EchoStar Can't Dish It Out, Disney Says of Family Channel - TheStreet

EchoStar Can't Dish It Out, Disney Says of Family Channel

But the satellite TV service says it's Mike Eisner's boys who can't take it.
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"I want my MTV!" had a nice ring to it. But "I want my ABC Family Channel!" might be a tougher sell.

Yet that's the new rallying cry out of

Disney

(DIS) - Get Report

in what promises to be an ugly, ongoing struggle between the media and entertainment giant and

EchoStar Communications

(DISH) - Get Report

.

Unfettered by context, the dispute between Disney and EchoStar, the home satellite service provider, is simply a contractual dispute: Does EchoStar have the right to drop the ABC Family Channel from its programming lineup? EchoStar, which started carrying the Family Channel back in 1995, says yes. Disney, which acquired the channel in October, says no. And on Dec. 31, a federal judge in Los Angeles said not yet, issuing a temporary restraining order preventing EchoStar from pulling the plug as planned on New Year's Eve. A court hearing on the order is slated for Jan. 10.

Taking a broader view, however, the skirmish is part of a never-ending battle between programming suppliers on the one hand and programming distributors on the other. On the one hand, programmers want to get their channels carried to as many cable and satellite subscribers as possible, and to maximize the compensation they receive from cable and satellite operators.

A programmer's bargaining chips in getting these operators to pay up rather than drop the channels may include the popularity of the programming, or consumers' expectation that it should be offered as part of a multichannel TV service. (That's likely a stronger card for MTV than it is for ABC Family Channel.)

On the other hand, because cable and satellite operators such as EchoStar, as gatekeepers, have the final say in determining channel lineup, they have the power to bargain through the threat of simply dropping a channel rather than paying a price they'd prefer not to.

Complicating this particular conflict is EchoStar's proposed merger with

Hughes Electronics

(GMH)

, a transaction that would create a single home-satellite service out of the last two remaining competitors in the dish service market. Cognizant of the perceived consumer threat of a single satellite operator taking the place of two -- especially in rural areas that face no competition from local cable systems -- Disney is playing up the theme of EchoStar as evil monopolist for all it's worth.

"Disney shares the view of many consumer groups and state and local regulators that a monopoly satellite distributor can and will exercise power in ways that stifle competition, innovation and consumer choice," said Disney president Bob Iger in a statement Monday.

EchoStar, however, is playing the big-bad-wolf card, too, saying in a statement Wednesday that the operator of the Dish satellite service "is simply ... trying to protect its customers from Disney, a giant media conglomerate that has imposed rate increases well beyond inflation." Added the company, "EchoStar simply cannot carry every service a programming behemoth like Disney wishes to force upon EchoStar at costs which bear little relationship to the value they provide to consumers."

In a further complication, the conflict is also colored by the finite number of channels a satellite operator such as EchoStar can carry, as well as regulatory issues that make demands on that capacity. In its effort to compete with cable systems, EchoStar has been carrying certain local broadcast channels to subscribers in 36 different markets throughout the country. Because of certain federal rules, recently upheld in court, on Jan. 1 EchoStar had to add, it says, more than 250 additional channels in those markets.

Though it's unclear how crucial dropping Disney's ESPN Classic -- which EchoStar did indeed cut from its lineup on New Year's Eve -- and ABC Family Channel were to clearing space for the new programming, it's apparent that there's no simple solution for figuring out a pro-consumer channel lineup.

And how the dispute will play out in Washington is unclear, too. In the hands of even an unskillful lobbyist, Disney can use this episode to paint a merged EchoStar-Hughes as the devil incarnate. But a similar dispute between Time Warner and Disney didn't derail the

AOL Time Warner

(AOL)

merger, so EchoStar's deal can't be written off yet.

On Wednesday, EchoStar's shares rose $1.28, to $28.75. Disney rose 73 cents, to $21.45.