By Michael Learmonth and Kenneth Li, Reuters; CBS MarketWatch
Satellite television company EchoStar Communications Corp. on Tuesday dropped CBS stations in 15 U.S. TV markets as contract talks collapsed with CBS parent Viacom Inc. ahead of the popular NCAA college basketball tournament.
The move will leave an estimated 1.6 million Dish Network customers in 15 major U.S. cities without Viacom's owned-and-operated CBS local stations, and 9.5 million without 10 other Viacom cable TV channels, such as MTV and Nickelodeon.
The markets involved are New York, Los Angeles, Chicago, Philadelphia, San Francisco-Oakland-San Jose, Boston, Dallas-Fort Worth, Detroit, Minneapolis, Miami, Denver, Pittsburgh, Baltimore, Salt Lake City and Austin, Texas.
Viacom and EchoStar began battling after a contract for Dish Network to broadcast Viacom channels expired Dec. 31. The contract was extended several times in the past year, by the companies and by court order. EchoStar has said Viacom demanded a 40 percent rate hike, while Viacom has said the increase was closer to 5 percent on an annual basis.
The court order allowing the satellite television company to continue carrying about 20 channels owned by CBS parent Viacom during the dispute was set to expire at midnight Pacific time. Neither company would comment on the negotiations Monday, but EchoStar which runs Dish Network, said in a press release that it would remove the stations and nationally distributed channels.
EchoStar, the No. 2 U.S. satellite broadcaster, sued Viacom in January, charging the media conglomerate with forcing it to carry cable channels it did not want in exchange for rights to rebroadcast CBS.
Analysts called EchoStar's latest move risky for both companies. Without EchoStar viewers, Viacom could face pressure from advertisers. EchoStar may lose customers to cable TV providers or satellite TV rival DirecTV.
Viacom said thousands of EchoStar customers lit up CBS phone lines on Tuesday, and were directed to call DirecTV and cable providers. Four cable companies in Southern California quickly offered deals to EchoStar's Dish Network subscribers.
"People are going to find 'Survivor' no matter what," said Marty Franks, executive vice president of CBS.
Mark Rosenthal, president of Viacom's MTV Networks, said talks remained deadlocked on Tuesday.
During an evening "Charlie Chat" in which EchoStar Chief Executive Charlie Ergen answers subscriber questions while being broadcast, Ergen apologized for the outage.
"You're probably outraged and you may be outraged at both of us," Ergen said. The program cited one e-mailer who threatened to drop his Dish Network service unless the Viacom channels were restored within days.
Ergen said he was optimistic a deal could be reached, and said EchoStar will offer subscribers a $1 credit for the lost Viacom channels and $1 for the lost CBS feed.
Regulators have been monitoring the dispute, but plan to stay on the sidelines, according to a Federal Communications Commission (news - web sites) spokeswoman.
A lengthy dispute could cost Viacom up to $2 million a day from lost subscription and advertising fees, according to Richard Greenfield, an analyst at Fulcrum Global Partners.
A CBS executive said EchoStar's 1.6 million affected customers were a small part of the audience of more than 30 million the network attracts on a good night.
Analysts said EchoStar could lose up to 2 percent of its subscribers to cable competitors and satellite TV rival DirecTV, now controlled by News Corp.
"It's certainly damaging to Dish's subscriber rolls and its ability to market in one-third of the country," said John Hill, analyst at SoundView Technology Group.
The Echostar-Viacom imbroglio was the largest break between a programming company and a distributor since Time Warner Inc.'s cable unit pulled Walt Disney Co.-owned channels ABC and ESPN from 3.5 million subscribers in 2000.
Shares of Echostar closed up 10 cents at $34.28 on the Nasdaq. Viacom's shares closed down 35 cents, at $38.90 on the New York Stock Exchange (news - web sites). (Additional reporting by Sinead Carew in New York, Jeremy Pelofsky in Washington D.C., Ben Berkowitz in Los Angeles)