The Sanctity of Hollywood's Windowing System Tested in Legal Battle

An FX Networks lawsuit against Dish Network, for interfering with contracts with Disney and Sony and devaluing blockbuster movies by tens of millions of dollars, could be headed to trial this October.
"Toy Story 3" was one of the films aired for free via Dish Networks' Starz giveaway

Three years ago, Dish Network celebrated its 30th birthday by giving its customers a free year of the pay-TV channel, Starz. At the time, TV industry insiders speculated that Charlie Ergen's company wasn't so interested in singing "Happy Birthday" to itself, but rather upset at Starz for licensing its goods to Netflix, which at the time was getting a streaming service off the ground.

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In the wake of the Starz Giveaway, a rash of lawsuits followed. On May 2, 2011, Disney filed a copyright infringement lawsuit against Dish for hurting the value of its movies. The very next day, Starz sued Dish for breaching its affiliation agreement. And two months after that, FX Networks sued both Dish and Starz for tortiously interfering with the cable TV network's deals with movie studios. Since then, much of this litigation has been settled, but not all.

Later this year, if FX Networks survives a coming summary judgment hearing, it will be squaring off against Dish in a battle that could test the sanctity of Hollywood's windowing system. Fox and Dish are legal frenemies by now -- the two are still dancing over the legality of the ad-skipping DVR known as the Hopper -- and it's quite possible that the two entertainment giants will be taking its respective troops to a L.A. Superior Courthouse for a trial currently set for October 27.

In the meantime, the two sides have delivered summary judgment briefs in anticipation of an important May 30 hearing.

Hollywood windowing -- where studios first release a film theatrically, then on DVD, then through VOD and pay-TV channels, then by basic cable and so forth -- doesn't get quite as much attention as it used to. The introduction of rich digital services like Netflix and Amazon has contributed to a shortening of windows, and the demise of home video sales has exacerbated the trend. Nevertheless, windows are still present and, according to FX, quite valuable.

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The cable network says it paid Disney and Sony a premium to have an exclusive window to premiere 22 movies for the first time on "free" television. It says that "every participant in the industry, including Dish" knew about the contracts underpinning the windowing system. When FX paid Disney and Sony, the plaintiff says it was aware that the movies would have some limited exposure in the upstream window at Starz.

"What FX did not know, and could not know, was that Dish would lie to Starz to ambush the industry with a 12 month, no-strings-attached, giveaway of the Starz movie channels to 11 million Dish subscribers in breach of Dish's agreement with Starz and every other license creating the standard sequence of exhibition windows" says the plaintiff. "Dish effectively converted the Starz channels from premium pay television channels to basic cable channels for a year and interfered with FX's exclusive rights to premiere 22 motion pictures licensed from Disney and Sony to FX's broad basic cable audience."

FX asserts that Dish's giveaway devalued FX's rights by tens of millions of dollars. The cable network says it didn't get what it paid for on those 22 movies, and adds that had it known that Dish intended to overexpose the movies in question (which aren't identified), it would have paid 10 to 15 percent less to the studios to license them.

"It is like FX agreed to purchase 22 low-mileage used cars from Disney and Sony, but before it received the cars, Dish grabbed the keys, hopped into the driver's seats and put an extra 50,000 miles on each car," says the plaintiffs' legal brief.

In turn, Dish is asking for summary judgment because it believes that it was contractually authorized to do its Starz giveaway. Furthermore, the satellite TV defendant is rebutting the tortious interference claim by claiming it "did not know about FX's studio contracts for the movies at issue" and rejecting the proposition that it formed the intent to interfere with these contracts.

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FX believes this is dishonest, pointing to Dish's "knowledge of the longstanding, industry-wide practice of windowing" and "direct participation in movie window licensing." Furthermore, FX says that evidence shows that Dish knew about the output agreements by which Sony and Disney licensed their theatrical releases to upstream Starz, along with the rights of a downstream, basic cable channel like itself.

At a hearing on May 30, judge Richard A. Stone will be weighing FX's "mountains of evidence" allegedly showing that Dish knew it would be disrupting the windows paradigm against Dish's contention that "although it is generally known that networks have content licenses... Dish did not know the terms of FX's studio agreements or prospective economic advantages."

The judge could declare a winner or let a jury decide whether Dish intended to disrupt Hollywood's windowing system. If the judge advances the lawsuit to trial, it would likely feature the testimony of some of Hollywood's top executives detailing how licensing deals are set up and the worth of them. FX not only claims that it was damaged by the tune of tens of millions of dollars, but it's also seeking punitive damages for Dish's alleged fraudulent behavior.

We'll release the ruling when it comes.

Twitter: @eriqgardner