CABLE TO CONGRESS: REWORK RETRANS

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New Orleans-Cable-industry leaders declared that it was time for some changes last week.

Instead of conceding defeat or error in the ugly carriage dispute between Time Warner Cable and The Walt Disney Co., cable is now looking to Congress to reform the law that gives powerful TV-station groups the right to seek compensation for their signals.

Whether the effort will produce the results cable desires, though, was far from certain.

Time Warner Inc. chairman Gerald Levin set the tone by saying his company would fight to overhaul the eight-year-old law.

"Any notion of retransmission consent that has as a sanction for the failure to reach agreement that the cable operator is no longer authorized to carry the signal is just bad public policy and we aim to change it," Levin said at the National Show here.

National Cable Television Association president Robert Sachs echoed those sentiments by calling retransmission consent a "heads, I win; tails, you lose" proposition that gives nearly all bargaining leverage to the popular TV networks that do not need to rely on must-carry.

"Given all of the changes in the video marketplace and [the] Time Warner-Disney showdown, the time has come to re-examine whether the retransmission-consent scheme really serves consumers' interests," Sachs said.

Cablevision Systems Corp. chairman Charles Dolan was even more blunt about the situation, insisting that must-carry should stay but retransmission consent should be abolished.

"I would get rid of it," Dolan said. "If [a broadcaster] wants to be on the cable system, he can be on it. That's enough."

The backdrop for all of this, of course, was Time Warner's decision to drop ABC Inc. stations on systems serving about 3.5 million subscribers May 1 and part of May 2. Time Warner restored the signal after both parties agreed to a carriage extension that expires July 15.While ABC lost cable carriage for about 40 hours, the controversy is expected to reverberate for years to come, and it could more immediately impact America Online Inc.'s bid to acquire Time Warner without government-imposed restructuring or behavioral conditions.

"Unfortunately for you and for me, [Disney-Time Warner] has called into question, whether legitimately or not, the question of whether your industry can be trusted as an honest gatekeeper to the Internet," Federal Communications Commission chairman William Kennard said.

AOL Time Warner Inc. would hold a dominant position in the dial-up Internet-access market, and it would have a substantial lead in the broadband market with its Road Runner brand. Its broadband strength could grow even more through a much-discussed alliance with AT & T Corp., owner of Excite@Home Corp.'s broadband-cable service.

Congress enacted retransmission consent in 1992 as an alternative to mandatory carriage without compensation.

Weaker stations have relied on must-carry, while the four major networks have feasted on retransmission consent to become some of the most powerful forces in the cable-programming market.

Sachs noted that with Viacom Inc.'s recent purchase of CBS Corp., the four major networks each own between 10 and 20 cable networks.

The reality of broadcasters' clout clearly has some cable-programming leaders nervous.

Oxygen chairman and CEO Geraldine Laybourne called the Disney-Time Warner situation "scary" in that Disney insists on tying TV stations' carriage to cable distribution of various new cable networks.

She noted that she is trying to launch a new network that has virtually 100 percent original programming, while Disney is trying to leverage retransmission consent to launch networks like Toon Disney and SoapNet that depend on library product and reruns, respectively.

The next retransmission-consent struggle may not involve cable, but direct-broadcast satellite carriers. Capitol Hill aides here said they do not want to see another dispute erupt.

"We've all watched in the past week the ABC-Time Warner imbroglio. We'd hate to see that happen again," said Jon Leibowitz, chief Democratic counsel for the Senate Antitrust Subcommittee.

Under a new satellite-competition law, DBS carriers have until May 29 to obtain permission from local TV stations to carry their signals. Since November, they've been permitted to carry the signals without permission.

DirecTV Inc. expects to have all, or nearly all, agreements in place by the deadline. But EchoStar Communications Corp. has been less clear about the status of its deals.

"[EchoStar chairman and CEO] Charlie Ergen has been making positive noises to Wall Street and the trade press. We hope the message he brings us won't be any different from what he's given Wall Street and the press," said Shawn Bentley, a top aide to Senate Judiciary Committee chairman Orrin Hatch (R-Utah).

Congressional aides indicated that Congress was unwilling to engage in a major overhaul. "Having just put the satellite rules in place, I think no one is ready to start reopening the cable rules, or the satellite rules, for that matter," Bentley said.

He suggested that a review of retransmission consent might also entail a review of whether cable needs a compulsory copyright license to provide local TV signals without compensating program owners. "I am not sure everybody's ready for that discussion just yet," he added.

J. D. Derderian, staff director of the House Commerce Committee under chairman Tom Bliley (R-Va.), said business negotiations were preferable to intervention by Congress. "I think [Bliley] would like to poke at this with a 10-foot stick," Derderian said. "If there's a way for businesspeople to figure out how to deal with this, I urge you do it."

Sachs acknowledged that he was not calling for repeal of retransmission consent. "We said there should be just public discussion of the retransmission-consent issue," he added.

Evidently, cable has decided to step up the rhetoric on retransmission consent, rather than seeking its repeal.

"I don't envision any significant changes anytime soon," said Paul Glenchur, a cable analyst with Schwab Washington Research.

At a cable executives' panel, Time Warner Cable chairman Joseph Collins stopped short of calling for repeal. Instead, he reiterated that he wants to work out future agreements privately, rather than publicly.

"There are no winners or losers," Collins said. "The result is that nobody-not cable operators, not broadcasters-is going to want to see these things go on at any length. There's much more of a chance that what will happen is that these things will be worked out between the parties, without bringing the customer into the situation."

He disputed contentions that Time Warner pulled off the ABC stations, saying that Disney forced the cable operator's hand by neglecting to respond to a proposal sent prior to the stations going off the air.

"When we got to Sunday night [April 30], they had stopped contact," Collins said. "We didn't have retransmission consent. Our lawyers said we didn't have retransmission consent."

Other operators on the panel came to Time Warner's defense, but they also called on programmers and operators to work out their differences privately.

"The reality is that [Time Warner] got to a moment where I don't think anybody wants to be," Comcast Corp. president Brian Roberts said. "[Time Warner is] in the middle of the biggest deal in the history of deals pending. I don't think they wanted this to happen. They didn't get dumb overnight."

Roberts-who has gone out of his way in recent weeks to talk about what he feels are inequities in the retransmission-consent setup-declined to endorse Levin's call for an overhaul of retransmission consent. "I think that in the heat of the battle, this is not the time to rewrite all of the rules," he said. "My hope is that there will be a private solution to these problems."

Meanwhile, Disney last week asked the FCC to impose "strong and enforceable safeguards" before approving the AOL-Time Warner merger, in order to prevent the new company from discriminating against unaffiliated cable programmers and Internet content providers.

Several cable operators said last week that retransmission-consent battles-including many local drops that have gone mostly unnoticed-are part of the overall problem of keeping rate increases moderate while programming costs rise at double-digit levels.

Insight Communications Co. Inc. CEO Michael Willner said his company refused to pay cash to one station earlier this year, instead running newspaper ads that contended cable bills would go up sharply if broadcasters were paid. The station, in Indiana, was restored before the May sweep after the operator agreed to buy some ads on the station, he added.

Cox Communications Inc. president James Robbins called for cooperation between operators and programmers.

"I would appeal to where this industry came from," Robbins said. "[Programmers and operators] need each other. We need to have an increased sensitivity to that today. I think it got out of balance at some point. We represent 70 million households in America that like that programming so much that it would screw it up for everybody by getting it out of whack."

DirecTV and ABC were expected to end their joint promotion this week targeted toward Time Warner subscribers in three markets affected by the blackout.

In New York, Los Angeles and Houston, the broadcaster and the DBS provider were offering $198 rebates for dishes. From May 1 through 10, roughly 22,100 Time Warner subscribers had sent in for voucher rebates.

ABC and DirecTV had made a similar offer solely in Houston in March, when the first Time Warner-Disney battle erupted, and 18,000 to 20,000 vouchers went out back then. So to date, roughly 40,000 vouchers for rebates have gone out.

Linda Moss and Kent Gibbons contributed to this story.

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