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EchoStar, Vivendi Form Distribution Alliance

EchoStar and media giant Vivendi Universal SA have formed an eight-year distribution alliance in which Vivendi will make a $1.5 billion equity investment in the U.S. satellite services provider, while Vivendi will receive an outlet for new television, music and interactive programming.

Under the deal, EchoStar has agreed to carry five non-exclusive channels of Vivendi entertainment content along with interactive, pay-per-view and video-on-demand services. One channel will be added to the service’s America’s Top 100 basic programming packages and two will be added to the America’s Top 500 tier.

EchoStar has agreed to implement interactive television browsers and systems from Vivendi’s Canal+Plus Media Highway on forthcoming set-top boxes, and to deliver interactive content that will derive additional revenue which the two companies will share. Content is expected to include music, games and educational services.

Media Highway systems and services are currently “largely deployed in Europe” and have enjoyed generally better user rates than interactive TV services in the United States, the companies said.

“Through this partnership, Vivendi Unviersal hopes to become the leading interactive content partner of EchoStar with the right level of bandwidth, availability and access for the coming years,” said Vivendi chairman Jean-Marie Messier. “…We need for the development of interactive services the right amount of flexibility in order to bring to the consumer — and to build — the right business models.”

He continued, “Even if this is the world of non-exclusivity, a partnership creating proximity between the teams, does allow a better time to market, better flexibility vis-a-vis the customer.”

Vivendi said content programming will be made available to EchoStar for regular rates, and on a non-exclusive basis, meaning cable operators will also have the option of carrying the content.

Also part of the broad distribution deal are plans for Vivendi-delivered pay-per-view and video-on-demand services.

EchoStar CEO Charlie Ergen said Vivendi will hold a minority equity position in his company, and equity investment will put the company “on sound financial footing” to finance a $5.5 billion bridge loan that was taken out for the planned $26.8 billion acquisition of Hughes Electronics, which owns DirecTV.

Messier, who will join EchoStar’s board, said the distribution alliance was not conditioned on a completed merger with Hughes Electronics. However, Vivendi’s equity position will change from 11 percent before the merger to around 5 percent if the merger goes through.

Ergen said Vivendi’s Universal Studios will have the ability to make movies and other content available over EchoStar statellites in both standard and HDTV formats, and that eventually, Vivendi’s music interests could deliver whole albums over the broadband satellite pipeline.