Disney Takes Aim At TWC's Retransmission-Consent Analysis At The FCC

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The Walt Disney Co., in a filing with the Federal Communications Commission, fired back on a retransmission-consent analysis conducted by consultants on behalf of Time Warner Cable.
The June 24 filing, made by Disney to the FCC as part of an inquiry as to whether the commission needs to update its rules regarding the current retransmission-consent system, rebuts reports made by Charles Rivers Associates on behalf of Time Warner Cable in early June. Those analyses by CRA refuted a filing originally made by Dr. Jeffrey Eisenach, the

chairman of Criterion Economics and an adjunct professor at George Mason University Law School, for Disney in April.
The back-and-forth at the FCC inquiry is a regulatory sideshow of sorts to the negotiation battle that looms between the MSO and the programmer later this summer. A comprehensive programming accord with Time Warner Cable, covering Disney/ABC's portfolio of cable and broadcast properties, expires on Aug. 31.
In early June, CRA economic consultants took shots at a number of the factors Eisenach selected in his analysis and questioned his comparisons of video costs to total revenues and cable operators' total costs from their multiple business offerings. CRA wrote that obscures the big picture growth in the costs of video programming over the years and its impact on retail subscription prices.
On Thursday it was Disney's turn to drill holes in CRA's analysis for Time Warner Cable.
The programmer, in its filing, indicated that CRA failed to directly assert or demonstrate that retransmission-consent fees in particular, or programming costs in general, are in any meaningful economic sense "too high."
Disney also wrote that the "basic economic framework" used by CRA in its June 3 report to analyze bargaining between cable operators and broadcasters is -- by the group's own admission -- limited to analyzing how revenues are divided between broadcasters and cable operators. It does not examine the effect on consumers, and therefore cannot be used to demonstrate consumer harm, according to the Disney filing.
The media giant also contended that CRA's effort to show that broadcasters have the "upper hand" in retransmission-consent negotiations failed. The programmer pointed to a recent Morgan Stanley conclusion (in a report cited by CRA) that "broadcasters are currently underpaid for their audience delivery."
Disney's refutation also centered on what it said was CRA ignoring the impact of the increased number and quality of cable channels in its analysis of programming reports. To make its point, Disney cited Nielsen data indicating that the number of channels received by the average household rose from 61.4 in 2000 to 96.4 in 2005, 104.2 in 2006, and over 118 channels in 2007.
CRA also assumes, incorrectly in the eyes of Disney, that the interest in video services is completely unrelated to demand for data and video services. The programmer pointed to Time Warner Cable itself, which Disney said rejected this assumption in the MSO's recent 10-K. There, the MSO, according to Disney, wrote that "bundled offerings increase its customers' satisfaction with TWC, increase customer retention and encourage subscription to additional features."
Similarly, Disney contended that CRA assumes there are no economies of scope or scale for a "triple play" provision.
In summary, Disney averred that the CRA reports failed to contradict its earlier findings that the market for video programming is functioning efficiently and that government intervention would ultimately harm consumer welfare.

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