenario into any deal that is currently in play."

With or without the merger, Schwimmer likes to look ahead. Cronin said Schwimmer has started to include interactivity in his discussions with programmers.

"As [EchoStar executives] look to the future of technology, they see this as important to them, while ad avails may not be as important to them," Cronin said.

GSN plans to offer an interactive-television option that will allow home viewers to play along with certain shows for a chance to win prizes. Ultimately, the interactivity could open up future revenue streams to operators, but Cronin said talks have yet not progressed to that point.

When they do, it's likely that Schwimmer will pay attention to the fine print.

"There are some companies where the top programming executives will delegate to their attorneys, but Michael pours over every word in the contract," Cronin said.

Despite the heated negotiations — or perhaps because of them — Schwimmer has won a number of friends in the industry.

"His hard-working style creates a great deal of empathy," Rose said.

Said Hill, "I like the guy; I consider him a friend."

Then, after barely skipping a beat, he added, "On a given day, that might not be true."

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