The brinksmanship between EchoStar ( DISH) and Viacom ( VIA.B) turned ballistic Tuesday as the satellite television provider pulled CBS from its system because of a rate dispute. EchoStar's DISH Network said it dropped 16 of Viacom's owned-and-operated CBS local stations and 10 of its nationally distributed channels earlier this morning. The drastic action is a response to rate demands and what EchoStar called Viacom's "strong-arm tactics" linking the rights to carry CBS stations to commitments to carry its cable networks, channels that EchoStar said have "little or no measurable appeal to viewers." The curtailment coincides with the expiration of a temporary restraining order under which EchoStar had been carrying the stations while the two sides negotiated a contract that expired at the end of 2003. The satellite operator previously sued Viacom on antitrust grounds and the case is pending in federal court in California. "DISH Network customers in the cities with CBS owned-and-operated stations are entitled to keep up with local news and events distributed over publicly owned airwaves, and Viacom is interfering with that right," EchoStar said. "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." In a statement, Viacom said the fees it is seeking are negligible. "It is hard for us to make sense of their position," Viacom said. "They recently hiked their subscribers' bills by as much as $3 a month. Yet they are unwilling to consider paying an additional six cents a month per subscriber for the right to carry our channels. Our networks are some of the most popular on television and when Americans watch TV, they spend more than 20% of their time with our networks; nonetheless, we are asking for less than 5% of what EchoStar/DISH Network currently generates from the average customer."
According to EchoStar, Viacom wants rate increases of 40% and commitments to its cable networks, which include MTV, Comedy Central, BET, Nickelodeon and others. "That demand potentially equates to hundreds of millions of dollars in payments by DISH Network, plus additional payments for additional channels that would offer little or no value to DISH Network's customers -- while saddling them with the costs," EchoStar said, quoting CEO Charles Ergen. Speaking generally about the programming dispute at an analyst conference Monday, Viacom Chairman Sumner Redstone
indicated EchoStar's demands are onerous . "There is no way Viacom can or will give Charlie Ergen a better deal than it gives to Rupert Murdoch" or Comcast ( CMCSA), Redstone said. Ironically, Redstone was also asked about possibly buying EchoStar, which is the only independent satellite television company available after News Corp. ( NWS) bought Hughes Electronics ( HS). He said he wasn't interested.