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Ergen: Threat of Lengthy Appeals Led to Voom Deal

Merger with DirecTV not being discussed, but worth considering, Dish chairman says 11/06/2012 02:25:52 PM Eastern

Decisions by the judge gave Dish Network very little chance
to win its lawsuit against AMC Networks and
its Voom HD programming venture, leading to last month's $700 million
settlement, Dish Network Chairman Charlie Ergen said.

Answering questions during Dish's third-quarter earnings
call, Ergen said Tuesday Dish probably wouldn't have lost as much money as Voom
was seeking-about $2.4 billion-if the case had gone to the jury.

But even after a verdict, the case would have gone on to
appeal for another three or four years, and Ergen wanted to avoid that expense
and distraction.

"Based on our experience in TiVo, we ended up with TiVo
where we probably could have ended up five years earlier," Ergen said,
referring to a $500 million settlement Dish made with TiVo after five years of
legal wrangling. "And we wasted a lot of time for lawyers and management time
on something that probably could have been settled."

As part of the settlement, Dish agreed to a new distribution
deal with AMC which had been taken down over
the summer. With AMC's networks off the
satellite service, Dish lost subscribers during the quarter. Without the AMC
dispute, it might have gained subscribers, Ergen said.

Analysts believe Dish paid AMC
a bigger subscriber fee that it would have if it weren't for the lawsuit.

"If AMC continues to
produce shows like Walking Dead,
which is kind of off the charts in terms of people viewing it, then that will
be a fair deal for us. If they stub their toe, then we probably paid too much
for their programming going forward,"

Analysts asked Ergen about a potential merger with satellite
competitor DirecTV.

"Obviously it's one of the things both companies have to
consider," Ergen said. "You've got a basically mature video business that's very
competitive with the power structure being more on the programming side than
the distribution side and almost unlimited distribution power coming from
broadband and the Internet, which neither one of us have a lot of assets in. So
I think it's something both companies would look at."

Ergen emphasized that "first of all we're not having
discussions about that. It's not an active thing."

He added that the likelihood of a merger wouldn't be
impacted by the election. "I don't think either administration if a transaction
made sense, I don't think either administration would block it, if it made
sense, if it was good for the American public. If it wasn't both
administrations would block it," he said. "My personal opinion is it's probably
a doable deal no matter who the administration is under certain circumstances.
And there are probably certain circumstances where it's not a doable deal."

Ergen was also asked about the Auto Hop feature on its
Hopper DVR, which is the subject of a lawsuit from the broadcast networks.

"You've seen a couple of broadcasters talk about the fact
that the DVR is their friend and the Hopper is just a better operating DVR,"
Ergen said.  "The dirty secret is that about half the people skip
commercials whether it's the Hopper or somebody else's [DVR]. We just allow you
to do it with pushing the one button. Somebody else makes you push the button
three or four times."

"Ultimately the broadcasters are in fact our partners. We're
not going to go out there and try to do something that would be, at least
knowingly, that would be very harmful to their total economic model because we
want broadcasters' content. It's something our customers want," Ergen said.

"I think there's other things you can do once the
litigations over" to address ad skipping, Ergen said. For example, "we can
target ads to customers so people don't want to skip them and do it in a way
that customers feel better about and want to watch more commercials."

But solutions will have to wait till the litigation ends.
"We don't always take principled stands, but the fact of the matter is we
believe the American public has the right to change the channel. We think they
have the right to record a show. And we think they have a right to push a
button to skip a commercial," Ergen said.

"When my kids were young I didn't want them watching those
commercials. Some are very offensive, so I think you have to have the right to
skip the commercial. And I think that's where we differ today. We think the
broadcasters, at least in the lawsuit, have said no, customers don't have the
right to do that. And I think we have to take a stand for the consumer because
if we don't, nobody else is going to do it. So I think it's one of the things
customers like about Dish."

For the third quarter, Dish reported a loss of $163 million,
or 35 cents a share, compared to net income of $319 million, or 71 cents a year
ago. Revenues fell 0.8% to $3.5 billion.

"Third quarter results continue to point to a company whose
core business is still struggling... badly," said analyst Craig Moffett of
Bernstein Research.

"Efforts to stabilize subscriber losses have largely worked,
leveraging a relatively successful marketing effort centered on their
multi-room Hopper DVR," Moffett said. "Gross additions of 739,000 were a
bit better than consensus expectations of 705K, and were up 12.7% from a year
ago. So far, so good."

But Moffett added that improvements in lowering churn rates
appear to have stalled. "Churn of 1.80% was down 3 basis points from last year,
but was 6 basis points above Wall Street consensus of 1.74%," he said. "Dish's
steady litany of programming disputes, including their well-publicized one with
AMC (which cost Dish subscribers the
premiers of Breaking Bad and über-hit Walking Dead before finally being settled) undoubtedly hurt
results here."

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