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Disney, Henson Settle; Muppets Set For Fla.

The Walt Disney Co. and Henson Associates have ended their legal battle over rights to the Muppet characters out of court, with Henson granting Disney a license to use the Muppets in its Florida theme park for 18 months.

In a settlement last week, the parties agreed to drop their lawsuits against each other. In addition, Disney offered a public apology to the Henson company for statements made in legal filings just days before.

Initially, the licensing agreement is for 18 months only, though Disney has an option to extend the term for an additional three and a half years. If Henson agrees to extend the option, Disney’s rights to the characters will be exclusive in theme parks east of the Mississippi for the first three years of the license term.

The short length of the licensing agreement gives Henson flexibility should it decide against working with Disney in the future. At the same time, it allows Disney time to recapture some of the $90 million it says it has invested in the new “Kermit The Frog Presents: Muppetvision 3-D” attraction at Walt Disney World in Orlando.

Disney now is set to open the attraction by Memorial Day after pushing back a May 4 start date.

Dan Brenner, an expert in media law at the U. of California at Los Angeles School of Law, described the settlement as a way for Disney to save face while holding onto its financial investment in Henson. “The main thing is Disney does not lose the attraction,” he said.

Said Dennis McAlpine, a New York-based media/entertainment analyst: “Disney has five years to get the costs out of that thing. This means they [Disney] won’t have a big writeoff.”

It is believed Disney has shelved plans to build an attraction based on the Muppets at Disneyland in Anaheim that was part of a decade-long Disney expansion program Disney chairman Michael Eisner outlined more than a year ago.

Sources close to the negotiations said Disney will enter a new merchandising agreement with Henson that will allow it to sell Disney-produced Muppets t-shirts and other goods at Walt Disney World only. Any other Muppet merchandise sold at other Disney parks and outlets will be secured through licensed vendors.

The settlement represents a change of view on Disney’s part. The company had argued in legal filings that it had an implied license for the Muppets characters and sought rights to the characters in perpetuity.

In its counterclaim, Disney had accused the heirs of the late Jim Henson of being more interested in money than protecting their father’s legacy and asserted they had offered them $50 million beyond the purchase price initially agreed upon by Jim Henson and Disney. The Henson family denied those claims.

The bitter wrangling between the two parties began after Jim Henson’s death in May last year. Negotiations toward a Disney- Henson merger continued for months, but they disintegrated in December. Anticipating the closing of the licensing agreement, Disney had proceeded with advertisements and merchandising of the Muppet franchise. But pending a final agreement, Disney had not paid any licensing fees to either Henson or his heirs.

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