The Importance of Being Earnest

BY ALICIA MUNDY Two words provide an object lesson in the vital importance of proper and competent political representation in Washington: Charlie Ergen. The proposed merger of his EchoStar Communications with General Motors’ Hughes Electronics unit’s DirecTV seemed, at least at the outset, a pretty good idea. Lawmakers, angry over ever rising rates, were eager to see a stronger, more potent competitor to cable. Ergen even went into the regulatory review process with a most unlikely ally, Consumers Union, which would normally indicate to lawmakers and regulators that this merger would benefit consumers by introducing stronger competition to the marketplace. But it failed, and it provides a potent lesson in what can happen when a company underestimates the importance of being earnest in Washington. You can ignore the rules of the capital, refuse to dance its complicated minuets and portray the media bigwig with the requisite disdain for “inside the beltway” machination. But, says a lobbyist for one of the Big Four broadcast networks, “You do so at your own peril.” When insiders discuss Ergen’s failure, they don’t cite antitrust laws — after all, laws are made to be massaged. They cite his lack of lobbying strategy, his choice of allies on the Hill and how he missed the opportunity to make nice with enemies such as the National Association of Broadcasters, before he announced his plans. The EchoStar story is a textbook case of what not to do in this town. After interviews with two dozen Washington lobbyists and lawyers, on all sides of the issues and with different party affiliations, a consensus becomes evident regarding what a media company must do to game the system in the capital. First: Don’t be cheap (either in money or prestige) with your Washington office. Second: Your government relations director should be a company executive, a part of your management team, not just another person in your general counsel division. Third: Be proactive; make sure your rep knows how to recognize a policy initiative, and when to salute it. Even if you’re only paying lip service, pay it fast, don’t wait to be dunned for the bill. Fourth: On a major policy or merger initiative, lay the groundwork first with allies and, when possible, co-opt your enemies. Fifth: Listen to your lobbyist. Sixth: Don’t be a stranger — and don’t come to Washington just to ask for something. As the Bible says, “’Tis more blessed to give than to receive.” A large corporation — or smaller companies that aspire to the same — must establish, or hire, a first-rate lobby shop. Politicians and regulators want to deal with people who are in the decision-making chain of command and with lawyers who are smart. They can tell when a lobby team isn’t taken seriously internally by the CEO. “Even if the CEO doesn’t see the [Washington] office adding to the bottom line, a smart CEO knows its value to the corporation,” says Bert Carp, one of the preeminent cable lawyers here. His comments are echoed by a broadcast lobbyist who did not want to speak for attribution: “Your lobbyist or rep needs a title and authority — you don’t send your communications flack up to the Hill or to the FCC.” The lobbyist says it’s a “big mistake to make the lobby shop an arm of the general counsel’s office.” A veteran cable industry lawyer concurs: “Politicians can smell power and sniff out weakness. They want a vice president coming to them, and they hear about changes or problems in lobby shops.” The powerhouses at Disney/ABC, Viacom/CBS and News Corp./Fox are major players in Washington in part because they are players inside their own companies. Preston Padden, Carol Melton and Mike Regan report to ABC president Bob Iger, CBS’s Mel Karmazin and Fox’s Peter Chernin, respectively. NBC’s chief lobbyist, Bob Okun, is well-respected and wired in, but, says a colleague, “he reports to the general counsel, and that can cost you turn-around time and too much debate.” That chain of command issue can get in the way of proactive maneuvers and preemptive strikes. Disney’s Padden made sure ABC was the first to embrace the Powell Plan for the digital transition last year, encouraging Bob Iger to promise HDTV programming for 2003. The fact that ABC’s version of HDTV, 720P, has never actually been seen in its native format because nearly all HDTV sets on the market use the 1080i standard, became irrelevant in the wake of ABC’s smart preemptive tactic. Conversely, Robert Sachs of the National Cable and Telecommunications Association was hampered by having to vet the plan first with his fractious board of MSO CEOs. And the NCTA became the poster child for the digital transition “stall.” On subsequent issues, including must carry, Sachs pushed his board out in front, particularly on the widely applauded agreement on plug-and-play with the consumer electronics industry last month. One of Sachs’s detractors at a cable firm, who would not speak for attribution, allows, “That was a major achievement.” The agreement was signed by the MSOs themselves, and therefore, this person says, it will probably garner more support at the FCC if studios and content providers attack it this year for not including more copyright protection. “Robert’s moving faster now to respond and anticipate problems,” this person says. “Most of what we do here is to show our clients the lay of the land and help them see that certain business decisions will play better in Washington than others,” says cable attorney Carp. Years ago, as VP at the NCTA, he saw how Washington pols reacted to the cable operators’ attempts to maximize profits rapidly by raising rates. Congress retaliated by regulating prices. The next NCTA president, Decker Anstrom, finally got cable deregulated, but he did it by making members understand that deregulation would be a long-term plan, and it would require businesses to invest in upgrading their systems to regain Congress’s favor. Among the cable shops, Cox’s in-house reps, the veteran Alex “Netch” Netchvolodoff and lawyer Sandy Wilson, have helped their company get out in front on the touchy issues of cable costs and retransmission consent. In a recent filing at the FCC opposing a rise in the broadcast network ownership cap, Cox’s lawyers played hardball by slamming network consolidation and accusing the nets of abusing retransmission agreements. They are likely to react similarly when Congress starts in on cable rates: Cox will be first in line to bash programmers, many of which are owned by broadcasters, for ever-increasing license fees. The strategy to make Cox a “good guy” among the MSOs is “very smart,” says another cable lobbyist. Unfortunately for the cable business, that intelligence pretty much stops with Cox. Of the other MSOs that make up the top six, AOL Time Warner has been AWOL since its merger. Though the company retains many top Washington law firms as outside consultants, the departure of Tim Boggs and Cathy Nolan left the new AOL TW conglomerate without marquee-name lobbyists to speak for it. Charter and Adelphia are more concerned with criminal lawyers than they are with lawmakers. Cablevision has a presence with Mintz Levin but no high-profile executive in Washington. And Comcast, the biggest of all, is still working to mount a lobbying effort suitable for a company with its size and influence while trying to erase the legacy of AT&T Broadband’s mostly failed lobbying effort. The AT&T operation, say many lobbyists, reflected the schizophrenia of its last business plan. A former AT&T executive who won’t speak for attribution says that when AT&T bought MediaOne, the “phone” guys continued to run the lobbying operation using “phonethink.” This meant that in the grander scheme, AT&T couldn’t provide key support to the cable industry commensurate with its broadband division’s size. This has troubled some people at the NCTA. Now that Comcast is the nation’s largest cable operator with 24% of the market, it needs a Washington insider’s insider — and it needs it yesterday. NCTA’s Sachs and others have been urging Comcast to beef up its one-man shop here with a high-profile powerbroker. Anne Wexler’s firm, the Wexler Group, has been handling much of the MSO’s Washington relations, along with Comcast’s Jim Coldtharp in D.C. and Comcast VP Joe Waz, who works out of Philadelphia. However, “Comcast needs a high-profile lobbyist who’s established here, and a full-size shop,” says a lobbyist for another programmer. “Last year, if news stories mentioned rate hikes, they cited Cox and Time Warner first. Now, because of its size, the stories lead with Comcast. They will be in the thick of issues such as cable rate increases, sports programming costs, program access. They must get more of a presence here.” Comcast has hired Philadelphia lawyer David Cohen to oversee its legal and government relations divisions. The former chief of staff to Philly mayor (now Pennsylvania governor) Ed Rendell, Democrat Cohen made pals with Republicans as a member of the host committee for the 2000 GOP convention. He’s in charge of a large headhunter operation to find and anoint Comcast’s D.C. “presence,” who will report to him. Of course, it always helps the corporation if the CEO is likable and can project humility and humor. Mel Karmazin did stand-up comedy two years ago during a touchy Senate hearing on media consolidation — and he always makes little thank-you calls, which matter a lot. And though Insight Communications makes good use of its reps at Fleischman & Walsh, it’s CEO Mike Willner’s charm and self-deprecating humor that help advance the agenda for Insight and the NCTA when politicians are calling for cable people’s heads. But sometimes nice guys finish last. That’s when smart lobbyists gauge the atmosphere and go to war. After a couple of years of trolling Congressional offices in search of support for lifting network caps, News Corp. filed suit against the FCC two years ago and brought in firepower from CBS and NBC. The FCC tried to duck the matter, hoping D.C.’s Appeals Court would relieve it of having to review all the ownership rules in the FCC’s Biennial Review. News Corp.’s Regan and Viacom’s Melton had enough experience with that court to know they stood a good chance of getting the cap raised if they pushed the matter. Now it’s in play, and network affiliates — and the National Association of Broadcasters — are worried. This is how Ergen went wrong. A well-wired lobbyist can keep you from making allies among the outsiders and ticking off the insiders. Ergen attached himself early to someone who appreciated his maverick style — Sen. John McCain (R-Ariz.). But when it began looking like Ergen’s deal was in trouble, McCain couldn’t help him because of his own estrangement with his party. Few Democrats wanted to go out on a limb for someone who so publicly embraced a GOP senator. In addition, had Ergen been listening to his lobbyists and not to his own echo, he might have prepared much earlier to make additional alliances among the Senate Judiciary members such as Sen. Mike DeWine (R-Ohio) and have worked out numerous sticking points before he unleashed his proposal. Another alliance Ergen’s supporters urged was the NAB. Their Hill lobbying is still the tops, despite losing three networks as members. If the NAB had been working with Ergen, their joint efforts to portray the deal as an antidote to high cable prices might have won out. As it was, Ergen so infuriated the NAB with his resistance to transmitting local broadcast stations (a case he lost in court), they put on a full-court press to beat him. At the same time, News Corp. lobbyists were working behind the scenes to position Rupert Murdoch as a white knight who would come in and buy DirecTV and introduce even more competition than a combined DirecTV/EchoStar would have provided. Though as this story went to press News Corp. had not made a formal bid for DirecTV, it is widely expected to do so, perhaps in concert with Liberty Media. So it is too early to tell for sure who won and who lost. Either way, the lesson remains the same. BERT CARP: Now at Williams and Jensen, he’s the godfather of cable lobbyists; clients include NCTA and AOL TW. Carp used to work at TW and Turner, where he midwived mergers. HOWARD SYMONS, BRUCE SOKLER and BEN GRIFFIN: The players at Mintz Levin, Cohn, Ferris helped keep the AOL agreement with Comcast and AT&T under wraps at the FCC. Clients include NCTA, AOL TW and Cablevision. Hidden Treasure: MARK BUSE, who’s in their lobby shop ML Strategies. Buse was McCain’s man for years and has great credibility on the Hill. SETH DAVIDSON and ART HARDING: The Fleischman and Walsh team keeps regulatory problems at bay. Davidson (former NCTA counsel) ran interference for the AOL TW merger. The shop’s clients include AOL, Insight, Hallmark and NCTA. New addition: LOUIS DUPART, formerly a Senate Judiciary staffer, brings Hill connections. PHIL VERVEER and MIKE HAMMER: They’ve been working antitrust and cable cases for 20 years. Had a major role in the new plug-and-play agreements and helped draft the cable provisions of the Telecom Act. Their shop, Willkie Farr & Gallagher, counts Comcast and Matsushita among its clients. Cable and network reps call Verveer for antitrust advice. ALEX “NETCH” NETCHVOLODOFF and SANDY WILSON: Cox’s lobbyists are taking on rising cable prices and putting the blame for them in the lap of programmers. DICK WILEY and LARRY SECREST: The Wiley, Rein & Fielding attorneys are go-to guys for broadcast issues. The shop represents Gannett, Viacom, the Newspaper Association and AOL TW. They’re what the cable lawyers have to go up against on digital issues. Hidden treasure: ROSEMARY HAROLD. JONATHAN BLAKE and JERRY WALDRON: At Covington and Burling they represent affiliate stations fighting the networks. Kept their petition against network “abuses” on life support at the FCC when Michael Powell wanted to pull the plug. The shop is lead counsel for the coalition pushing “nondiscrimination” by cable companies in broadband access. The Washington Post is a client and the shop often works in tandem with NAB. CATHY NOLAN: Formerly with TW, she helped with the AOL merger. Now consults for NCTA. TOM DOWNEY and RAY MCGRATH: The former congressmen help polish NCTA’s image on the Hill and work on tax issues affecting the cable and entertainment industry. Their Downey McGrath Group has AOL TW for a client. CAROL MELTON, DEDE FERRELL LEA, GAIL MACKINNON and ANNE LUCEY: They’re the in-house shop at Viacom/CBS. Pushed CBS into fighting the network cap in court — and got it where they want it. MIKE REGAN and MAUREEN O’CONNELL: The News Corp. veterans who turned the Chris Craft merger into a network cap challenge. Helped torpedo Ergen’s EchoStar deal without leaving a single fingerprint. Rupert’s hidden treasure: IVAN SCHLAGER at Skadden Arps helps prep Rupert Murdoch and Roger Ailes on the Hill. PRESTON PADDEN and SUSAN FOX: The duo at Disney/ABC made “access lite” and “nondiscrimination” major issues in broadband action at FCC and on the Hill. Helped stall the AOL TW merger two years ago with “Apocalypse Now” predictions of gatekeeper prohibitions. Will be in the thick of cable rate-programming cost battle. Hidden treasure: Terry Southwick’s copyright expertise.