Air War

EchoStar blocks Viacom channels

CBS affiliates in 16 cities amid fight over fees

March 10, 2004|By Dan Thanh Dang | Dan Thanh Dang,SUN STAFF

In the latest case of brinkmanship between the providers and deliverers of television, EchoStar Communications Corp. blocked Viacom Inc. channels, including the CBS-TV affiliate in Baltimore, from its subscribers in a dispute over programming costs yesterday.

EchoStar yanked MTV, BET and Nickelodeon from subscribers nationwide. It also blocked CBS affiliates on its satellite network yesterday in 16 cities, prompting thousands of angry calls from subscribers to both media giants.

The skirmish - which affects as many as 9 million customers, including 1.6 million who watch CBS programming in the affected cities - could jeopardize their ability to watch this month's NCAA men's college basketball tournament. Analysts say a prolonged fight could hurt both companies long-term as weary viewers flee to their competitors.

It could also mark a turning point in other contract negotiations as cable and satellite distributors employ stronger tactics against multimedia companies and rising programming costs, analysts said.

The battle over rising costs was at the heart of a similar dispute in 2000 between Time Warner cable and ABC that blacked out service to 3.5 million cable customers. It is also the reason that cable giant Comcast Corp. has pursued a takeover of content-rich Walt Disney Co.

"Programming is a significant cost item for distributors," said Daniel Zito, managing director of Telecom/Cable Equity Research at Legg Mason Wood Walker. "All distributors are trying to get those costs under control. This is definitely an aggressive negotiating stance on behalf of EchoStar.

"The clear risk to EchoStar is subscriber loss," Zito said. "CBS is the top-rated network out there. You could increase subscriber churn. They are taking a risk."

Instead of being able to tune in to The Guardian on CBS or Total Request Live on MTV, viewers in Baltimore and other cities who subscribe to EchoStar's DISH Network were greeted last night with a message screen apologizing for the disruption and blaming Viacom for proposing "excessive rate increases which we feel are unreasonable." Viewers were given a Viacom number to call for complaints.

Viacom responded yesterday by pointing the finger back at Echo- Star and urging customers to drop the DISH Network to sign up with Comcast Cable or DirecTV.

"I'm afraid `March Madness' came 10 days earlier this year," CBS Executive Vice President Marty Franks said during a Viacom news conference yesterday, adding a reminder to viewers that "we are available for free to every viewer with an antenna."

At WJZ-TV Channel 13 in Baltimore, spokeswoman Liz Chuday said EchoStar's decision affected about 1 percent of the estimated 1.8 million television viewing households in Baltimore and 10 counties.

The two companies began squabbling after a contract for the DISH Network to broadcast Viacom channels ended Dec. 31.

In January, EchoStar filed a federal antitrust lawsuit, contending that Viacom had tried to force the satellite TV owner into carrying several Viacom-owned cable channels, including MTV, Spike, Comedy Central and VH1. EchoStar accused Viacom of demanding unfair prices for those channels in exchange for the right to carry CBS-owned stations in the 16 media markets.

EchoStar also said Viacom demanded "unreasonable" rate increases of up to 40 percent over the length of the contract, which could equate to hundreds of millions of dollars.

The contract was extended several times, voluntarily and through court orders, to allow negotiations to continue. But the latest court order for the programming to continue expired at midnight Monday.

"DISH Network will always have a place for CBS and we're willing to pay for retransmission rights, but Viacom is holding the public airwaves hostage, trying to extract concessions and higher rates on programming unrelated to CBS," said Charles Ergen, chairman and chief executive of EchoStar.

"Our goal is to remain the best value for our customers for the lowest price. To do this, we need fair contracts with competitive pricing that allow DISH Network to select the channels most compatible with the interests of our customers," Ergen said.

Unable to negotiate a fair price, Ergen said EchoStar was forced to take down Viacom's channels.

In a joint news conference held by Viacom-owned MTV and CBS, MTV President Mark Rosenthal said, "We are disturbed and disappointed by EchoStar's decision. This is not something we wanted to happen. ... EchoStar is trying to paint itself as the victim. To hear them tell it, they were forced to pull the plug on our networks to protect their subscribers from exorbitant rate increases and unfair carriage requirements we were trying to foist on them.

"In a word, that is ludicrous. The increases we've been asking for has been both modest and reasonable, amounting to less than 6 cents per month per subscriber."

Rosenthal said EchoStar is merely trying to squeeze a better deal on its programming contract than the one Comcast received.

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