Possible Settlement of $2.4 Billion AMC-Dish Battle Prompts Analyst Frenzy

Dish Logo AMC logo Split - H 2012

Dish Logo AMC logo Split - H 2012

Upon the abrupt adjournment of a trial between Dish Networks and AMC, analysts and reporters are abuzz over a possible settlement.

In a weeks-long trial, AMC has attempted to prove that Dish's decision in 2008 to terminate carriage of Voom HD Network, first launched by Cablevision, was a breach of the affiliate agreement the broadcaster had with Dish predecessor EchoStar Satellite. AMC is alleging some $2.4 billion in damages, and with that amount of money on the line, financial analysts have been attending the trial regularly, even playing some game theory on what a settlement would look like.

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Speculation of a deal comes as the judge has adjourned the trial proceedings until Monday and analysts and reporters are pointing to each other with word of a mysterious document filed in New York Supreme Court titled “Possible Settlement."

It seems to stem from a note by Susquehanna Financial Group analyst Tom Claps, who wrote that the Court’s docket had posted an entry for a Monday hearing concerning a possible settlement.

If any document or docket entry actually exists, it is either well-cloaked or not available online yet. And if there is a settlement, it will be a surprising development in a trial that has become so heated that on Wednesday, a Dish executive reportedly shoved the 83-year-old father of Cablevision's lead lawyer.

Still, anything is possible, especially since Judge Richard B. Lowe III has consistently urged the two sides to work out their differences.

The main thrust of the litigation is whether Dish had a right to cancel the Voom deal. The satellite distributor believes it had such authority because Voom failed to live up to an agreement to invest $100 million per year on the channel. The parties disagree about whether that money had to go to programming or whether overhead could be included.

Since the lawsuit was first filed in 2008, the litigation has become particularly contentious and personal. First came a judge's sanctioning of Dish over destruction of evidence. Then in May, Dish announced that it was dropping AMC — home of the hits Mad Men, The Walking Dead and Breaking Bad — from its service, which AMC attributed to the Voom litigation. For the past few months, AMC has relentlessly aired commercials telling fans of Breaking Bad and Walking Dead to abandon Dish.

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Trials with billions of dollars on the line are rare, typically because neither party can afford the stakes. Settlements happen all the time, but in this instance, beginning late last month, the parties actually took their arguments before a jury.

Reports from analysts who have been attending the trial suggest that AMC has gained the upper hand in the fight. For instance, two days ago, Barclays analyst Anthony DiClemente wrote:

"Yesterday, new evidence was presented in court that we believe was damaging to EchoStar’s case. Michael Schwimmer, who at the time was the Head of Programming for EchoStar, wrote an email to DISH Chairman Charlie Ergen that contained the language 'fund the venture with at least $100M per year.' Since EchoStar’s defense is largely predicated on the fact that the contractual $100M in annual spend was supposed to be solely on programming, we believe Schwimmer’s reference to 'the venture' – arguably implying more than just programming – is damaging and runs contrary to his prior testimony."

The trial has been marked by such high drama as when Dish appealed Judge Lowe’s ruling ordering the production of documents it considered privileged. Susquehanna's Claps wrote at the time that the judge became “extremely animated” and called out Dish for “blatant misconduct and attempts to delay."

With a potential jury ruling that could swing either company's stock price, analysts like Vijay Jayant at ISI Group have been having fun by playing "game theory" and analyzing the possible settlement scenarios. They include a best case for AMC where it gets a $2.4 billion plus interest judgment and restoration of the AMC channels, and a best case for Dish where it makes a three-year-delayed $130 million cash settlement with no AMC carriage. His ultimate conclusion about a settlement was that AMC would get at least $130 million with Dish agreeing to pick up AMC again.

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Another analyst, Sanford C. Bernstein's Craig Moffett, says that "it simply isn't worth the risk for Dish to continue to flirt with disaster when a settlement is presumably out there to be had at some reasonable price."

The analysts are yelling for a settlement. Will the executives and lawyers play ball? An answer could come Monday, or maybe later, if the parties request more time to work on what could be a complicated deal. Of course, there might be no settlement and the trial could just resume. We're not claiming any brilliant game theory here.

E-mail: eriq.gardner@thr.com; Twitter: @eriqgardner