Dish Network (NASDAQ:DISH) is up against AMC Networks in a trial concerning the latter’s defunct HD service, Voom. AMC is seeking about $2.4 billion in damages from Dish Network.  If AMC is successful, it could wipe out a significant amount of Dish’s value.
Our price estimate for Dish Network stands at $33, implying an estimated market value of $16.7 billion. If Dish were to pay all the damages at once, it could reduce our value estimate by 15%. Clearly, this is a very important case for the company and it will try everything within its power to win it, or at least, reduce the damages. This could lead to notable litigation costs. Either way, it could weigh on Dish’s value and outlook in the short term.
The Case Against Dish
In 2005, Dish signed a 15-year deal to carry Voom, and it also acquired a 20% stake in the business.  Voom was a package of 21 HD networks owned by AMC, which was a subsidiary of Cablevision back then. However, in 2008, Dish terminated the contract which led to Cablevision suing Dish. In its defense, Dish stated that it terminated the contract because Cablevision did not comply with the annual $100 million spending requirement for Voom.  AMC and Cablevision stated the opposite, citing support from audit results.
The Worst Case Scenario
AMC, which spun off from Cablevision in 2011, is now seeking $2.4 billion in damages. Given the scale of the potential financial impact, this case becomes critical for Dish. As mentioned above, paying the full amount of damages right now could wipe out a significant portion of Dish’s market value (~15%). The case could also lead to notable litigation costs even if Dish manages to turn the tide in its favor. Either way, Dish could hurt its value in the short term.
Dish Could Temper The Impact
We note that prior to this litigation, Dish was involved in a patent dispute against TiVo which it settled last year. As opposed to what could have been a huge blow to Dish’s DVR business, the company managed to settle the case for a lower amount of $500 million.  Further, only $300 million was required as upfront payment and the rest was to be paid in annual installments lasting for several years.  This shows that Dish is no stranger to the litigation process and it could avoid or reduce a substantial portion against AMC in the event that Dish is at fault.Notes: