Disney, Starz Take Dish to Court Over Free Promotion

Starz and Disney (s DIS) are suing Dish Network (s DISH) over a year-long free promotion it offered to subscribers, claiming that the satellite TV provider didn’t get approval to distribute its channels without receiving compensation from users.

The argument stems from a one-year preview of seven Starz channels and one Encore channel that Dish offered to its 14.1 million satellite TV subscribers. The promotion was made at the same time that Dish raised prices for its subscribers, and was likely offered as a way to help retain some customers that were unhappy with the price increase.

But Starz is unhappy with the giveaway, and claims that it never authorized Dish to make its channels available in such a promotion. According to the Starz complaint, (PDF) “the Dish Agreement permits Dish to offer Starz’s television channels to its base of subscribers but only on certain conditions. Because the Starz and Encore channels are premium channels — or Pay Television channels — Starz does not permit Dish to simply give away its channels and content to its entire subscriber base.” The complaint also alleges that Dish never reached an agreement with Starz over the promotion or fully communicated its plans.

Apparently the promotion has caused issues between Starz and its studio partners, including Disney, who claim that the “free giveaway” of the Starz channels violate their agreements, which specify that their content only be made available as premium, pay TV services. As a result, Starz claims that it is in breach of multiple studio agreements.

In addition to Starz, Disney also filed suit against Dish, arguing that the promotion and distribution of its content not only violates its agreements, but infringes on its copyright. “Neither [Disney] nor Starz consented to Dish’s scheme to provide its subscribers with Starz Programming for free, which is in direct violation of Plaintiffs’ exclusive rights under federal copyright law,” Disney wrote in its complaint. (PDF)

The Dish promotion was surely meant to provide more value to some subscribers who were saying their rates increased, but there might be an ulterior motive here: The timing of the giveaway also coincides with negotiations between Starz and Netflix (s NFLX) to re-up their licensing agreement, which gives Netflix subscribers the ability to stream on-demand videos from Starz’s movie library.

The initial agreement between Netflix and Starz, struck in 2008 when the service was just being launched, has been infamous not only for helping the subscription streaming service get off the ground, but also for drastically undervaluing Starz programming. Starz has received only about $25 million to $30 million a year through that deal, but could cash in big during the renegotiation of its agreement.

Based on recent deals, some analysts have speculated that a renewed deal could be worth $300 million a year or more for Starz programming. But after practically giving its content away and helping Netflix to grow into a formidable competitor, many distributors are unhappy with Starz. By giving away its content for free, Dish takes away some leverage Starz may have in striking a better deal for its streaming content.

Dish offered the following statement in response to the lawsuits:

“Dish Network pays hundreds of millions of dollars for the right to distribute Starz content to our customers, which includes the rights to a number of Disney movies, and our current distribution of Disney content on Starz is permitted under our contract with Starz. 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.”

Photo courtesy of (CC BY 2.0) Flickr user takomabibelot.