Dish Seeks $153 Million From ESPN Over Channel Contracts

Dish Network Corp. (DISH) asked a jury to make Walt Disney Co. (DIS)’s ESPN pay at least $153 million in damages for allegedly breaching a contract by offering competitors including Comcast Corp. better licensing terms for sports programming.

In closing arguments today in Manhattan federal court, Dish, the third-largest pay-television provider, accused ESPN of 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.

“ESPN promised Dish that no other distributor had better rate terms or packaging terms than Dish was receiving under the contract,” Barry Ostrager, a lawyer for the Englewood, Colorado-based satellite-TV company, told the jury in his summation today. “ESPN made a calculated decision to not offer the same terms to Dish.”

TV distributors pay ESPN and other cable programmers fees based on ratings and the number of subscribers. According to the media research firm SNL Kalgan, ESPN charges TV providers about $5.13 a month per subscriber, one of the highest rates in the industry. ESPN has argued that it eventually granted Dish the same terms offered to competitors.

“The contract provides for fairness,” Diane Sullivan, a lawyer for Bristol, Connecticut-based ESPN, told the jury today. “Dish doesn’t want fairness. Dish believes the fairness clause entitles them to a far better deal than any other distributor.”

Comcast Terms

Dish said ESPN offered Comcast Corp. (CMCSA), the largest pay-TV company, the right to distribute sports-documentary channel ESPN Classic as part of a less-watched tier of channels. Dish also said ESPN allowed DirecTV, the second largest pay-TV provider and a rival in the satellite business, to move Spanish-language ESPN Deportes to a less-populated tier of subscribers, which would result in lower payments. Comcast was also given the right to distribute the college-sports network ESPNU to bars and taverns on better terms, Dish claimed.

“Dish wanted the flagship ESPN network, which is very popular,” Ostrager said. “Dish had to give up something. It had to agree to put ESPN Classic, which almost nobody watches, on its second most widely penetrated package,” he said. “The Comcast packaging right was clearly more favorable than the packaging right given to Dish.”

Sullivan said Comcast got the same terms for ESPN Classic as Dish: 28 cents for each of about 8 million subscribers.

‘Tortured Reading’

“Dish wants a $79 million refund based on a tortured reading of the contract,” she told the jury. The ESPN Classic terms represent Dish’s biggest claim in the suit.

Dish and ESPN signed an eight-year distribution agreement in 2005. According to its complaint, Dish learned from press releases and news reports in 2009 that ESPN had made deals with Comcast and DirecTV (DTV) with “more favorable provisions than ESPN has given to Dish.” In June 2009, Dish sent a letter to ESPN demanding the same terms and claiming that ESPN failed to offer them.

Since the lawsuit was filed in 2009, ESPN also made more- favorable agreements with the TV distributors Time Warner Cable Inc., (TWC) Verizon Communications Inc. (VZ) and AT&T Inc. (T), according to Dish. None of Dish’s competitors is a defendant in the suit.

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).

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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