ABC Extended Again in Houston

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In the nasty showdown of the media behemoths in Houston
last week, The Walt Disney Co. blinked.

With a deadline of high noon hanging over Disney and Time
Warner Cable last Friday, the broadcaster agreed to extend retransmission consent for its
ABC Inc.-owned KTRK-TV until March 31. That's the same extension Disney had already
given the MSO in markets where ABC has TV stations, such as New York and Los Angeles --
clusters covering 3.5 million Time Warner subscribers.

Without that extension, KTRK would have been pulled off
Time Warner's lineup noon last Friday, blacking out the station in 660,000
cable-subscriber homes.

It remains to be seen if Disney and the MSO can work out
their differences even by March 31, since they seemed far apart in their testy talks. Time
Warner claimed last week that Disney has once again jacked up the price on its proposal,
while Disney said it has broadened its proposal at the cable operator's request.

By granting the March 31 extension, Disney backed off on
its threat to single out Houston as "a test case" for its retransmission-consent
demands -- what it called its bid to get fair value for its programming from Time Warner.

ABC spokeswoman Julie Hoover said Disney reached out to the
cable operator last Friday to grant the March 31 extension for KTRK based on Time
Warner's representation that it would continue "good-faith negotiations"
and at the request of Houston Mayor Lee Brown and the City Council.

Time Warner officials were happy about the extension but
critical of Disney's actions in Houston during the past two weeks, where both sides
have waged a bitter public battle. Talks between the MSO and Disney had broken off
Thursday night.

"It's unfortunate how they jerked us around and
Houston," Time Warner spokesman Mike Luftman said. "It's
unprecedented."

At the Houston system, Time Warner spokeswoman Kimberly
Maki said, "We're pleased that they have now chosen to treat Houston as they
have all of their other markets and to extend the deadline to March 31."

Disney officials had said they thought Houston would be a
good test case because two direct-broadcast satellite companies -- DirecTV Inc. and
EchoStar Communications Corp. -- carry KTRK's local signal there.

Both sides had agreed to a seven-day cooling-off period
March 2 at the urging of the mayor. But last week's acrimonious
retransmission-consent negotiations ultimately failed.

At one point last Thursday afternoon, it seemed possible
that the dispute between the two media giants would be resolved. Disney granted Time
Warner a 12-hour reprieve on a 12:01 a.m. Friday deadline, when the TV station was
supposed to go black on cable. But by early Thursday night, negotiations between Disney
and Time Warner at the MSO's Stamford, Conn., headquarters broke down.

Maki maintained that Disney only sent two junior executives
to that session -- people who weren't empowered to negotiate -- and they merely gave
the MSO the same proposal Disney had made earlier in the week, "take it or leave
it."

In contrast, Disney/ABC claimed that Time Warner knew
exactly who was coming to talk with them on behalf of Disney, so the MSO's complaints
about the representatives being "junior" amounted to "orchestrated
theatrics."

In its new proposal last week, Disney asked Time Warner for
national rollouts of ESPN Classic, Lifetime Movie Network and ESPN2, according to Maki.
Previously, Disney had only sought launches for Toon Disney and SoapNet.

Also in its new offer, Disney dropped the license fee it is
seeking from Time Warner once the MSO converts Disney Channel to expanded basic from a
premium channel. But while the new offer cut Disney Channel's rate of 71 cents per
subscriber to roughly 50 cents, it called for a quicker rollout of the service, Maki
added.

Finally, during last week's round of talks, Disney
raised the issue of getting its cable-network content onto Time Warner's and America
Online Inc.'s broadband pipeline once those two companies merge.

"They continue to add elements to the deal,"
Luftman said. "They've made it more complex and expensive. We feel that
they're toying with us and the people of Houston."

Time Warner said the package Disney extended last week is
$200 million pricier than the offer it had made just prior, which itself was $100 million
more than the deal the MSO claimed it had struck with Disney in January.

So all told, the MSO claimed that the latest Disney
proposal is a full $300 million more expensive than the one in January. Time Warner
charged that Disney reneged on that January pact, while Disney insisted that it never had
a done deal with the cable operator.

Hoover said Time Warner had specifically asked for a new
proposal from Disney last week that would be broader and encompass more of its cable
networks. She added that this was why networks such as ESPN Classic were added to the
proposal. And according to Hoover, Time Warner wanted longer carriage deals for those
networks, which increased the cost of the deal.

Disney vehemently denied that it ever had a done deal with
Time Warner. Disney officials maintained that they weren't comfortable with some of
the retransmission-consent terms that had initially been discussed after learning of Time
Warner Inc.'s planned acquisition by AOL in January.

According to Luftman, Disney has used the pending AOL
merger "as an excuse to tear up the previous agreement."

Disney -- which has expressed concern about Time Warner
giving preferential treatment to the cable networks it owns -- said it was forcing a
confrontation in Houston in order to drive the MSO back to the bargaining table.

Last Wednesday, Houston Councilman Carroll Robinson wrote
both KTRK and Time Warner a letter addressing the AOL issue.

"I am vitally concerned to assure that there is
nondiscrimination in the treatment of non-AOL/Time Warner-owned content on your combined
cable and Internet distribution system," Robinson wrote. "It is this equal
treatment of all content that I will be looking for when Time Warner and AOL apply to the
city of Houston for transfer of our cable franchise."

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