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EchoStar-Disney Feud Gets Ugly

1/06/2002 7:00 PM Eastern

The simmering feud between EchoStar Communications Corp. and The Walt Disney Co. exploded last week into verbal jousting over carriage and license-fee issues.

Both sides lobbed in several statements regarding EchoStar's decision to drop two Disney-owned networks, ABC Family and ESPN Classic. While the direct-broadcast satellite provider removed the vintage sports network from its 5.1 million-subscriber Dish Network on Jan. 1, it will have to wait until at least Jan. 10 to pull the plug on ABC Family.

That was the deadline a U.S. District Court Judge set Dec. 31, 2001, in a ruling that favored Disney's request for a temporary restraining order that barred the DBS company from dropping the network.

Since the ruling, both EchoStar and Disney publicly denounced one another's intentions in the bitter battle.

In a written statement, EchoStar — responding to the decision by Judge Gary Allen Feess of the U.S. District Court for the Central District, which granted Disney's request for a temporary restraining order — said it wants to protect its customers from "a giant media conglomerate" that has imposed fee hikes well beyond the rate of inflation.

EchoStar said it will not pay Disney "hush money" in the form of higher licensing fees for the networks, in return for support for EchoStar's its proposed merger with DirecTV Inc., which the conglomerate has threatened to oppose.

"If the price for Disney's support of our pending merger comes at the cost of increased, double-digit rate hikes for our customers, then we must forgo their support," EchoStar chairman and CEO Charlie Ergen said in a statement.

"We are confident that we are within our rights to cancel ESPN Classic and await a judge's ruling before making a final decision to discontinue carriage of ABC Family," Ergen added.

Disney later shot back, saying that EchoStar's real reason for dropping the service from its Dish Network platform was licensing fees.

EchoStar had argued that Disney's purchase of the former Fox Family Channel abrogated its current 10-year affiliation deal, which is scheduled to expire in August 2005, because the network changed ownership.

Disney contends that it acquired Fox Family Worldwide Inc., the sole member of Fox Kids Holdings, which is the sole shareholder of International Family Entertainment, the company once owned by the Rev. Pat Robertson. IFE inked the 1995 carriage deal with EchoStar, when the network was known as The Family Channel.

Since the purchase of IFE did not result in any change in the entity that holds the controlling stock and voting interest in IFE — which is still Fox Kids — Disney argues that the distribution deal remains intact.

Disney also disputes EchoStar's claims that it sought increased licensing fees for ABC Family. According to court papers, EchoStar presently pays ABC Family $1.1 million per month based on the DBS service's base of about 5.1 million subscribers.

"It is an absolute fabrication for EchoStar to claim that Disney has sought price increases for ABC Family. In fact, Disney has never sought such increases," the company said. "The pricing structure remains the same as defined by the 1995 contract, except that we are providing improved programming."

But EchoStar executives — and many cable operators — question whether ABC Family's programming changes are worth the cost. The network's January schedule relies heavily on programming that has already aired on the ABC Television Network.

"In 1995, we did not bargain for repurposed programming from ABC that we would pay twice for and which our viewers may have already seen on another Disney-owned channel," EchoStar vice president of programming Michael Schwimmer said.

Disney wants to keep ABC Family on Dish Network, saying its removal "would compromise its distribution by 7.5 percent, while also damaging its "goodwill, credibility and reputation," court papers said.

Further, ABC Family, which is currently negotiating with five MSOs — the biggest of which is Charter Communications Inc. — and whose contract with a sixth, Time Warner Cable, expired at the end of 2001, claims the loss of EchoStar could compromise its negotiation position with other distributors.

Disney also took exception to EchoStar's claims of increased fees for ESPN Classic. EchoStar dropped the retro sports service, which had more than 40 million cable and satellite subscribers, on Jan. 1, due to an escalation of the network's rate, although terms were unclear at press time.

Disney contended that EchoStar's ESPN rate is essentially identical to the price paid by other providers and that EchoStar signed long-term distribution agreements for ESPN, ESPN2 and ESPNEWS "containing the very rate adjustment provisions about which they now complain."

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