Last week, ESPN executive David Preschlack testified the “most favored nation (MFN)” provisions of contracts between distributors and programmers are “intended to be very specific.” Yet, a 2005 agreement hammered out between ESPN and Dish Network has left plenty for interpretation – at least for Dish.
The past few weeks have seen the satellite operator argue in federal court that ESPN failed to honor multiple MFN obligations over a period running between about 2006 and 2009. On Wednesday, following at times biting closing arguments, the case went to a jury – a group that may not have known MFN had any application beyond international trade until entering court.
Now, they’ll have to decide whether Dish is entitled to more than $152 million after poring over testimony dealing with concepts such as packaging, penetration, tiers and net effective rates. Presumably, they're now aware cable MFN provisions are intended to ensure an operator -- such as Dish -- receives the same rates and opportunities as a competitor.
In ESPN’s closing argument, its attorney Diane Sullivan of Weil, Gotshal & Manges attempted to lay out a case that Dish’s damage claims go beyond seeking fairness. The 2005 MFN was “never intended to provide a windfall or bonus for Dish,” she said.
She argued Dish executives have claimed “unashamedly, unabashedly, brazenly” that the company is entitled to $79 million for an alleged breach regarding ESPN Classic; $54 million for a breach involving an ESPN Classic/ESPNU swap deal; and $19 million for an MFN violation with ESPN Deportes.
“There (is) a complete absence of credible evidence to support their reading of the contract,” she said.
Dish attorney Barry Ostrager, who followed Sullivan, said ESPN "made a calculated decision" not to offer proper MFN terms to Dish, while telling the jury ESPN didn't "deal honestly" with his client.
Sullivan charged Dish failed to call its executives who were directly involved in negotiating the deal to testiy because it didn’t want the jury to hear about their intentions at the time. She said Dish only brought forward Chris Kuelling, an attorney only peripherally involved.
Instead, Sullivan said Dish relied on a pair of executives – Tom Cullen and Carolyn Crawford – who joined the company after the deal was signed. ESPN, meanwhile, called Preschlack and Justin Connolly, who were directly involved and could testify about what the contract intended. Preschlack made his comments about the meticulousness involved in an MFN agreement on the stand.
Dish’s chief claim in the case is ESPN signed a 2006 deal with Comcast, allowing that operator to move ESPN Classic to a sports tier, but never gave it the same right. Dish executives testified they would have jumped at the opportunity to make the shift because the network was so little-watched. Instead, Dish had to keep it on its second-most highly penetrated tier, which cost the company $79 million from 2006-2009.
ESPN says there was no MFN violation as both Dish and Comcast delivered Classic to about 8 million subscribers at the same rate (an average of $0.28 a subscriber a month).
“If Comcast had a better deal, no one told Comcast,” Sullivan said.
Nonetheless, she said a widely distributed Classic provided a benefit to Dish, helping it attract subscribers and ad dollars. Sullivan argued when Dish ultimately moved Classic to a sports tier in 2010, its value was shown by 10,000 complaints in the first two days after the shift. Dish has said it can attribute only 16 lost customers to the move.
As for ESPN, she said the company takes its “MFN compliance seriously … it’s not good business to be in lawsuits with your distributors.” Dish has lost rulings to ESPN in New York State Supreme Court recently and ESPN has been awarded damages, but Dish is continuing to challenge the claims.
Sullivan suggested while Dish pursued the ESPN Classic matter, it came to believe it didn’t have much of a case – “they got nothing on the big claim” – so it charged ESPN with MFN violations in the Deportes matter to sort of throw stuff against the wall and see if anything would stick.
With Deportes, Dish claims DirecTV, Time Warner Cable and Verizon made deals to carry Deportes and ESPN should have offered it similar terms under MFN obligations. The deals were different and Dish was offered several options, choosing to be compensated in line with Time Warner Cable. Overall, Sullivan said “Dish wants to cherry pick” and pore through the deals to find the most favorable provisions, then seek a remedy.
Ostrager, the Dish litigator at the firm Simpson Thacher, told the jury ESPN didn't “deal honestly” with Dish and wasn't "honest with you at this trial." Regarding Sullivan’s claim that Dish was looking to prevent testimony from executives who negotiated the 2005 contract, he said her assertion was “ridiculous” as Kuelling was involved and offered ample insight.
Ostrager argued the 2005 contract -- the basis for the case -- specifically states Dish is entitled to packaging terms on par with others and the 2006 Comcast deal should have triggered MFN action. He took on Sullivan’s claim that offering ESPN Classic was desirable for Dish, suggesting Dish was forced to carry it on its second-most highly penetrated tier in a bundling maneuver. In order to get the valuable ESPN, he said it had to take Classic in that fashion. “Sometimes in a negotiation, it’s take it or leave it,” he said.
Ostrager challenged Sullivan’s suggestion Dish is out for a “windfall,” saying it just wanted to be treated fairly under the contract.
He also touched on Dish's $54 million claim. In 2009, Dish initially resisted a deal to move Classic to a sports tier and make ESPNU available on its most widely penetrated tier. Even though, it eventually agreed to the swap, Ostrager reiterated Dish believes it should never have had to take the deal -- it should have been able to move Classic to a sports tier in 2006.
On the Deportes matter, he said ESPN was “scheming” to find ways to avoid making Dish an MFN offer in line with Verizon’s deal. In the end, Dish accepted an MFN offer related to a Time Warner Cable agreement.
After the jury weighs in, Dish and ESPN will have plenty more to argue about this year. Their carriage deal expires in September.