EchoStar Communications CEO Charlie Ergen has a history of playing hardball with programmers and vendors.
Over the years, his Dish Network direct-broadcast satellite service has temporarily dropped channels, such as Lifetime Television, in contract disputes. And EchoStar has been involved in all kinds of litigation, most recently suing a set-top distributor it alleges is a signal pirate.
But last week the satellite provider's history of rancorous relationships took a new turn. EchoStar's longtime ad-sales rep firm, Turner Media Group, also known as The Media Group, accused the satellite company of trying to shut down its business by dropping its eight networks and forcing it to file for Chapter 11 bankruptcy protection.
In legal papers, Denver-based TMG alleged that EchoStar for the past eight months has been engaging in “a blatant crusade” and “systematic scheme” to try to capture TMG's “revenues, profits and assets.”
According to TMG, EchoStar is essentially trying to squeeze it out of the ad-sales business. EchoStar has apparently been looking at its options, and recently struck a deal for Google to sell part of its ad time, although TMG still had been selling the majority of its inventory.
Last week, officials at DirecTV and EchoStar both said it might make sense for them to team up on ad sales. EchoStar president Carl Vogel pointed out that the two satellite providers could create “a 30 million-subscriber interconnect,” which could offer advertisers “a compelling opportunity.”
But EchoStar officials may learn that ad sales, like lobbying in Washington, “is a lot harder to do than they assume,” said Jimmy Schaeffler, chairman of The Carmel Group, a consulting firm.
TMG's The Ad Group has been EchoStar's ad-sales rep firm since 1998, selling the majority of Dish Network's available ad inventory for 30-second spots and interactivity. Dish, which has also carried all eight of TMG's transactional national networks, dropped them July13 as part of the ongoing dispute.
In its Chapter 11 filing, TMG said that it plans to dispute the $24 million claim that EchoStar, its largest unsecured creditor, is seeking. There are 20 unsecured creditors with more than $27 million in claims, a group that includes not only EchoStar, but Time Warner Cable Direct, DirecTV, Comcast Spotlight, Comcast Media Center and Ensequence.
“TMG failed to pay EchoStar millions of dollars owed under a valid contract negotiated in good faith,” EchoStar spokesman Kathie Gonzalez said in a statement. “TMG admits in its bankruptcy filing that TMG owes EchoStar, at least, $3 million dollars which they refused to pay. It is unfortunate that TMG filed for bankruptcy, but we will vigorously pursue all of our claims to recover the monies owed to us.”
Last year, the rep firm had $73 million in revenue and $200 million in billings, according to a declaration of TMG president Gary Turner that was filed last Monday.
This year, TMG “will realize only a fraction of that amount,” because EchoStar forced it into a re-negotiated contract, terminated that deal and then demanded about $23 million under that agreement, according to Turner's statement.
On top of is pact to handle the satellite provider's ad sales, in 2005 TMG reached a five-year agreement with EchoStar for Dish Network to carry all eight of its networks under a revenue-sharing agreement. Dish dropped them in July.
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