USA Networks Inc. lost its court battle against World Wrestling Federation Entertainment Inc. and Viacom Inc. last week-a setback that will have huge ramifications for USA Network and Viacom's The Nashville Network.
The ruling allows Viacom and WWFE to move four WWFE series-including basic cable's top-rated -from USA to Viacom's TNN and MTV: Music Television at the end of September, when USA's 17-year relationship with WWFE ends.
It also allows Viacom to proceed with a strategic alliance signed in April, which sparked the USA suit.
Under a five-year deal, Viacom gets the four USA series for a weekly license fee of $550,000, or close to $30 million annually. That's more than five times what USA paid.
Viacom agreed to distribute WWFE's XFL football league on TNN and possibly on United Paramount Network, and the WWF extended rights to WWF to UPN. It will also produce a new WWF drama series and run up to seven annual specials on TNN, MTV, UPN or CBS.
And Viacom agreed to pay WWFE $30 million for a 3 percent stake.
A glance at June Nielsen Media Research ratings released last week-which came out as the Delaware Chancery Court issued its decision-illustrated how the move will affect TNN and USA.
A total of 16 USA programs ranked in the top 100 basic-cable programs for the month, 11 of which were WWF shows, including eight of the top 10 programs for the month. USA was the No. 1 network in June, while TNN was No. 19.
The highest-rated movies on USA, which represent the bulk of the networks' WWF replacement programs, ranked Nos. 17, 43 and 69.
Still, USA claimed that the loss of WWF shows "will have a negligible effect on our ratings and a positive effect on our cash flow," according to a statement released by USA Cable president Stephen Chao.
Chao's statement was undercut by arguments USA attorneys made during the trial that the loss would cause "irreparable harm."
"The damage from the loss of this 'halo' effect is certain," USA told the court in a pretrial brief.
Comparing TNN's acquisition of WWF programming to the halo effect a National Football League contract has on a broadcast network, MTV Networks chairman Tom Freston said he believes the WWF addition will drive TNN distribution and increase ratings for other TNN shows.
"I think the greater impact it's going to have is on the network's profile overall," he said last week, adding that MTVN will soon launch a new branding effort for TNN and add new shows.
"Obviously, it's a rich deal, but we thought it was well worth it," Freston said.
Viacom and WWFE executives last week jump-started a marketing plan to promote the transition. will move from USA to TNN (Mondays at 9 p.m.); will move from USA to MTV (7 p.m.); and one-hour weekend-morning shows and will move from USA to TNN at similar times.
"We want to make sure every man, woman and child knows that the WWF is changing addresses," Freston said. Along with using Viacom platforms, from billboards to radio, the company will spend $7 million for ads on non-Viacom platforms.
WWFE CEO Linda McMahon said the company would use the UPN show to tout the channel changes this summer. WWFE expects that there "might be just a little bit" of an initial ratings drop after the transition, she added.
TNN counts 76.9 million subscribers, compared with USA's 78.2 million. But TNN has a big distribution hole in New York, where 200,000 Time Warner Cable subscribers don't get the feed. Time Warner owns WWF competitor World Championship Wrestling.
A Time Warner Cable spokeswoman said there were currently no plans to add TNN to the lineup, but Freston said MTVN is working on it.
McMahon said she's not concerned. "I think if you have the No. 1-rated cable program, cable systems really kind of cut their own noses off to spite their faces if they don't want to have the advantage of having that programming there."
TNN signed a three-year deal with WWF competitor Extreme Championship Wrestling last summer, but it will drop that Friday-night show because the WWFE deal is exclusive, Freston said, adding that TNN has an out clause in the ECW deal.
"We are aggressively assessing what our options will be," ECW managing director Steve Karel said, declining to comment on whether he would talk with USA.
Along with the $550,000 weekly license fee for the cable series, Viacom agreed to pay WWFE a minimum of $3.5 million per year to produce up to seven specials that could run on TNN, MTV, UPN or CBS.
WWFE also keeps more ad revenue than it did with USA. WWFE currently sells 80 percent of the ad revenue and USA sells 20 percent.
Although USA has repeatedly downplayed the WWF loss by noting that 20 percent figure, McMahon said last week that USA also gets 40 percent of revenue from the WWFE inventory, versus a guaranteed minimum.
In the future, WWFE will sell 80 percent of the ad inventory and Viacom will sell 20 percent. But Viacom will only get 30 percent of ad revenue WWFE earns, with no guaranteed minimum, McMahon said.
How did USA lose wrestling? Delaware Chancery Court Chancellor William Chandler wrote that he agreed that USA shouldn't have to match portions of the Viacom bid that fell outside of the scope of the four series, such as the XFL deal.
But he lit into the way USA, which had first-refusal rights, tried to match the Viacom offer for the four series.
USA crossed out sections of the Viacom offer that it said fell outside of the scope of the four series, but it left in some portions of the Viacom bid for rights USA doesn't have under its current deal. Those included a clause that would give Viacom "first-negotiation/last-refusal" rights to any new wrestling shows WWFE produces for a broadcast network, even though USA doesn't own a broadcast network.
"USA's decision to match this term-a term painstakingly negotiated between Viacom and WWFE-smacks as opportunism," Chandler wrote in the decision.
Chandler also knocked USA for saying it would match the section of Viacom's offer that promised "no regularly scheduled" pre-emption, even though USA executives testified during the trial that they would pre-empt WWF programming to run the Westminster Dog Show and the U.S. Open tennis tournament.
"USA's literal acceptance of the 'no regularly scheduled pre-emption' term is more sleight of hand than it is a good-faith intention," Chandler wrote.
USA will replace the Monday-night show and with movies from its library, spokesman Ron Sato said. The weekend-morning shows will also be replaced with library product, he added.
USA rejected requests to interview Chao and other network executives.