UPDATE 1-Disney plays bully in dispute, says Cablevision
* Cablevision CEO says Disney tactics "bullying"
* Says talks with Disney only began in earnest recently (Adds source says $40 million, said to be sought by ABC, is exaggeration)
NEW YORK, March 2 (Reuters) - Cablevision Systems Corp (CVC.N) Chief Executive Jim Dolan blasted Walt Disney Co's (DIS.N) "bullying" threat to pull ABC from its cable systems over a contract dispute, calling the move senseless and one that invites questions from U.S. regulators.
In his first public remarks about the intensifying fight, Dolan said, "Fundamental to this issue right now is our subscribers, our customers, should not have to pay for something others are getting for free."
Dolan said discussions between the two sides only began in earnest several weeks ago, disputing Disney's statement that little progress has been made during some two years of talks.
"The idea that they are going to pull their signal .... I don't think that that's good business. I think that it invites scrutiny from the governmental side and, to be honest, I don't really understand it because we're negotiating," Dolan said on Tuesday at a Morgan Stanley conference in San Francisco.
"I would have thought they would have taken a more diplomatic stance," he added.
Dolan's comments come in response Disney's announcement that ABC has begun running on-air messages to Cablevision subscribers warning them they may no longer have access to the network from Sunday, March 7.
Cablevision on Monday said ABC was threatening to remove the network unless Cablevision and its customers pay $40 million in new fees for programming that it offers for free.
A source familiar with the matter on Tuesday said the $40 million was an overstatement by Cablevision, and that negotiations between the two companies were ongoing.
ABC's shows include "Lost," "Grey's Anatomy" and "Desperate Housewives" as well as news programs like "Good Morning America." ABC is also carrying the Academy Awards on Sunday, often one of the most highly rated TV programs of the year.
The Disney-Cablevision dispute follows several other high-profile contract battles between broadcasters and cable providers. Both sides are showing far more concern about fees -- partly due to the bad economy -- and a willingness to take extreme measures to make the point.
At the heart of the issue is a disagreement over how much a broadcast network should be paid by a cable distributor to deliver free-to-air programs to their subscribers.
Fox, owned by News Corp (NWSA.O), and Time Warner Cable Inc (TWC.N), which had similarly disagreed over how much the cable service provider should pay for the right to carry the network, reached a deal on Jan. 1 to avoid a blackout after months of negotiations. [ID:nSGE60001O] (Reporting by Paul Thomasch; Editing by Richard Chang, Gary Hill)