Fair enough, and I respect your opinion. However, one also has to understand that ESS is a company trying to make profits (which I'm sure you do, as you seem to be quite knowledgeable about economics if I remember correctly from your previous posts). They have no doubt put down a ton of money by acquiring telecast rights for various sports around the world and launching a purely cricket channel not only satisfies cricket buffs like myself but also means that they can show a variety of sports, such as carrom, pool and other sports of domestic interest.
Secondly, you have to understand that all channels have to work against the government, anyway, because the Indian government has decided that all ODI's, regardless of whether they are played at home or away, have to be telecast on DD. This severely cuts down on their profits, and coupled with the dishonest MSO's that they have to deal with at the cable operator level, I can certainly understand their reaction.
Thirdly, the launching of the channel was hardly new news--there was media flying around about it the day I landed in India--back in May. This was plenty of time for the whole mess to be sorted out, in my opinion. In addition, the channel was officially launched almost half a month before the test series began. The cable operators, obviously, tried to get a bargain as they always do.
From what I understand, the majority of Indian television consumers do not have a direct-to-home service and hence rely on their cable operators to procure channels for them. The operators then pay the channels and charge a monthly fee to the subscribers. When I was in this economically unsound system, I don't know what I was paying for, but I would only be telecast 3 sports channels at a time (there were at least 5 at that time). It was up to the cable operator to decide, then, which channels to show at which time. In addition to this, they even charged me for all the channels that I was "subscribing" to, money that was not necessarily going to the channels.
In the end, I think the demand for a quality cricket channel far outweighs any negative externality caused by ESPN/Star's behavior, and in fact, seems like it was just an attempt by them to offset the previously unfair behavior towards them.