ANOTHER LINE IN SAND Disney, Time Warner Debate Gets Political

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Yet another deadline is looming in the escalating retransmission-consent battle betweenmedia titans The Walt Disney Co. and Time Warner Inc., as ABC broadcast-TV stations inmarkets reaching 3.5 million homes could be pulled off cable by week's end.

This week, both sides are expected to continue negotiations in what has become a bitterbrouhaha that could result in Disney yanking the signals of ABC owned-and-operated TVstations in seven markets. ABC programming could be lost to cable subscribers in parts ofcities such as New York; Los Angeles; Raleigh, N.C.; Houston; Philadelphia; Fresno,Calif.; and Toledo, Ohio.

It remains to be seen if the dispute is resolved and, if not, whether Disney will grantTime Warner Cable yet another retransmission-consent extension. It has done so severaltimes throughout the negotiations. The current extension expires at 12:01 a.m. Saturday,April 1.

Time Warner -- as well as Cable One Inc., Cox Communications Inc. and Comcast Corp.--are all also embroiled in retransmission-consent negotiations with Hearst-ArgyleTelevision, which is trying to get longer carriage commitments for Lifetime Television andcarriage for the Lifetime Movie Network. Time Warner said its retransmission-consentextension with Hearst-Argyle expires at 12:01 a.m. on Sunday, April 2. Lifetime is ownedby Disney and Hearst Corp.

During the past two weeks, Disney has stepped up its public and behind-the-sceneslobbying efforts at both the local and national level to try to make its case against TimeWarner.

Disney officials charge that Time Warner is giving cable networks it owns preferentialtreatment. Disney executives are also expressing their concern that their company'scontent will not get fair access to America Online Inc.'s Web sites -- or the broadbandpipeline created once AOL acquires Time Warner.

Preston Padden, Disney's executive vice president of government relations, hasspearheaded his company's efforts to contact legislators in Washington and raise questionsabout the perils of the AOL-Time Warner merger, in terms of its impact on rival contentproviders. A number of music companies have also voiced similar worries on the Hill.

"Our concern is whether a company that controls the pipeline to the home is goingto discriminate in favor or its own content," Padden said last week.

Last year, before the Time Warner deal was announced, AOL raised those exact concernswith Disney, he added.

Disney is not trying to block the AOL-Time Warner merger, according to Padden."We're just trying to get assurances that they will treat our channels and ourcontent the same way they treat their channels and their content," he said.

That's the same message Padden said he's taking to officials on the grass-roots level.In the past two weeks, he has traveled to meet with officials in Houston and Raleigh,where ABC owns TV stations that it may pull from cable -- and where both sides havebattled publicly.

Last Thursday, Padden and Bruce Gordon, general manager of ABC's WTVD inRaleigh-Durham, N.C., appeared at a town council meeting in Cary, N.C., to discussretransmission consent. Cary is part of suburban Raleigh, where 440,000 subscribers maylose WTVD.

Time Warner in Raleigh struck back last week and started running ads explaining itsposition, after WTVD first launched a public campaign proclaiming Time Warner was treatingit unfairly.

Time Warner officials in Stamford, Conn., last week accused Disney of trying to get thegovernment to intervene to give it a business advantage over the MSO in theirretransmission-consent talks.

"It's part and parcel of an effort to use a combination of tactics to extract moremoney from us and our customers," Time Warner Cable spokesman Mike Luftman said ofDisney's actions. "They've got him [Padden] beating the bushes. I guess that's theirdefinition of affiliate relations."

Time Warner contends that earlier this year, it had essentially struck aretransmission-consent deal with Disney. Under that original pact, Time Warner was readyto roll out Disney's Toon Disney and SoapNet, and to move Disney Channel to basic frompremium. But Time Warner alleges that Disney reneged on that deal, hiking the license feefor Disney Channel and adding $300 million to the price of the first agreement.

Disney officials deny there was a done deal with Time Warner, and said they had torethink everything they had initially discussed with the MSO after the AOL-Time Warnermerger announcement in January. In fact, Disney alleges Time Warner is giving preferentialtreatment to such Time Warner-owned cable networks as Cartoon Network and Turner NetworkTelevision, in terms of license fees and channel positioning.

Time Warner contends those charges are smokescreens that Disney is using to negotiate abetter deal.

Disney had threatened to make an example in Houston by pulling its station KTRK-TV offcable earlier this month. Ultimately, with minutes to go before the station was to bepulled, Disney backed down and gave Time Warner the same extension it had given the MSO inother markets, until the end of the day March 31.

Even as the Houston situation simmered down -- although both sides are still runningads about the dispute there-- ABC's WTVD in North Carolina on March 16 issued a pressrelease and began running ads that claimed Time Warner was being unfair. The spots arewarning cable subscribers that the station might be "dropped."

Last week, Time Warner responded by launching its own ad campaign on TV, radio andprint. In one print ad, Time Warner said: "Disney is holding ABC programming hostagefor more money. Disney's proposal is unacceptable, because it would add costs as high as$300 million for Disney programming which could ultimately result in higher cable ratesfor you. ... In the end, it's Disney's decision, not ours."

Brad Phillips, vice president of government and public affairs for Time Warner'sRaleigh division, said the system started its ad campaign to help set the record straight.

"We want to keep them [WTVD] on our cable system," Phillips said. "Butthis isn't a local issue. Unfortunately, it's being played out here and in Washington aswell. This is about money and extracting money from Time Warner."

Some cable-industry veterans remain surprised at the acrimonious turn the Disney-TimeWarner dispute has taken, saying it's giving cable a black eye.

"The retransmission-consent card is not a winning one for anyone," oneexecutive said. "The public gets mad at both sides."

So far, Disney's dispute with Time Warner hasn't hurt it on Wall Street. After severalfavorable analysts' reports, including an upgrade to the "recommended" list bySchroder & Co., Disney's stock last week hit a 52-week high of just over $41 a share.

In his report, Schroder analyst David Londoner also projected that SoapNet, whichlaunched in January, will lose $75 million this year. MCN

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