EchoStar, Viacom Settle

UPDATE - Echostar Communications and Viacom Inc. settled their rate hike dispute late Wednesday, March 10.

Viacom programming returned to the Echostar lineup within twenty minutes of signing the deal. On Tuesday, the Colorado-based satellite broadcaster had deleted popular channels such as BET, Comedy Central, MTV, Nickelodeon, and VH1, from feeds to major cities across the US, including depriving approximately 2 million subscribers of CBS television shows. Approximately 9 million Echostar customers went without Viacom-owned programming for most of Tuesday and Wednesday.

Echostar and Viacom had been in negotiations since their previous contract expired December 31. The last court-ordered contract extension ended Monday, March 8.

The deletion of Viacom programming came just a week before CBS begins broadcasting the NCCA Men's Basketball Championship series. Some observers saw the move as a desperate measure by Echostar to force Viacom to compromise on rate hikes. It backfired when thousands of DISH subscribers called in protest. "It was the outcry from the viewers that truly, I think, brought EchoStar back to the negotiating table,'' said an MTV spokeswoman. ''They called us by the thousands and thousands.''

Some DISH subscribers went beyond protesting. A few threatened lawsuits for breach of contract, and at least one made good on the threat. Subscriber Rebecca Dolan sued Echostar in San Francisco Superior Court. "Dish is saying that it has the right to eliminate critical aspects of its programming packages," said attorney Eric Gibbs, "Yet its customers have no right to terminate their relationship ... unless they pay a termination fee of up to $240."

EchoStar has promised to reimburse customers between $1 and $2 a month for the blackout. As part of the deal, DISH will offer new Viacom programming, including the Nicktoons cartoon channel, Spike TV, CMT, and CBS HD East and West. In contract discussions, Echostar had balked at carrying Nicktoons and other "low-demand" programming.

"We understand that this has been a difficult few days for our customers, and we thank them for all the encouragement they have given us throughout," said Echostar CEO Charlie Ergen in a joint statement with Viacom. "We also look forward to a long relationship with Viacom in which we can provide their quality channels to our viewers." Viacom chief Mel Karmazin thanked DISH subscribers ''for their patience and support.''

Background on this development can be read below:

March 8, 2004 - CBS network programming could vanish from EchoStar's lineup in many cities this week if the satellite service can't reach an agreement with Viacom, Inc.

At issue are the rates EchoStar Communications must pay for television channels owned by Viacom and which channels it will carry. EchoStar has balked at Viacom's demands that it carry some low-demand channels, such as Nickelodeon's "Nicktoons," and objects to the rates Viacom is seeking for retransmission rights.

Speaking at a conference in Washington, DC, EchoStar CEO Charlie Ergen described Viacom's position as "extortion at the highest level." Ergen claimed that Viacom was asking for a 40% hike in its rates, but Viacom officials insisted that the rate increase being sought was only 7%, a rate acknowledged by EchoStar attorneys in San Francisco courtroom proceedings. People close to the negotiations now say that Viacom has reduced its demanded fee increase to 5% annually.

The two adversaries have been dickering for weeks, with Viacom threatening to block EchoStar's transmission of the Super Bowl if the satellite service didn't accede. That tactic was blocked by a restraining order issued by a federal judge in EchoStar's antitrust suit against Viacom. The order expires at midnight on Monday, March 8. If no agreement has been reached by then, CBS will disappear from EchoStar's programming guide in 15 major markets, including New York and Los Angeles, where Viacom is the owner/operator of the local CBS station. CBS could still be delivered in 90 other markets where the local CBS affiliate is independently owned.

EchoStar's tussle with Viacom is part of a larger effort by the satellite service to deliver high-definition signals to its subscribers. Ergen wants federal regulators to allow satellite broadcasters to transmit HD programming from distant stations if local stations have not yet upgraded their studios and transmitters for the new format. Doing so would require changes to 1999's Satellite Home Viewer Improvement Act (SHVIA), which expires at the end of this year. SHVIA allows satellite services to retransmit local stations, just as cable services have always done, but restricts them from offering stations from other markets.

Changing this restriction would effectively force local stations to compete against stations in other cities, an advantage for viewers but a disadvantage for those stations not yet equipped for HD. The National Association of Broadcasters hopes to protect its members by opposing EchoStar's push for a change in the SHVIA. Industry analysts generally agree that EchoStar has the most to lose in the dispute.