A network ESPN has deemphasized has a key role in a trial, where Dish Network is charging the sports programmer with violating contract provisions, costing it millions of dollars. Among other accusations, Dish alleges ESPN failed to provide it with terms in line with what Comcast agreed to pay to carry ESPN Classic under a “most favored nation (MFN)” clause.
ESPN Classic is less a priority at ESPN now than the likes of ESPNU and other platforms. But, a 2006 agreement between Comcast and ESPN to offer the channel has prompted Dish to seek $80 million in damages.
Dish is seeking a much larger total amount from ESPN in the trial in New York federal court, where it also believes ESPN failed to live up to MFN obligations for carriage of Spanish-language ESPN Deportes and with other matters.
Testimony Wednesday began with Dish executive Chris Kuelling, who was involved in inking the deal with ESPN in 2005 that Dish believes has led to the MFN violations. MFN deals can be ways for operators to try and ensure that they receive the same “net effective rate” when it comes to carrying networks.
Under its ESPN agreement, Dish was required to carry ESPN Classic on its second-most highly penetrated tier. But Dish alleges that ESPN made a subsequent deal with Comcast, which gave the cable operator far more favorable terms as to how it could distribute ESPN Classic. Dish believes that accounted for an MFN violation.
ESPN doesn’t agree, arguing both Dish and Comcast were to pay on average $0.28 a subscriber per month for ESPN Classic and both did so from 2005-2009. Payments were made by each for a pool of 8 million-plus subscribers.
Yet, 8 million subscribers marked a larger percentage of total homes served by Dish versus the percentage served by the larger Comcast. Dish believes the fact it had a higher penetration of total subscribers with ESPN Classic accounts for ESPN violating MFN provisions.
ESPN executive Eric Ratchman testified Wednesday that ESPN didn’t think it was in violation of MFN obligations with the Comcast deal, so it never made an offer to alter terms with Dish.
Testimony in the case can get highly detailed, but provides insight into how layered negotiations between networks and operators can get and the type of horse-trading. At one point in a back-and-forth, ESPN offered Dish a discount of 2 cents per month per subscriber, so long as Dish made ESPN available within a first group of about 40 channels in its line-up.
Also, testimony makes clear how a signed programmer-operator contract with an MFN clause can continually change. Once a deal is cut with one operator, a network may have to go back to the table and alter the contract with another.
ESPN has monthly phone calls to monitor MFN matters and some executives look to stay on top of obligations at all times and how they may be changing. At times, ESPN will put aside money it believes it may need to compensate an operator with a changed agreement. The details came in the testiomy from Ratchman, who followed Dish's Kuelling.
Ratchman began by focusing on Dish’s belief that ESPN violated MFN obligations with regards to ESPN Deportes. Once ESPN inked Deportes agreements with Time Warner Cable and Verizon, it moved to meet its MFN obligations and offer Dish different terms. Dish was given four options in a 2009 letter from ESPN.
A Dish attorney presented an email showing Ratchman wanted Dish to accept the option that would be most favorable to ESPN. In testimony, Ratchman said ESPN is a business looking to make a profit so, yes, it was seeking the best deal it could get. Dish Network has similar goals, he said.
Among Dish’s options were to take the Verizon agreement, where Verizon was paying $0.11 a month per subscriber for Deportes. Yet in order to get that rate, Verizon had to agree to a change in year-over-year rate increase to offer ESPN -- the amount increased from 5% to 6%. Verrizon also extended its deal.
But Ratchman said Dish chose terms in line with Time Warner Cable. He also said that it took Dish 11 months to respond to ESPN's letter regarding MFN-prompted changes for Deportes. And, under the option Dish ultimately selected, ESPN made it whole dating back to 2007.
Dish pays $0.47 this year per month per subscriber to offer Deportes.