Bloomberg News

AMC Seeks $2.4 Billion From Dish Over Canceled HD Deal

September 28, 2012

Dish Network Corp. (DISH:US) wrongfully ended a television programming contract with AMC Networks Inc. (AMCX:US), leaving it with “massive financial losses,” because of competition from a Dish rival, an AMC lawyer told a jury.

Cablevision Systems Corp. (CVC:US), AMC’s former owner, sued Dish in 2008 over a now-defunct high-definition satellite-TV service called Voom, claiming Dish breached their 15-year contract to offer the service to its 14 million subscribers. AMC, formerly known as Rainbow Media, seeks $2.4 billion in damages from Englewood, Colorado-based Dish, which split off its EchoStar equipment and satellite service in 2008.

“My client, Rainbow Media HD, was wronged and betrayed by EchoStar, which backed out of a contract that lasted 15 years after two years and left my client with massive financial losses,” Orin Snyder, a lawyer for AMC, said today in his opening statement in the trial in New York State Supreme Court in Manhattan.

Dish, the third-largest U.S. pay-TV company, contends that it terminated the Voom contract because Cablevision didn’t spend the required $100 million a year on programming.

“EchoStar was concerned that money be spent on the programming,” James Bennett, a lawyer for Dish, said in his opening statement. “This case is about Voom’s failure to fulfill that commitment,” he said. “They spent $100 million on the business. Not on the programming.”

Financial Threat

Snyder told the eight jurors that Dish wanted to get out of the contract because of a financial threat from a large competitor, satellite TV provider DirecTV. (DTV:US) Cable networks such as CNN and MTV were beginning to offer HD programming at no extra cost to TV distributors like Dish and DirecTV, he said.

“Dish was pre-empted by a rival announcing more HD channels at half the price,” Snyder told the jury.

The trial, before Justice Richard Lowe, may last four weeks, lawyers said during jury selection. Charles Dolan, the 86-year-old chairman of both Cablevision and AMC, is scheduled to testify for AMC on Oct. 1. His son, James Dolan, the CEO of Bethpage, New York-based Cablevision, is also expected to testify.

Cablevision spun off AMC Networks as a separate public company last year. The Dolans remain controlling shareholders in AMC.

‘Mad Men’

The lawsuit’s implications go beyond any damages award. The trial may determine whether Dish viewers will again see AMC shows such as “Mad Men” and “Breaking Bad.” Dish dropped AMC’s four networks from its system in July, saying its programs didn’t deliver the ratings to justify their price.

AMC claims the removal was because of the lawsuit.

“We’ve been off the platform for a couple of months now and we think we’re off because of litigation and not because of anything related to what our prices are for programming,” Joshua Sapan, the chief executive officer of AMC, said at an investor conference in Manhattan Sept. 12. He is expected to testify for AMC.

Dish accounted for 13 percent of AMC’s subscribers, which can determine what advertisers and broadcasters pay the cable programming company.

“Both sides have a lot of motivation to settle,” Aditi Bagchi, a professor at Fordham Law School who teaches contracts, said in a phone interview. “Maybe they will renegotiate the terms on which Dish will carry AMC’s channels.”

AMC’s “Breaking Bad” won an Emmy Award on Sept. 23 for best supporting actor and the network’s zombie-themed series, “The Walking Dead,” won for prosthetic makeup. “Mad Men” was denied a chance to be named best dramatic TV series for the fifth year in a row, losing to Showtime’s “Homeland.”

‘Separate Matter’

Bob Toevs, a spokesman for Dish, said the decision to drop AMC was “an entirely separate matter” from the lawsuit.

“The channels were essentially a handful of popular shows,” Toevs said in an interview. “For us, the equation didn’t work.”

The case centers on the meaning of what constitutes spending “on the service,” as described in the contract. AMC and Cablevision argued in their filings that an audit found Voom spent almost $103 million in 2006. Dish counters that this sum included corporate overhead expenses of at least $12 million, while the contract required the money to be spent on programming.

Bennett told the jury today that evidence will show Voom spent only about $59 million in one year on programming.

E-Mail Destruction

Before the jurors deliberate, Lowe will instruct them about Dish’s destruction of e-mails before and after the lawsuit was filed. Lowe granted AMC’s motion for sanctions, saying Dish should have anticipated a lawsuit and begun saving e-mails when it notified Voom it might terminate the contract. Dish said the e-mails were automatically deleted.

Snyder told the jury in his opening remarks that Dish had “systematically destroyed evidence.”

Cable provider Comcast Corp. (CMCSA:US) and DirecTV are the largest U.S. pay-TV companies.

Dish fell 36 cents, or 1.2 percent, to $30.61 in Nasdaq Stock Market trading. AMC rose 14 cents to $43.52.

The case is Voom HD Holdings LLC v. EchoStar Satellite LLC, 600292-2008, State Supreme Court of New York (Manhattan).

To contact the reporter on this story: Don Jeffrey in New York at djeffrey1@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net


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Companies Mentioned

  • DISH
    (DISH Network Corp)
    • $59.47 USD
    • 0.49
    • 0.82%
  • AMCX
    (AMC Networks Inc)
    • $68.8 USD
    • -0.21
    • -0.31%
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