Charles Dolan, founder of Cablevision Systems Corp. (CVC:US), told a jury there’s “no question” its high- definition television service would have made money if Dish Network Corp. (DISH:US) hadn’t terminated their deal to broadcast it.
Dolan, 85, who is also chairman of Cablevision and AMC Networks Inc. (AMCX:US), was the first witness in the trial of a lawsuit in which AMC claims Dish wrongfully ended their TV programming contract after two years, leaving it with “massive” losses.
Cablevision, AMC’s former owner, sued Dish in 2008 over the now-defunct HD satellite-TV service called Voom, claiming Dish breached their 15-year contract to offer the service to its subscribers. AMC seeks $2.4 billion in damages from Englewood, Colorado-based Dish, which was founded by Charles Ergen and formerly known as EchoStar.
“Charlie was always enthusiastic about the service,” Dolan testified today in New York State Supreme Court in Manhattan. “We could anticipate a large number of his 12 million customers would buy that HD service, and that was rapidly coming to pass.” Dolan said other cable channels he had developed, such as Home Box Office and Bravo, took years to become profitable.
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. Dish now has 14 million U.S. satellite subscribers.
“EchoStar was concerned that money be spent on the programming,” James Bennett, a lawyer for Dish, said in his opening statement to the jury on Sept. 28. “This case is about Voom’s failure to fulfill that commitment,” he said. “They spent $100 million on the business. Not on the programming.”
Orin Snyder, a lawyer for AMC, told the eight jurors in his opening remarks that Dish wanted to get out of the contract because a large competitor, satellite TV provider DirecTV (DTV:US), was offering more HD channels at a lower price to subscribers. Cable networks such as CNN and ESPN were beginning to offer HD programming at no extra cost to TV distributors like Dish and DirecTV, he said. Dish was paying AMC about $3.25 a month for each subscriber in the first year of the contract, with 5 percent increases in the fee each year.
“They could obtain HD from other sources without paying for it,” Dolan said today.
Monsters, Kung Fu
After Dish terminated the contract, Cablevision shut down Voom, which had supplied 15 HD channels to Dish, including Monsters, Rave, Kung Fu and Gallery.
“EchoStar was our anchor,” Joshua Sapan, AMC’s chief executive, told the jurors today. “EchoStar is a national platform. We lost the ability to gain popularity across the United States.”
The case centers on the meaning of what constitutes spending “on the service,” as described in the contract. AMC and Cablevision argued in their court 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 jurors in his opening statement that Voom spent only about $59 million on programming in one year.
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,” Sapan said at an investor conference in Manhattan Sept. 12.
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 trial, before Justice Richard Lowe, may last four weeks, lawyers said during jury selection.
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.
When the jurors were out of the courtroom today, lawyers for both sides argued about other Dish documents. AMC’s Snyder said he was “suspicious” that Dish was hiding evidence again. Dish’s lawyer, Charles Kerr, said these communications shouldn’t be shown to the jury because they represented attorney-client discussions.
“Considering the track record of your company,” Lowe said to Dish’s lawyer, “you sort of lack credibility.” The judge ordered that the documents be presented to him.
Cable provider Comcast Corp. (CMCSA:US) and DirecTV are the largest U.S. pay-TV companies.
The case is Voom HD Holdings LLC v. EchoStar Satellite LLC, 600292-2008, State Supreme Court of New York (Manhattan).
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