AMC Networks CEO Josh Sapan told analysts Thursday that its ongoing carriage dispute with Dish Network could have a "material effect" on the networks if its channels are dropped by the satellite giant for a lengthy period.
"If an interruption does occur, the impact on our financial results will depend on the length of time that we are off Dish' platform, but you should be aware that the loss of the affiliate fee and advertising revenue that comes from the carriage by Dish of our national networks may have a material impact on our financial results," Sapan said on a conference call with analysts to discuss first quarter results.
Dish is the second largest satellite TV service provider in the country with 14 million customers.
Litigation between the two companies, dating back to 2008, involves the suite of networks known as Voom HD (a subsidiary of Rainbow Media, the predecessor company to AMC Networks).
Dish had agreed to carry the HD channels, but in 2008 terminated the carriage contract. Voom HD sued for contract breach, seeking more than $2.5 billion in damages.
In a pre-trial decision, the trial court judge ruled that Dish had destroyed evidence in the case and cited a "pattern of egregious conduct and questionable - and, at times, blatantly improper - litigation tactics."
On April 26 the Appellate Division's affirmed the trial court ruling, letting the case be set for trial. The court said Dish "acted in bad faith in destroying electronically stored evidence."
On a conference call with analysts to discuss its first quarter results, Sapan said that the networks will take part in a court hearing May 15 (Tues.) to set a trial date.
Dish has claimed that its decision to drop the channels has nothing to do with the litigation - which AMC vehemently disputes - and more to do with low ratings for the channels with Dish's mostly rural customers.
In an earnings call Monday, Dish chairman Charlie Ergen, armed with what he called extensive set-top box data, claimed that losing the AMC channels would go unnoticed by the satellite giant's subscriber base.
AMC Networks chief operating officer Ed Carroll begged to differ, adding that while he had no access to Dish's set-top box data, Nielsen ratings paint a different picture.
Carroll said that national Nielsen ratings for AMC, IFC and WeTV increased in the double digits in the quarter, adding that its zombie apocalypse series The Walking Dead leads the ratings pack in scripted series on cable.
"We have absolutely no reason to believe that Dish's results would be any different from the Nielsen results," Carroll added. "That leads us to a clear conclusion that what we are looking at is all about the litigation."
Sapan said that AMC has a plan in the case it is dropped by Dish, but wouldn't give any details.
"We'll see how it goes," Sapan said on the call. "We think that the potential absence of our service and services on any platform by definition creates a competitive opportunity for another platform. It's a very competitive world for multichannel video. We'll watch it as it goes. Of course we're contemplating it and making all sorts of contingency plans."
The Dish litigation overshadowed what was a stellar quarter for AMC Networks, with revenue up 19.5% and adjusted operating cash flow increasing 26.2%, fueled by its national networks.
Revenue at AMC Networks, which include national cable channels AMC, IFC, Sundance Channel and WeTV, increased 19.5% in the period to $326.2 million and adjusted operating cash flow rose 26.2% to $125.7 million in the period. Fueling that growth almost entirely was its National Networks segment - which includes the cable channels - reporting a 21% increase in revenue to $304.2 million and a 25.4% rise in AOCF to $133.4 million in the period.
Miller Tabak media analyst raised his rating on AMC stock from "neutral" to "buy" Thursday morning and maintained his $49 per share 12-month price target, based on the strong results.
AMC Networks stock rose as much as 16% ($6.38 each) in early trading Thursday to $46 per share, but settled down later in the day. The stock closed at $40.50 per share (up 2.2%, or 88 cents each) on May 10.
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