Dish Network Corp. (DISH:US) is seeking $152 million from Walt Disney Co. (DIS:US)’s ESPN for allegedly breaching a contract by offering competitors including Comcast Corp (CMCSA:US). better licensing terms for sports programming.
Dish, the third largest pay-TV provider, sued ESPN in 2009 for violating a so-called most-favored-nation clause in their distribution agreement, which it said requires the sports network to offer Dish the same terms it offers a competitor.
“In violation of the most favored nations provision ESPN provided more favorable terms to Dish’s competitors and made a calculated decision not to offer those same conditions to Dish,” Barry Ostrager, a lawyer for Dish at Simpson Thacher & Bartlett LLP, said in his opening statement to jurors today at the start of a jury trial in Manhattan federal court.
ESPN argued in a court filing that it eventually granted Dish the terms offered to competitors. U.S. District Judge John Koeltl denied a motion for judgment without a trial in April 2011, saying it was up to a jury to decide whether the terms were similar.
“All contracts are confidential and for most-favored- nation, it’s difficult to maintain compliance,” Aditi Bagchi, a professor of contract law at Fordham University Law School in New York, said in a phone interview. “Suing is a way to extract information. Dish can claim the contract’s been violated and force some information out of ESPN.”
TV distributors pay ESPN and other cable programmers fees based on ratings and the number of subscribers. According to the media research firm SNL Kagan, ESPN charges TV providers about $5.13 a month per subscriber, one of the highest rates in the industry.
In court papers, Englewood, Colorado-based Dish listed various deals it said were offered only to competitors. Dish said ESPN allowed DirecTV (DTV:US), the second largest pay-TV provider and a rival in the satellite-TV business, to move the sports documentary network ESPN Classic to a less-populated tier of subscribers, which would result in lower payments. ESPN also let DirecTV pay a lower rate per subscriber for the Spanish-language network ESPN Deportes, Dish said.
Dish claimed that ESPN offered Comcast (CMCSA:US), the largest pay-TV company, the right to distribute the college sports network ESPNU to bars and taverns on better terms than it got.
ESPN has denied the allegations and said in court filings it had “no obligation under the agreement to provide any networks to Dish other than on terms specified in the agreement.”
“Dish doesn’t want to live up to the obligations of the contract it signed,” Diane Sullivan, a lawyer for ESPN from Weil, Gotshal & Manges LLP, said today in her opening statement. “Dish wanted a far far better deal than ESPN had with any of its TV distributors.”
Dish and ESPN signed an eight-year distribution agreement in 2005. Dish said in its complaint that it learned from press releases and news reports in 2009 that ESPN had made deals with Comcast and DirecTV that “contain more favorable provisions than ESPN has given to Dish.” In June 2009, Dish sent a letter to ESPN demanding the same terms and claimed that ESPN failed to offer them.
Since the lawsuit was filed, Dish has said that ESPN also made more favorable agreements with the TV distributors Time Warner Cable Inc., (TWC:US)Verizon Communications Inc (VZ:US). and AT&T Inc (T:US). None of Dish’s competitors are named as defendants in the suit.
“This comes down to whether our partner will uphold the terms of our agreement or not,” John Hall, a Dish spokesman, said in an e-mail. “We look forward to presenting our case and prevailing on the merits.”
Koeltl said during a pre-trial conference on Feb. 7 that the trial will last three weeks.
Dish fell 53 cents, or 1.4 percent, to $37.11 in Nasdaq Stock Market trading (DSIH:US). The shares have risen 2 percent this year. Disney climbed 9 cents to $54.75 on the New York Stock Exchange. The shares (DIS:US) have increased 10 percent this year.
ESPN is 80 percent owned by Burbank, California-based Disney and 20 percent by New York-based Hearst Corp.
The case is Dish Network LLC v. ESPN Inc., 09-06875, U.S. District Court, Southern District of New York (Manhattan).
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