Satellite broadcaster EchoStar Communications Corp. settled a legal fight with Walt Disney Co. on Thursday, agreeing to restore Disney-owned ESPN Classic to its nationwide system and continue carrying the company's ABC Family cable channel.
The dispute began in December, when EchoStar threatened to stop broadcasting ABC Family. EchoStar, the No. 2 satellite company, then dropped the ESPN Classic channel Jan. 1.
EchoStar argued that it had the right to stop carrying ABC Family because the channel changed owners. EchoStar also cited weak ratings and the need to make room for additional channels because of new federal rules that require satellite providers to carry all local broadcast channel in their markets.
Disney sued to block EchoStar from dropping ABC Family, which Disney bought in November as part of a $5.2-billion deal with News Corp. In January, a federal judge temporarily barred EchoStar from dropping ABC Family, pending resolution of the lawsuit.
Sources said EchoStar also objected to Disney's proposed rate hikes for ESPN Classic, which it delivered to 4 million customers.
Disney argued that EchoStar was using the threat of removing ABC Family as a ploy to lower fees and had no justification for quitting the 10-year contract.
Under the settlement, EchoStar said it would restore ESPN Classic by mid-month.
Disney also dropped an action filed in federal court in Miami against EchoStar related to the broadcasting of local channels and the regions in which it is allowed to show specific channels.
Company representatives would not discuss further details of the settlement. Sources close to the matter said neither side had much to gain by continuing the fight.
The dispute came at a bad time for Disney, which was in the midst of relaunching ABC Family as a secondary outlet for programs from its ABC broadcast network. And EchoStar is trying to win government approval for a takeover of its larger rival Hughes Electronics Corp., which owns DirecTV.
EchoStar, meanwhile, confirmed Thursday that it would stop marketing Internet access using satellites, a service promoted as justification for the company's planned $33-billion purchase of Hughes. The company said the service was uneconomical.
Disney shares rose 12 cents to $22.56 on the New York Stock Exchange; EchoStar gained 51 cents to $27.73 on Nasdaq.