DISH Network Corp. (DISH - Analyst Report) – the second largest satellite TV operator in the U.S. may face a hefty charge of $2.4 billion from AMC Networks Inc. (AMCX - Snapshot Report) for unlawfully removing the latter’s Voom HD channels from Dish Network’s program list.
It all began in 2005, when Dish Network entered into a 15-year long agreement with AMC Networks, which was earlier a part of Cablevision Systems Corp. to view its Voom HD channels to the formers subscriber group.
Cablevision assured to invest $100 million annually to upgrade its programs for Voom HD channels. Nevertheless, spurred by the company’s failure to keep its commitment, Dish Network had to terminate its contract eventually facing lawsuit from the former. Cablevision denied the charge made by Dish Network by providing proper evidence.
However, Dish Network brought a fresh charge against Cablevision stating that the latter made an investment of $100 million related to business (exclusive of program upgrades) thereby falling short of its commitment.
Such hefty charge if implied on Dish Network will have a huge impact on the company’s cash flow. Last year, the company lost a patent infringement case against Tivo Inc. (TIVO - Analyst Report) , which led to a $500-million of combined cash outflow for Dish Network and Echostar (sister concern of Dish Network) thereby deteriorating its cash position. Moreover, the company is already engaged in many legal battles with many Media giants regarding its new auto hop technology. Therefore, we believe that losing such pending cases may further exert pressure on the company’s cash position.
Few months back, Dish Network had even dropped AMC Networks’ popular channels from its program list due to the expiry of its contract with the company. Moreover, AMC Networks’ demand for higher rates was also another important reason to drop its channels from the list.
Accordingly, we believe that Dish Network’s intention of not renewing its contract with AMC Networks may further add spark to their old court battle.
The current Zacks Consensus Estimate for Dish Network Corp. is pegged at 55 cents for the third quarter with a growth rate estimate of (22.63%). For 2012 and 2013, the Zacks Consensus Estimates stand at $2.43 and $2.50 with a growth rate of (16.08%) and 3.21%, respectively.
Currently, Dish Network has a Zacks #3 Rank, implying a short-term Hold rating on the stock. However, considering the fundamentals, we are also maintaining our long-term Neutral recommendation on the company’s shares.