Sure looks that way — for the company, not Dish Network subscribers. AMC Networks shares are +3.9% in early trading following yesterday’s $700M agreement with Dish Network to settle the $2.4B breach of contract case involving the defunct VOOM suite of HD channels. But the surprise is that Dish is up 2.2%. Consider that a sigh of relief from shareholders who feared the worst from the lousy hand chairman Charlie Ergen had to play in court. A series of rulings by New York Supreme Court Judge Richard Lowe III found that Dish destroyed or covered up important evidence that probably would have hurt its case — and made Dish a likely loser against the charge that in 2008 it wrongly terminated its 15-year deal deal to carry VOOM. Yet Ergen’s decision in June to drop the AMC channels appears to have paid off. The $700M settlement was “well below Street expectations” of at least $1B says Wells Fargo Securities’ Marci Ryvicker. Barclays Equity Research’s James Ratcliffe calls the amount “quite reasonable” in light of the court setbacks.
The bottom line is that AMC needed to find its way back to Dish’s 14.1M subscribers. Their loss could have cost the network owner as much as $100M per year in cash flow. Although the companies didn’t disclose the terms of Dish’s new carriage deal with AMC, the agreement could run as long as seven years and probably puts AMC on Dish’s most basic subscription tier, according to another Barclays analyst, Anthony DiClemente. “Using conservative assumptions, we estimate the new deal is worth $6 per share to [AMC], although we’d emphasize that there could be upside to that figure, based on better-than-expected tiering or pricing,” he says. What’s more, now that the trial is over investors can focus on AMC’s finances as well as “its position as a ‘bite size’ potential acquisition target,” Susquehanna Fnancial Group’s Vasily Karasyov says. He raised his stock price target for AMC by $2 to $53 this morning, which also is based on his belief that the new deal with Dish “includes rate increases for all networks as well as expanded distribution for the Sundance Channel.”
One of the most curious parts of the settlement deal involves Cablevision’s agreement to let Dish have its licenses for 500 MHz of wireless spectrum in 45 cities including New York, Los Angeles, Chicago, San Francisco and Philadelphia. That accounted for $80M of Dish’s $700M payment, the companies said. The spectrum is mostly designed to send Internet transmissions downstream. Even so, Ryvicker says it could be paired with other spectrum that Dish owns to offer “a pretty robust triple play.” Bernstein Research’s Craig Moffett says the decision to include the spectrum in the settlement “underscores Dish’s seriousness” about building a wireless network. “In essence, these licenses represent support infrastructure that would backup the better-known S-band spectrum that would be used to transmit signals between users and cell sites,” he says.
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