AMC Networks Gain on Litigation Settlement with DISH Network (AMCX)

The weekend saw the third largest pay-TV provider, DISH Network (NASDAQ: DISH), reach an amicable settlement on a $2.5 billion lawsuit filed four years ago by AMC Networks (NASDAQ: AMCX) and Cablevision Systems (NYSE: CVC) for termination of the high-definition television programming contract on a suo moto basis by DISH. As per the settlement, DISH, apart from resuming the broadcast of AMC’s channels, will pay $700 million to Cablevision and AMC.

The New York-based AMC Networks, formerly known as Rainbow Media, owns and operates several popular and award-winning brands in cable television such as AMC, WE tv, IFC and the Sundance Channel. Cablevision spun off AMC Networks as a separate public limited company a year ago. DISH removed the aforesaid channels from its network in 2008. Following that, Voom HD Holdings, previously a Cablevision unit and now a defunct high-definition satellite service and part of the AMC Networks, sued EchoStar Communications, now known as DISH, for $2.4 billion in damages alleging a violation in the 15-year contract to carry a bouquet of high definition channels. Back in 2008, the Colorado-based DISH Network split its EchoStar equipment and satellite service business.

DISH Network, which has 14 million customers, argued that the Voom contract was terminated because Cablevision did not spend the required $100 million a year on programming. Earlier in July 2012, the spat between DISH and AMC worsened when DISH dropped the latter’s four networks, saying AMC’s programs failed to deliver on ratings and did not justify the price it sought. DISH is in a position to influence the amount paid by advertisers and broadcasters to AMC, which derives 13% of its subscribers from the former’s network.

Following the fiscal 2011 fourth-quarter result that was short of analysts’ estimates, the shares of AMC, which were trading in the range of $44.00 to $46.00 per share, declined to around $35.00 by the end of June. Neglecting the ditch by DISH, the share price reversed trend to reach $44.35 on August 7 following the news of a long-term agreement between AMC and AT&T. AMC, which reported better performance in the fiscal 2012 second quarter, slid down to $38.53 on August 28 following the reports of a possible impact on the third-quarter results arising from the tussle with DISH. The news of AMC’s “Breaking Bad” delivering 2.8 million viewers assisted the shares to quickly recover back to $43.52 in the first week of October.

On October 18, Reuters reported the possibility of an out-of-court settlement between the companies. The settlement reached yesterday will result in DISH Network paying $700 million in cash to Cablevision and AMC Networks. The settlement amount includes $80 million for the purchase of Cablevision’s multichannel video and data distribution service (MVDDS) licenses in 45 U.S. metropolitan areas. DISH Network also entered into a long-term distribution agreement with AMC Networks to carry AMC, IFC, the Sundance Channel and WE tv. Dish resumed broadcasting AMC on October 21. Other channels will be available on DISH Network beginning November 1. The Madison Square Garden Company’s music-based Fuse channel will also be broadcast from November 1.

In addition to the above, DISH also gave away its 20% stake in Voom HD Holdings to Rainbow Programming Holdings , thereby effecting the entire cash settlement to remain with Cablevision and AMC Networks.

Commenting on the developments, Josh Sapan, President and CEO of AMC Networks, said, “We are glad to partner again with Dish Network and are delighted to bring back our popular channels and programming to their customers.”

AMC ended the day at $47.30 per share, up $1.77 or 3.9% on a volume of 2.10 million shares.

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Published by Steve Hackney

Steve Hackney is a corporate finance professional with over 14 years of experience in cash management and investing. He earned a Bachelor of Science in Finance from Florida State University and holds a Certified Treasury Professional certification. Steve lives in Orlando, Florida with his family.