Shares of AMC Networks and Dish Network were up strongly on Monday, the first trading day after the two inked a $700 million settlement that caused the programmer to drop a contentious breach of contract suit and brought carriage to its quartet of channels.
AMC stock has been up since last Thursday, when speculation was high that its defunct Voom HD channel would settle its $2.5 billion breach of contract suit against Dish. On Sunday, the two parties reached agreement, with Dish agreeing to pay $700 million in cash and restore AMC Network to its 14 million subscribers. Three more AMC channels – IFC, WeTV and the Sundance Channel will be available to Dish customers on Nov. 1.
Also as part of the deal, AMC’s former parent Cablevision Systems received $80 million in exchange for MVDDS wireless spectrum. AMC and Cablevision will split the settlement, with AMC receiving about $310 million and Cablevision (including the spectrum sale) will get $390 million. The satellite giant also agreed to carry MSG Networks’ use music channel – another Cablevision spin-off. Dish had not carried Fuse since 2010.
Most analysts saw the settlement as a positive for both sides – AMC gets guaranteed cash and carriage of four networks that have been dark to Dish subscribers since June, and Dish avoids the possibility of having to shell out a multi-billion-dollar legal award.
Shares of AMC were up as much as $1.99 per share (4.4%) to $47.50 on Monday, before closing at $47.30, up $1.78 each, or 3.9%. Dish shares closed at $36.63, up 3.3% ($1.16 each).
Both AMC and Dish reached new 52-week highs on Monday, passing the old marks of $46.69 (AMC) and $36.01 (Dish), respectively.
In a research note to clients Monday, Sanford Bernstein cable and satellite analyst Craig Moffett wrote that he was surprised that Voom and AMC settled for so little, given the obvious advantage they had in their court case. New York State Supreme Court Judge Richard Lowe has earlier ruled that Dish had destroyed evidence that could have been important to Voom’s case and would have instructed the jury as such before the case was settled. Lowe also repeatedly admonished Dish lawyers for delaying tactics and trying to introduce information he deemed irrelevant to the case.
In his note, Moffett estimated that AMC may have been persuaded to take a smaller cash award in return for a larger affiliate fee for the channels.
“While we can only hypothesize, it could be that additional value from the settlement has been embedded in the terms of the carriage agreement, terms of which were not discussed,” Moffett wrote. “An above-market step-up in the base affiliate fee and/or heightened annual escalators would be an alternate way to pay for the settlement, perhaps in a face-saving way for Dish. Such an arrangement would be highly beneficial for AMC, as it would set a higher bar for other distributors. Unfortunately, terms of distribution deals are rarely disclosed so we will never know for sure, but a close look at AMC's financials in coming quarters might provide clues.”
In 2011, AMC CEO Josh Sapan said at an investment conference that he believed AMC alone could eventually attract carriage fees of 75 cents per subscriber per month, about double their rate at the time.
Another answer, the analyst added, is that Dish’s leverage was greater than most imagined.
That’s the tack that Pivotal Research Group principal and media & communications analyst Jeff Wlodarczak took, adding that Dish’s greatest weapon was its ability to wait out AMC.
Wlodarczak estimated that Dish paid market rates for AMC’s return.
“Dish had more leverage here than people realize – the chances of a mistrial/grounds for appeal were quite high,” Wlodarczak said in an e-mail message.