Cease-fire, for now, in Mouse vs. Dish

Judge's ruling keeps ABC Family on EchoStar, but ESPN Classic loses carriage

The escalating feud between Walt Disney Co. and EchoStar Communications Corp. paused last week, but only after EchoStar tossed one Disney cable net from its Dish Network and was forced to keep another—for now.

A federal judge ruling in Los Angeles on New Year's Eve prevented Disney's ABC Family channel from going dark Jan. 1, the date EchoStar had set to cut off carriage. The temporary restraining order expires Jan. 10, when the court will likely hear arguments for a permanent injunction.

Nothing, however, stopped EchoStar from canceling another Disney outlet, ESPN Classic. That channel's distribution deal expired New Year's Eve, and EchoStar made good on its threats to discontinue the service.

EchoStar bases its legal right to terminate ABC Family on changes in the channel's ownership. But the DBS company has been vocal in its opposition to Disney's ever-rising subscriber fees.

"All [Disney does] is pass along rate increases," complained EchoStar Vice President of Programming Michael Schwimmer. "It has nothing to do with ability of consumers to absorb rate increases."

Disney acquired International Family Entertainment, parent company for the former Fox Family Channel, from News Corp. and Saban Entertainment in October for $5.2 billion. Disney contends that it purchased IFE's grandparent company, Fox Family Worldwide Inc., and that IFE's ownership structure remains intact.

"EchoStar's real reason for breaching its contract ... is all about rates and has never had anything to do with the change of control issues," Disney said in a Jan. 2 statement.

EchoStar contends that ABC Family inherited a carriage deal originally made in 1996 with Pat Robertson's old Family Channel and that the current ABC Family is a vastly different network. The DBS company made the same argument after the channel relaunched as Fox Family, trying unsuccessfully to bump it off the Dish Network.

The two companies have exchanged a flurry of legal arguments since early December, after EchoStar announced its intention in late October.

In a particularly revealing document filed Dec. 29, EchoStar's Schwimmer recounts telephone conversations and e-mails with Disney execs who threatened to scuttle EchoStar's proposed merger with DirecTV if the channels were canceled.

"Disney had 'its weapons' and was prepared 'to march on Washington, D.C.,'" Schwimmer's statement recalls Disney Senior VP and Chief Strategic Officer Peter Murphy saying.

Schwimmer believes officials in Washington will see right through Disney's threats. "Would we prefer to have Disney on our side, yes," he said, "but it's not something we're going to pay for" with higher subscriber fees.

ESPN executives, meanwhile, are working feverishly to get their channel restored. EchoStar said the channel's rates were too high to justify the limited subscriber interest. Cable operators in the past have said that only 25% of customers want sports but the other 75% still pay for it. EchoStar believes its customers suffer a similar fate.

But ESPN Executive Vice President of Affiliate Sales and Marketing Sean Bratches points to a recent Beta viewer study that ranks ESPN Classic the top mid-sized net among men 18-49. (Classic has about 40 million subs.) "It's a niche network with a loyal following, but we have the ability to grow the network," Bratches said.

Disney's other sports nets, ESPN, ESPN2 and ESPNews, are not at risk to lose their carriage. All three have long-term agreements with EchoStar still in place.