It was a little more complicated than that. He was looking to make another Twin Peaks, and ABC was where that show originally aired.
He was able to shoot the whole pilot with a big budget and no interference. However, the screening went poorly. Really poorly. The executives who watched it thought it was boring and had no pacing. They gave him a ton of notes- so so so many notes. Apparently, one of the problems wasn't just that it was boring, but also it was violent (this was immediately after Columbine). Lynch wasn't amenable to the notes. Long story short, it was cancelled.
Happens a lot in Hollywood. One group of executives greenlights a project (because they worked with and loved the person), then another group looks at it and is like, "What is this?" and deep-sixes it. This, however, is one of the few times it had a happy ending.
