Dolan testifies as trial begins

Dish lawyers say subpar Voom content justified decision to yank nets

As testimony got under way in the Cablevision-Dish breach of contract trial, lawyers for Dish hammered the point that subpar programming on the Voom channels may have justified Dish chief Charlie Ergen’s decision to drop the service from the satcaster’s platform, despite having signed a 15-year carriage agreement.

Cablevision chairman Charles Dolan testified about the origins of the Voom pact with Dish as well as his long history as an entrepreneur in the cable biz.

Meanwhile, Judge Richard Lowe scolded Dish attorneys for veering off on tangents, like dissension on Cablevision’s board, while Cablevision’s lawyers accused Dish of improperly withholding documents.

“I don’t care about the internal workings at Cablevision. I don’t care whether there was internal turmoil. I am only interested in having this jury determine whether Cablevision spent $100 million pursuant to the contract or they did not. Is there any word that I have

just uttered that is not understood?” Lowe asked Dish attorney Charles Kerr on the first day of testimony in New York State Supreme Court in lower Manhattan. Cablevision’s lead counsel Orin Snyder accused the satcaster of withholding documents and asked that they be produced. Kerr objected, but Lowe scolded him.

“Considering the track record of the company, you sort of lack credibility,” he said and agreed to review the materials in chambers. If he agrees they were inappropriately held back, he could issue further sanctions against Dish, which has already been censured for destroying evidence in the case.

AMC Networks CEO Josh Sapan, a former Cablevision programming exec who was closely involved in developing and launching Voom, said Dish execs had made comments about its programming but never raised it as a defense for dropping the service, a move that forced Cablevision to shutter Voom for lack of distribution.

Voom was a suite of 21 channels, later pared down to 15, from animation to kung fu to music and extreme sports. Dolan launched them in 2003 to jump-start a nascent high-definition industry. Cablevision, whose subscribers are clustered in the New York area, needed a national footprint for Voom so it built and launched a new specialized satellite for $300 million. But, Dolan admitted, it bungled on marketing and customer service, and Cablevision’s jittery board pulled the satellite service and sold the bird to Dish, for $200 million. It then hashed out a 15-year affiliate deal with Dish that’s at the heart of the lawsuit.

Dish committed to paying $3.25 a month per high-def subscriber with the fee rising by 5% annually for the life of the deal, which started in 2005. Cablevision agreed to invest $100 million a year in the Voom service for five years while granting Dish a 20% equity stake in Voom.

Dish dropped the channels in 2007, claiming Cablevision didn’t invest the $100 million as promised. Dish insists spending on “the service” meant programming only.

Cablevision sued for breach of contract and $2.4 billion in damages. And Dolan and Sapan insisted Monday the $100 million was meant for Voom’s overall business including salaries, marketing, overhead and other expenses in addition to content. The figure, Sapan said, was based on Voom’s detailed operating budget for previous years and was thoroughly vetted by Dish lawyers and executives.

“We knew how much it cost (to run Voom). Everyone knew,” Sapan said. “They raised some questions and we had some specific discussions about travel expenses and payment expenses, and how you fly. They were sort of jesting that we live high in a way they did not.”

Sapan said the deal would currently be in year seven with Dish paying $4.25 per subscriber. He acknowledged that Voom’s channels were not well known and had no hit shows.

Snyder showed the jury video promos and clips from a handful of Voom channels. Dolan said he hoped Voom could drive viewer interest in high-def programming.

“We wanted to become part of its future. We believed it would become the standard. It was very limited, there was no programming, so even though the television sets became available, they were expensive and there was very little incentive to buy them,” Dolan said. “We were enthusiastic about it and we thought if you give the audience some experience with a group of channels covering a wide range of interests in the households, then that itself would become an incentive to buy the HD television set.”

Snyder took Cablevision’s 85-year-old founder through a history of the U.S. cable biz to highlight his long experience and the fact that he’s got a talent for spotting long-term investments that lose money at first but turn profitable, such as Manhattan Cable (the precursor to Time Warner Cable), HBO, AMC and Bravo.

Sapan will finish direct and go on to cross examination this morning. It now seems unlikely that Cablevision CEO James Dolan, son of Charles Dolan, will testify.

The next high-profile witness will be Ergen, who is expected to be Dish’s first witness. The trial is expected to last about three weeks.