Entrepreneur Christopher T. Dahl never wanted the last production of Radio AAHS -- his now-defunct children's radio network -- to be a legal victory with Walt Disney Co.

In a bittersweet vindication after a two-year battle, a federal jury in Minneapolis upheld his claim last week that his tiny, publicly held Children's Broadcasting Corp. had effectively been pushed out of the market by its one-time partner, Disney.

Dahl says he's pleased with the verdict. Still, he laments the failed promise of Radio AAHS. It shut down in January, he says, unable to withstand competition from Radio Disney, which is now the only national radio network for kids.

On Sept. 30, the jury awarded him $20 million after finding that ABC Radio and Disney had failed to live up to a contract to sell advertising for AAHS, the 24-hour radio operation Dahl founded in 1990. The jury also found that ABC/Disney had violated trade-secret and confidentiality laws when it appropriated a list of CBC's advertising contacts to use for its own kids' network, Radio Disney.

ROUND TWO. Not that the show is entirely over. Disney has asked Judge Donald Alsop to declare a mistrial on grounds that the jury's verdict was inconsistent, because it failed to find "material breach" of Disney's contract with CBC, but still awarded CBC $20 million for breach of contract. Disney has also asked for the suit to be dismissed, noting that the jury found it had stolen only one of the 85 trade secrets CBC alleged were taken. A Disney spokeswoman says the company believes it has a good chance of overturning the verdict.

Looking back, Dahl says Disney got "a free education in children's radio" out of the relationship. The $20 million is nothing compared with the cost of learning about the children's radio business and corralling the market, he contends. "They got an unbelievable business for a cheap price," says Dahl, who is now redirecting his efforts into television advertising. "I wouldn't have sold it for that."

Dahl's vision was, in the early 1990s, a radical one. He planned to string together dozens of low-cost AM stations, pumping via satellite a mix of bubble-gum pop music, DJ chatter, and kids call-in shows. At its peak, Minneapolis-based Radio AAHS reached 40% of the nation, though it continually struggled to turn a profit.

CBC hoped a joint sales agreement, reached in late 1995 with market-leader ABC Radio, would amplify its bottom line. The idea was that Children's would continue to produce the programming, but ABC's sales force would sign up new national advertisers and bolster CBC's affiliate network. But Dahl soon found the relationship was a brittle one, especially after Disney bought ABC in July 1995. His partners sold only $23,000 in advertising and added no new affiliates in eight months. As Dahl recounted in an interview with Business Week Online in May, "I don't enter into agreements thinking that people are going to [use them] to gain a competitive hold against me."

The jury in the case found that Disney had done just that when it took a copy of CBC's advertising rates and contacts, the court documents show. In fact, according to Dahl, of 15 current national advertisers on Radio Disney, 11 of them were originally Radio AAHS sponsors. Disney, for its part, stresses that the jury did reject the bulk of CBC's claims and slashed the damages awarded to $20 million from the $177 million requested. Further, in pre-trial proceedings, ABC's lawyers contended that there were no specific contract requirements to drum up business because Radio AAHS "was an untested product that nobody's ever had any success in selling, and the highest success ever was during 1996."

DAVID VS. GOLIATH. Conflict of this sort is likely to become more common as small startups compete for attention from the handful of remaining media conglomerates, says Jeffery Logsdon, a Disney-watcher and managing director at the Seidler Companies, a Los Angeles investment bank. That's all the more likely with the large number of joint ventures, capital infusions, and other, more exotic types of partnerships prevalent in media ventures, says Logsdon. "The reality is that small companies are so desperate for capital that they're willing to do anything to facilitate the continuation of their dream."

Dahl says he's now wary of entering into pacts with big media companies, though, he acknowledges, "Every small company wants to do deals from day one."

The fact is that the jury verdict -- assuming it withstands Disney's court challenges -- doesn't salvage Dahl's radio dreams, though it would give him a healthy launching pad for a new venture. The 54 year old says he's eager to take up his new television-advertising business, which involves acquiring existing companies. "No more startup deals," he says. "It's kind of sad."

By mid-October, Children's expects to complete the sale of its last 13 owned and operated radio stations. Meanwhile, this summer, Radio Disney signed up its newest affiliate in Phoenix, Ariz. -- its 27th since it was formed on July 30, 1996 -- the same day Disney terminated its agreement with AAHS.

By Dennis Berman in New York
dennis_berman@businessweek.com

To: LAW