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Disney, Starz Sue Dish on Premium Channel Freebie

3 May, 2011 By: Erik Gruenwedel

Free Starz movies could undermine renegotiations with Netflix

The Walt Disney Co. and Starz Entertainment LLC May 3 filed separate breach of contract lawsuits against Dish Network LLC, alleging the satellite TV operator does not have the legal right to include free one-year passes to Starz content to its subscribers.

Starz, through license agreements, repurposes Disney movies such as The Sorcerer's Apprentice, Secretariat, Tangled, Alice in Wonderland, Toy Story 3 and Up, among others, to multichannel video distributors, including cable. Englewood, Colo.-based Dish began offering the pay-TV channel free to subscribers in February.

Disney’s suit, filed in U.S. District Court in New York, alleges Dish’s “scheme” to include free Starz access violates its copyrights and ability to “window” content across staggered platforms, including pay-TV.

“By distributing Disney movies for free during a period of time contractually reserved exclusively for pay-TV, Dish’s actions are antithetical to the long-standing practice of ‘windowing,’ and further threaten to devalue the right to license Disney movies, erode [its] goodwill, reputation and contractual relationships, and critically undermine [its] ability to manage the carefully constructed sequencing of [distribution] in the marketplace,” the complaint reads.

Starz, which filed its suit in U.S. District Court in Castle Rock, Colo., said Dish’s action undermines the pay-TV business model, which requires that consumers pay a monthly fee for the right to view its premium channels.

“That fee must be above the obligatory, time-based fee consumers pay to access the minimum level of cable or satellite television services,” the Starz complaint reads.

Starz contends it has sent numerous cease-and-desist letters to Dish with little luck.

In a statement, Dish said it pays “hundreds of millions of dollars” for the right to distribute Starz content to its subs, and as a result, also has the distribution rights to select Disney movies.

The strategy marks a familiar pattern for Dish’s maverick CEO Charlie Ergen, who is not afraid to buck the status quo, including dropping sports content and buying Blockbuster Inc., according to Richard Greenfield, analyst with BTIG Research in New York.

Greenfield said Disney is worried Dish could undermine its ability to extract maximum value for its content from other third-party distributors, notably cable and Netflix.

“While not stated, we also believe Disney stands to benefit from a Starz renegotiation of their digital rights agreement with Netflix, whereas Dish giving away Starz provides no such benefits and could lower the value that Netflix is willing to pay for Starz digital rights (with less value flow through to Disney),” Greenfield wrote in a .

In addition the analyst said Disney says Starz is violating its agreement with the studio (and other studios) through Dish’s giveaway — an irony Dish appeared to highlight in its statement.

“Dish Network does not have visibility to the contract between Starz and Disney, but we will vigorously defend our rights against any attempt to drag our customers into the middle of their dispute,” the satellite operator said.

Starz is seeking a jury trial, while Disney seeks unspecified statutory damages, among other compensation.

About the Author: Erik Gruenwedel

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