One of the more striking aspects of the continuing trial between Dish Network and ESPN has been the steadfast presence of David Preschlack in the courtroom. Executives from both sides who’ve given testimony have showed up and seemingly couldn't wait to depart.
As head of affiliate sales for ESPN and Disney media networks, it’s not as if Preschlack has extra time on his hands. But he’s sat alongside his lawyers day after day, hour after hour listening to often repetitive and mind-numbing testimony.
Why not just ask the lawyers to keep him up to date? A window into his thinking came Friday as he finally took the stand in New York federal court.
When a Dish attorney pointed out his devoted attendance, he said the matter is “a very important thing not only for our company, but for me personally.” Dish is seeking tens of millions of dollars, but Preschlack surely views it as also questioning the integrity and business practices of ESPN, a place he's worked for nearly 18 years.
Dish is alleging that ESPN has repeatedly violated “most favored nation (MFN)” provisions spelled out in a 2005 distribution agreement. Satellite, cable and other distributors use MFN clauses to ensure they are getting deals on par with competitors.
Dish feels ESPN breached its MFN obligations with regard to ESPN Classic, ESPN Deportes and other properties. Its claims also touch on the WatchESPN product, which streams ESPN networks live to digital platforms.
MFN clauses aren’t throwaway lines. Preschlack said they are one of “the most highly negotiated” parts of a contract and “intended to be very specific.”
(It will be interesting if the MFN bargaining is even more intense as Dish and ESPN seek to hammer out a new long-term carriage deal. The current one expires later this year.)
Preschlack testified the Dish MFN provisions entitle it to both the same “net effective rate” as another operator and similar packaging rights. Both sides have spent days trying to convince the jury their definition of packaging rights is the right one.
With ESPN Classic, Dish contends Comcast inked a deal in 2006 giving the cable operator the ability to shift the network to a sports tier. Dish, which was required to make the network available on its second-most highly penetrated tier, believes it should have been afforded the same opportunity. So, the satellite operator charges ESPN violated an MFN clause.
Preschlack said an MFN clause was never triggered because “we did not remove any packaging or bundling requirements” with the Comcast arrangement, while he disputed the operator could move it to a sports tier.
ESPN claims that Comcast and Dish had equal terms because both delivered Classic to about 8 million subscribers at the same carriage fee.
Preschlack’s testimony also dealt with ESPN Deportes, the Spanish-language network. Dish claims ESPN made carriage deals with Time Warner Cable and Verizon for Deportes and should have promptly offered it similar terms.
With regards to the Verizon deal, Preschlack testified a commensurate offer was made within the proper time frame. He said ESPN’s obligation is to calculate a “net effective rate” every six months to determine whether Dish should be offered a more favorable arrangement.
The Classic and Deportes matters had been discussed for days at the trial, but it had been several since the issue of ESPN's online streaming came up. On Friday, Preschlack said ESPN’s interpretation of the 2005 Dish deal was it could not engage in any streaming unless it charged distributors for the right to make the content available. In other words, it could not sell a service directly to customers or engage in over-the-top distribution.
Dish has suggested ESPN hasn’t held true to the pledge. The WatchESPN service offers multiple networks live online. But Preschlack said both Time Warner Cable and Verizon are paying 19 cents a subscriber per month to make the product available. The fee is separate from what both pay to carry the ESPN network.
Friday began with testimony of Tom Cullen, a Dish executive vice president. He noted there are three factors Dish uses to evaluate whether to offer particular channels and on what packages: carriage fees, what competitors are doing and operational costs, which cover issues from satellite transponder costs to having to train more sales people. Since 2007, he said Dish has used a system with set-top-box data it culls from its user base to help it gauge viewing levels, which can provide insight into a network's popularity and inform strategy.
A discussion about measurement came into play regarding ESPN Classic. Dish argues viewership was narrow enough to encourage a shift to a sports tier. There was no need to make it available to 8 million subscribers.
In 2009, Dish did get the right to move Classic to a sports tier, but had to move ESPNU to its most widely taken package in a swap. Dish contends there would have been no need for a swap had it been given the right to put Classic on the sports tier in 2006. (Comcast and DirecTV agreed to the swap.)
Dish's Cullen said a move to a sports tier would have saved the company a load of money. But ESPN argues Classic wasn’t so narrowly consumed, presenting data showing that in 2010, 1.6 million viewers were watching the network for at least six minutes a month.
ESPN contends viewers wanted it, so Dish benefited. It offered evidence that Dish had set aside $500,000 to pay employees at a call center overtime to handle expected complaints when it ultimately moved Classic. Cullen said as it turned out, it wasn’t much of an issue – there were only 16 subscribers disconnecting as a result in the first two days.
The trial is scheduled to continue Monday with Preschlack remaining on the stand. There's always the possibility of a settlement as Dish did with Cablevision/AMC late last year mid-trial. That one included Dish agreeing to carry a slew of networks. But, if Preschlack is in the courtroom so much, that might be a sign that peace is a ways off.
A TV Blog Feb. 19 should have said that ESPN could take in more than $9.5 billion in affiliate fees by the end of the decade.