LEAVING THE RING

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Wilmington, Del.-Tag-team partners Viacom Inc. and World Wresting Federation Entertainment Inc. tore into USA Cable during a trial here that will determine which networks will distribute cable's top-rated WWF programming in September.

Testimony in the case, which ended last Thursday, revealed much about high-level talks that have occurred in the past year between Viacom, CBS Corp. and other media companies vying for WWF shows.

Internal disputes between top USA executives regarding how the company should have approached WWFE about renewing its contract also came to light.

USA sued WWFE, Viacom and CBS in April, seeking to force WWFE to accept an offer it said matched the Viacom-CBS bid for WWFE programming, which was made before the companies' merger closed. Delaware Chancery Court Chancellor William Chandler is expected to issue a decision by the end of June.

The core issue debated last week in court was the first-refusal clause in USA's contract. USA argued that the clause doesn't force the company to match elements in the Viacom offer that go beyond the four USA series Viacom wants to move this fall to The Nashville Network and MTV: Music Television.

Viacom's bid also includes distribution of WWFE's upcoming XFL football league on TNN; distribution of WWF shows in Canada and the Carribean; home-video distribution; a $500,000 movie-development fund; a $3.5 million guarantee for television specials; radio syndication; billboard advertising; and the promotion of WWF shows at theme parks.

USA attorneys hammered away at Viacom-WWFE witnesses WWFE CEO Linda McMahon and Kerry McCluggage, chairman of Viacom's Paramount Television Group, suggesting that the companies came up with some of the terms in their proposed "strategic alliance" only to "frustrate" USA's first-refusal rights.

"Ultimately, we were trying to create an offer that would be impossible for them to say no to," McCluggage countered. "Our offer was that all parts are contingent [on each other]."

Tension began to increase between WWFE and USA in October, when Linda McMahon told Brenner WWFE planned to exercise a clause in its contract that would allow the company to send USA a notice of early termination, which would trigger a 45-day exclusive-negotiation period.

In previous talks with USA, WWFE had expressed interest in acquiring USA's Sci Fi Channel in order to reformat it with WWFE-themed programming, McMahon testified.

McMahon said USA Networks Inc. president Barry Baker also encouraged her to go out and talk with other companies about potential deals, noting, "I can tell you right now, Linda, you're not going to get anybody to give you a network," McMahon testified last Thursday.

Brenner also said Baker became "apoplectic" when he heard that WWFE planned to send the termination notice, noting that it would be "psychologically damaging for them to do so."

Baker himself called Linda McMahon Nov. 5 and agreed to waive the first-refusal right if WWFE agreed to delay sending the termination letter.

Brenner testified last week that this sparked debate among top USA officials, including vice chairman Victor Kaufman, since "this is an extremely important right, and it shouldn't be waived."

Baker then had Brenner call McMahon to inform her that USA had changed its mind and it did not want to give up its first-refusal rights. "[Baker] was angry, and it was my responsibility to fix the mistake," Brenner testified.

USA later reached a separate agreement in late November in which WWFE agreed to leave USA's first-refusal rights intact in exchange for waiving the exclusive 45-day negotiation period.

USA Network senior vice president of business affairs Richard Lynn testified that USA did a detailed financial analysis in March of the costs to match the complete Viacom-CBS bid, which includes such elements as international distribution, new WWF-themed television series, radio deals and billboard ads.

Had it matched the Viacom-CBS proposal, USA figured to lose $6.79 million the first year, $6.6 million the second year and $4.96 million during the third year of the contract, according to the analysis by USA chief financial officer Jim Peterman.

While several Viacom and WWFE executives attended the trial, Lynn was the only USA executive in the courtroom last week-a point WWFE chairman Vince McMahon noted during his testimony.

USA didn't cross-examine McMahon after his testimony, most of which consisted of harsh criticism of USA.

Chandler suggested that both parties attempt to reach an out-of-court settlement before he issues his decision.

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