Judge Sets Deadline for Decision on USA Network Case

WILMINGTON, Del. — A Delaware judge Thursday set a September deadline for Viacom Inc. and Seagram Co. to stop the courtroom game of chicken they’ve been playing over their contentious partnership in cable TV’s USA Network.

If the two sides can’t reach a settlement on their own, the judge said he would impose a solution that neither side may like.

But people on both sides of the 15-month legal wrangle said the companies remain so far apart that they doubt any negotiated settlement could be reached by September.

The stakes are big: Analysts say the popular, basic-cable network could be worth $4 billion. Seagram’s Universal Studios Inc. (formerly named MCA Inc.) and Viacom are 50-50 partners.

The judge, Vice Chancellor Myron Steele of the Delaware Chancery Court, ruled in May that Viacom violated the 1981 partnership agreement that created USA.

Under that contract, neither partner is allowed to operate a competing cable TV network. Viacom--which entered the deal in 1994 by buying the original partner, Paramount Communications Inc.--owns MTV, Nickelodeon and other popular cable channels.

Viacom has proposed auctioning off USA to the highest bidder and splitting the proceeds between the two companies.

Universal’s lawyer, Herbert Wachtell, Thursday called that suggestion “an amazing exercise in gall.” He said Viacom is welcome to auction off its own 50% stake, but not Universal’s. Universal, he said repeatedly, is the injured party.

Universal wants an investment banker to value the 50% stake and then to pay the lesser of that price and the price Viacom itself places on the partnership.

USA Network is more important to Universal than to Viacom, analysts say, because it is Universal’s primary television distribution outlet. Viacom may indeed be willing to part with its interest, but it wants to push the price as high as possible.

Universal is asking Steele to issue an injunction to stop Viacom from continuing to violate the non-compete agreement. In other words, Viacom would have to choose between USA and the even more profitable MTV and Nickelodeon networks.

Steele said he would issue a final ruling in September, but that he did not want to make any statements Thursday that would keep the two sides from trying to reach an agreement.

“I didn’t hear anything encouraging from the other side today,” said Robert Zimet, a New York lawyer representing Viacom.