Deadline Looms for AMC Channels

By SHALINI RAMACHANDRAN

The AMC channel is home to such hit TV shows as "The Walking Dead" and "Mad Men" but it could go dark Saturday night on both the satellite TV service run by Dish Network Corp. and AT&T Inc.'s TV service, in a new front in the war between pay TV distributors and TV channel owners.

Dish has already dropped AMC's sibling channel Sundance and has declared its intention to drop AMC, along with two of its other sibling channels, IFC and WE tv, on Saturday. That is also the deadline for AT&T to reach a new deal to carry AMC, IFC and WE tv.

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The AMC channel, home to 'The Walking Dead,' could go dark Saturday on Dish and AT&T.

Both Dish and AT&T complain that the cable channels are trying to raise fees too much, given the relatively low viewership of the channels. Dish has 14 million subscribers while AT&T has about four million.

As high profile as its best known shows are, AMC has only averaged 1.2 million prime-time viewers a night this season, according to Nielsen, well below that of rivals like Comcast Corp.'s USA channel, which drew an average of three million.

AMC Networks Inc.'s other three channels averaged a fraction of that nightly prime-time audience: 298,000 for WE tv and 143,000 for IFC from September through early June. Sundance, whose shows include such niche fare as "Push Girls," a reality series about four glamorous but paralyzed Hollywood women living in wheelchairs, has an even lower audience, according to a person familiar with the matter. Sundance and Nielsen don't disclose the precise number.

AMC charges 47 cents a month per subscriber for IFC, WE tv and Sundance combined, according to market researcher SNL Kagan. The AMC channel gets 26 cents, SNL Kagan estimates, but has been trying to raise that amount to 75 cents a subscriber per month, industry executives say. USA, in contrast, gets only 60 cents.

AMC said it is disappointed it hasn't reached a deal with AT&T "that adequately reflects the popularity of our programming." Both companies said they are still in active negotiations. Chief Executive Josh Sapan said the dispute with Dish, however, isn't about fees but about an unrelated lawsuit, adding that Dish "has not engaged in any rate discussions with us at any point." Dish said the lawsuit is a "separate matter" and declined to comment on the discussions.

Either way, the disputes highlight a greater willingness of pay TV distributors to rethink the smaller cable channels that they carry. While the variety of choice offered by the myriad of small channels was long a cable-TV selling point, with programmers asking for increasing fees, distributors are looking for ways to cut costs. One obvious way, as DirecTV Chief Executive Mike White noted last month, is "finding smaller channels that we don't need to carry anymore,"

Hallmark Channel, one of two channels owned by Crown Media Holdings Inc., has been off AT&T's U-verse cable systems since 2010 over a rate dispute. Also in 2010, Dish permanently dropped Madison Square Garden Co.'s MSG, which airs New York sports games, and the Garden Co.'s low-rated Fuse music channel. Since late last year, Al Gore's Current TV has had to meet certain minimum audience thresholds every quarter or risk being dropped by Time Warner Cable Inc. Current declined to comment on its contracts.

Less vulnerable are channels owned by big media companies, which typically bundle their popular channels with smaller outlets, making it harder for distributors to drop their small channels. The big companies get most of the fees paid by cable and satellite operators, reducing the potential savings that distributors can achieve by going after smaller programmers. Industry executives say it is a question of negotiating power.

"I feel badly for independent companies in general because they don't have leverage against the distributors. It's not a fair fight and nobody wants to pay them," said Dish Chairman Charlie Ergen in a recent interview.

He foresees an alternative universe forming online, as independents go "over the top" of the traditional TV service. "If they're really good, they'll find a market over the top," Mr. Ergen said. "AMC could do it."

But going online could force small channels to give up whatever distribution they have in the TV world, with the valuable affiliate fees. Big cable and satellite operators don't like to see programs they pay to carry also available online for a lower cost. When AMC licensed old seasons of "The Walking Dead" to Netflix Inc., several pay-TV distributors called the channel to complain, said a person familiar with the situation. "It comes up in every negotiation" with AMC's channels, the person said.

Some small channels like Veria Living, a health channel managed by Asia TV USA Ltd., said they plan to distribute their channel online for a subscription in case they don't get enough distribution. But they admit that nothing compares to the profitability of having a clear distribution path into a huge number of homes—being part of the "90-million club," as Dish's Mr. Ergen calls it.

Larry Aidem, a former Sundance Channel CEO who now runs a Web TV firm Iconic TV, warns of the implications for smaller programmers of the AMC dispute. "If Charlie Ergen can drop AMC Networks and they are off for awhile, other [distributors] will be emboldened" to do the same, he said. Eventually, the "endless golden goose" of cable-TV distribution and fees will only remain for "the vaunted few" big media companies.

Write to Shalini Ramachandran at shalini.ramachandran@wsj.com

A version of this article appeared June 29, 2012, on page B5 in the U.S. edition of The Wall Street Journal, with the headline: Deadline Looms for AMC Channels.