APOLLO HANDSHAKE

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New York-Time Warner Inc. will most likely continue to feel repercussions from its bitter dispute with The Walt Disney Co., even though both sides reached a tentative long-term agreement on retransmission consent last week.

First of all, Time Warner still faces possible fines from the Federal Communications Commission. That's because the FCC found that Time Warner Cable violated the agency's rules when it dropped Disney's ABC Inc.-owned TV stations during a sweep period, for 39 hours May 1 through 2.

Time Warner has said it will appeal that ruling on the blackout, which affected 3.5 million subscribers.

Second, egged on by the dispute, Disney has asked the FCC to place "enforceable" conditions on Time Warner's merger with America Online Inc. The FCC could decide to oblige Disney's request.

Third, Disney has been waging an active campaign on the local level, talking with city officials and prompting some to add stipulations to their cable-franchise agreements that order AOL and Time Warner to open their pipeline to competing Internet services.

Last week, an ABC spokeswoman declined to comment on whether or not, as a result of the "handshake" agreement with the MSO, Disney/ABC will suspend its grassroots campaign against Time Warner, or if it will withdraw its filing with the FCC on the AOL merger.

And in the long term, Time Warner could lose roughly 40,000 subscribers to DirecTV Inc., based on a promotion the direct-broadcast satellite provider did with ABC. Time Warner subscribers in three blacked-out markets-Houston, New York and Los Angeles-called in for vouchers to get $198 rebates for satellite dishes and installation.

At press time last Friday morning, Time Warner and Disney weren't disclosing the terms of their tentative agreement, details of which were being ironed out and put in written form.

But the deal, which runs through 2006, is reportedly similar to the one both parties had discussed earlier this year, in that it calls for Time Warner to move Disney Channel to basic from a premium tier and for the MSO to launch SoapNet and Toon Disney.

The pact, according to several published reports, just covers pure economic issues, like license fees, and it doesn't give Disney or its content any guaranteed access to the cable-Internet pipeline that will be created when Time Warner merges with AOL.

Apart from the changes Time Warner subscribers will likely see on their channel lineups, there are broader long-range implications stemming from the dispute.

A number of programmers-and even MSOs that supported Time Warner's stance against Disney-- overwhelmingly agreed that Time Warner lost the public-relations war in its bout with Disney and drew unwanted government attention to the AOL merger.

As a result, several programmers said last week that they now feel like the tide has shifted, and they have somewhat of an edge in their negotiations with distributors.

It remains to be seen how Disney/ABC's retransmission-consent talks with Comcast Corp. will proceed, since both sides would be ill-advised to pull-or drop-ABC's stations after what happened with Time Warner. Disney has given Comcast a retransmission-consent extension until October.

In a surprise move last Thursday at Time Warner's annual shareholders' meeting, chairman Gerald Levin revealed that the company had reached a "handshake" deal, via phone Wednesday, for retransmission consent for ABC-owned TV stations.

Levin's announcement came just one day after Time Warner and NBC unveiled a new retransmission-consent deal they had crafted-an agreement that includes analog and digital signals, as well as NBC's cable-exclusive Olympic Games coverage on MSNBC and CNBC.

At Time Warner's meeting at the Apollo Theater in Harlem, Levin said of the ABC blackout: "Looking back, this was a really regrettable event. We have apologized to our customers and also indicated that to regulatory agencies. We had an unfortunate failure of communication between the two companies."

He continued: "As of today, I am pleased to say that there is an agreement in principle in the current dispute between Disney and Time Warner Cable. I expect, as a result of a handshake between [Time Warner president] Dick Parsons and [Disney president] Bob Iger, that the agreement will be signed and executed."

After the annual meeting, Levin told reporters, "There is a handshake. It is being papered, 'as the lawyers like to say."'

He described the acrimonious battle between Time Warner and Disney as "an unfortunate commercial dispute." Referring to the settlement, Levin said, "What it signifies is the understanding by both of these companies that we don't want to see a repeat [of the blackout]."

An ABC spokeswoman confirmed that there was an agreement in principle, adding that it was hoped that a written agreement would be signed shortly, possibly by last Friday afternoon.

After Time Warner returned ABC's stations to its cable lineup May 2, both sides had agreed to yet another retransmission-consent extension, until July 15.

The MSO and Disney have been negotiating for months to forge a new retransmission-consent deal, as their old one expired Dec. 31. Time Warner contended that by January, it basically had a 10-year deal with Disney, in which it would roll out SoapNet and Toon Disney, along with moving Disney Channel to basic.

But after the AOL-Time Warner merger was announced, Disney said it had to take another look at the proposed agreement. Disney also began to seek assurances that Time Warner would give its content equal access to AOL and the cable pipeline that would be created through the merger.

Time Warner also charged that Disney upped the price of the $1 billion package by $300 million. Disney officials disputed that number.

Then in March, Disney/ABC said it was going to use Houston as a test market to wage war against Time Warner, threatening to pull its signal there after not granting a retransmission extension.

But the broadcaster backed down, and its Houston station stayed on until the flare-up in May, which also involved ABC-owned stations in New York; Los Angeles; Raleigh, N.C.; Toledo, Ohio; and Fresno, Calif., getting dropped by Time Warner. The MSO said it was forced to drop the stations because it didn't have a retransmission deal in place.

Earlier last week, Time Warner reached a long-term retransmission-consent deal with NBC. The deal-which also includes contract extensions and reported rate increases for NBC's two cable outlets-runs through 2008. The agreement will supercede Time Warner's old analog retransmission-consent agreement, which would have expired in 2006.

With this new agreement, Time Warner will carry NBC's Olympics programming on CNBC and MSNBC. NBC now has deals to air that Olympics coverage on cable in more than 60 million homes.

Time Warner was one of the major holdouts for NBC's Olympics package, which includes an annual, per-subscriber surcharge ranging from $1.08 to $1.68 over its entire term for coverage of the five Games.

A Time Warner spokesman acknowledged that his MSO is paying a surcharge for the Olympics, but neither he nor NBC Cable president David Zaslav would say how much the MSO is paying.

Sources claimed last week that Time Warner is not getting a break from NBC's rate card in terms of the Olympics surcharge. However, in an apparent quid pro quo for taking the Olympics package, Time Warner has reportedly agreed to give some carriage to NBC's ValueVision shopping network. That pact will likely be announced in the near future.

The remaining holdouts that have not yet signed up for NBC's Olympics deal include Comcast, Cablevision Systems Corp., EchoStar Communications Corp. and the National Cable Television Cooperative.

Mike Farrell contributed to this story.

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