Trial in NY state court starts Wednesday
AMC Networks and Dish are due in court this week, with jury selection starting Wednesday in lower Manhattan for a breach of contract trial. Opening arguments may start as early as Thursday with Cablevision chairman Charles Dolan and AMC chief Josh Sapan taking the stand. Proceedings could last three to four weeks.
AMC has long maintained that the reason for the ongoing carriage dispute between the companies — Dish yanked AMC Networks’ AMC, Sundance, IFC and WeTV months ago — is that Dish has been seeking to gain an advantage in the unrelated litigation.
As the court date looms, industry players are increasingly surprised the parties haven’t settled, especially Dish. The satellite service could be on the hook for up to $2.5 billion plus another $1 billion in interest. And Dish was sanctioned by a judge in the case for destroying evidence, which may not sit well with a jury.
“I’m scratching my head. If my clients were in this, I would have counseled a settlement,” said one entertainment attorney. “My sense has been from the get-go that this is litigation strategy of digging in their heels to get some advantage. It still seems extremely likely they will settle.”
Wall Street thinks AMC, too, would be best served by putting the case to bed. “We view any lack of settlement before the trial commences as negative for our AMC Networks rating given the unpredictability of a jury trial and the continued carriage disruption for AMC’s channels,” wrote Benjamin Mogil in a note to clients earlier this month.
“We are confident that once the jury hears the evidence in this case they will conclude that Dish Network illegally terminated its contract with Voom HD,” said Orin Snyder of Gibson Dunn, who represents Cablevision, in a statement.
AMC sued Dish for breach of contract after the satellite service dropped a suite of 15 high definition channels called Voom back in 2007, just two years after Dish had committed to a 15-year contract with escalating annual fees and taken a 20% equity stake in Voom. Cablevision, for its part, committed to investing $100 million a year over five years in the channels.
When Dish dropped Voom, it accused AMC Networks, which used to be called Rainbow Media and was 100% owned by Cablevision, of reneging on the contract by not investing the required amount on programming during 2006. Rainbow insisted in its lawsuit that Dish was mainly desperate to get out of a deal it no longer liked. Rainbow had invested $112 million in Voom that year but spent part of that on overhead and other expenses.
It came down to semantics. The contract stipulated $100 million spent on the service. Dish defined that as programming only; Rainbow viewed it more broadly.
Rainbow called Dish’s termination of the contract a classic case of buyers remorse as high-def programming soon became available for free from major programmers. Dish had committed to a flat rate per high-def sub with escalating fees over the life of the contract. Dish requested rate relief, which Cablevision rejected. The service, which was also carried by Cablevision and was the focus of a heated debate internally, was shut down after Dish pulled out.
The litigation became muddied this summer by another carriage fight between the two sides. In June, Dish dropped AMC’s lineup of four networks from its service. The move was a blow for AMC, which is now a standalone public company. AMC claimed it was a ploy for Dish to gain leverage in the old litigation as the trial approached. Dish insisted that not enough of its subscribers watched AMC’s channels, which include flagship AMC, IFC, WeTV and Sundance. Dish has replaced them all with alternate programming.
The two companies still have a few days to settle. If they do, an agreement could include a carriage deal and limited or no cash upfront, which would be the best result for AMC, analysts say. Any cash settlement would be split 50-50 between AMC and Cablevision, but Wall Street seems to believe AMC needs the carriage more than the cash.
Lobbying in the court of public opinion has been intense. AMC, home of popular series “The Walking Dead,” “Mad Men” and “Breaking Bad,” started a website called “Put Zombies Back on TV.” EchoStar chairman Charlie Ergen on a recent call talked about how much more he likes doing business with Mark Cuban, whose HDNet Movies replaced AMC on Dish, than with the AMC folks. “I’ve had satellite television for as long as satellite television has been around, and there’s never been one minute that I know of anybody in my family, or anybody who’s came to my house, has ever watched one second of any of those channels,” he said.
So far, said Mike Morris at Davenport & Co., “The only winners to date have been the analysts who were treated to an entertaining Dish earnings call during which Charlie Ergen extolled the virtues of the ‘Godfather’ approach to doing business.”