AMC Networks Inc. (AMCX:US)’s escalating feud with Dish Network Corp. is increasing the risk of a prolonged blackout of its shows on the satellite provider’s network, potentially costing AMC tens of millions of dollars.
Dish, founded by billionaire Charlie Ergen, said last month that it wouldn’t renew its contract with AMC, which runs out at the end of June, because the company’s four stations -- AMC, We TV, IFC and the Sundance Channel -- had “very limited popular programming.” While talks continue between the two sides, Dish demoted the location of AMC’s channels on the dial early yesterday morning, increasing tensions between the companies.
Losing Dish’s 14 million subscribers for several months or more would be “a big deal” for AMC shareholders, said Brett Harriss, an analyst at Gabelli & Co. in Rye, New York. AMC, whose chairman is cable magnate Charles Dolan, probably charges every Dish subscriber about 50 cents for its networks per month, Harriss said. That’s about $21 million of “high margin” revenue if a blackout lasts three months, he said.
“This is material,” said Harriss, who has a hold rating on AMC stock. “Both Charlie Ergen and the Dolans are litigious, and AMC is caught in the middle.”
AMC began running advertisements two days ago during new episodes of its TV shows, including “Mad Men,” that urge Dish customers to call a toll-free phone number connecting them with Dish salespeople. AMC claims Dish is dropping the networks as a response to a court ruling that denied the satellite-TV company the right to appeal an outstanding lawsuit. That case stemmed from the failure of high-definition stations that aired on Dish.
“It is unfortunate that, in retaliation for an unrelated lawsuit, Dish is punishing its customers by threatening to drop the AMC Networks,” said Georgia Juvelis, a spokeswoman for New York-based AMC.
Dish pushed down the location of AMC’s networks from the 100s to 9600s around 2 a.m. yesterday morning, Juvelis said. The satellite service also eliminated AMC’s Sundance channel in May.
“We chose to move AMC, IFC and We TV to an area that reflects their ratings,” said Bob Toevs, a spokesman for the Englewood, Colorado-based company, which ranks second to DirecTV in U.S. satellite customers. HDNet replaces the AMC channel on the dial. The Style channel will be in We’s position, and Indieplex replaces IFC.
Talks between the companies are continuing and Dish hopes for a resolution, Toevs said. Dish sees the lawsuit as a separate matter than the channels’ low viewership, he said.
Dish also is waging a legal fight over its Auto Hop technology, which lets customers skip ads in programs on their digital video recorders. News Corp.’s Fox Broadcasting Co., Comcast Corp.’s NBCUniversal and CBS Corp. have sued Dish, alleging that their copyrights are infringed by the service. The satellite provider has sued the companies as well, seeking a ruling that Auto Hop doesn’t infringe copyrights or breach license agreements with the broadcasters.
AMC was watched by an average of 1.23 million people in prime time this season, according to Nielsen Holdings NV. That puts it behind cable networks such as News Corp.’s FX and A&E Television Networks’ History Channel.
AMC is also running pop-up ads on its “Mad Men” website warning that Dish (DISH:US) customers won’t be able to watch new episodes of the show. “Mad Men” and AMC’s “The Killing” have their season finales this month. AMC’s most popular show, “The Walking Dead,” concluded its season earlier this year.
Dish customers will be able to see this season’s final episodes before the contract runs out, Toevs said. The signal is set to go off the air around midnight on July 1.
About 20 percent of AMC’s earnings before taxes, interest, depreciation and amortization “could go away” if Dish is blacked out for an entire year, said Harriss, and that doesn’t account for additional losses in advertising sales.
Dish rose less than 1 percent to $27.09 at the close in New York. AMC gained 0.3 percent to $38.23.
AMC Chief Executive Officer Josh Sapan said during a presentation last month that Dish’s decision to drop the channels was “litigation motivated.”
AMC, then a unit of Cablevision Systems Corp. (CVC:US), had filed a breach-of-contract lawsuit against Dish seeking $2.5 billion over the removal of AMC’s Voom collection of high-definition channels in 2008. A judge ruled that Dish destroyed evidence in the case, a finding Dish appealed. The suit is now set for trial, AMC said in a statement last month.
The Voom litigation has “impacted our relationship with Dish,” Sapan said.
Dish says the issue is ratings, not the lawsuit. AMC programming has a “very, very, very low viewership” outside of a few popular shows, which are already available through Apple Inc.’s iTunes and Netflix Inc. (NFLX:US), Ergen said during a conference call last month.
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