Dish Loses 3 of 4 Claims Against ESPN in Contract Dispute

Dish Network Corp. lost three of four claims it brought against Walt Disney Co.’s ESPN over terms of a sports programming contract, as a jury awarded Dish only $4.85 million of the $153 million it sought.

Satellite service Dish, the third largest pay-television 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. The 10-person jury in Manhattan federal court reached the verdict yesterday in its second day of deliberations.

The verdict comes the same week Cablevision Systems Corp. filed an antitrust lawsuit against Viacom Inc. in the same court challenging the bundling of cable networks, a practice that has led to rising cable bills and ballooning channel lineups.

Media companies such as Viacom, News Corp. and Time Warner Inc. have long packaged popular networks with lower-rated fare to promote new programming and boost revenue. Viacom, which owns Nickelodeon and MTV, says the approach is similar to offering volume discounts, while Cablevision says that charging for mandatory bundles is illegal and anti-consumer.

TV Providers

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.

ESPN, based in Bristol, Connecticut, argued in court that it eventually granted Dish the terms offered to other distributors of TV programming and that Dish was seeking better contract terms than its competitors.

“We were confident in our contractual position and our witnesses negotiated the contract,” David Yohai, a lawyer for ESPN at Weil Gotshal & Manges LLP, said in an interview after the verdict. “The plaintiffs attacked the credibility of the witnesses but the jury felt otherwise.”

In a statement after the verdict, Stanton Dodge, the general counsel for Englewood, Colorado-based Dish, said, “To deliver the best programming at the best value to our customers, Dish will remain vigilant in our efforts to ensure that programmers honor their contractual commitments.”

Packaging Terms

“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 Dish at Simpson Thacher & Bartlett LLP, told the jury in his closing statement Feb. 27. “ESPN made a calculated decision to not offer the same terms to Dish.”

Dish said ESPN offered Comcast Corp., the largest U.S. pay-TV company, the right to distribute the historical sports channel ESPN Classic as part of a less-watched tier of channels, which would result in lower payments. Dish said ESPN allowed Time Warner Cable Inc., Verizon Communications Inc. and DirecTV, the second largest pay-TV provider and a rival in the satellite business, to pay lower rates for the Spanish-language ESPN Deportes.

Comcast also got the right to distribute the college-sports network ESPNU to bars and taverns on better terms, Dish claimed. ESPN also breached the contract by giving Time Warner Cable the right to distribute its programming over the Internet without imposing an extra subscription fee, Dish said.

The jury yesterday found that ESPN breached the contract only in the Deportes claim.

Made Deals

ESPN said in court filings that it had “no obligation under the agreement to provide any networks to Dish other than on terms specified in the agreement.”

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 offered better terms than it received. Dish said it sent a letter to ESPN demanding the same terms and that ESPN failed to offer them.

In its suit, Cablevision is trying to use antitrust law to force the unbundling of networks, a step advocated by consumer and trade groups to slow the steady hikes in cable bills. Pay-TV companies are finding it increasingly difficult to pass along higher programming costs in the $170 billion industry, as viewers have more video options on the Web, said Paul Sweeney, an analyst at Bloomberg Industries.

ESPN is 80 percent-owned by Burbank, California-based Disney and 20 percent by New York-based Hearst Corp.

Disney’s stock rose 11 cents to $54.59 yesterday in New York Stock Exchange composite trading. Dish fell 7 cents to $34.80 in Nasdaq Stock Market trading.

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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