After one of the most bitter struggles ever between an MSO and a broadcaster, Time Warner Cable and ABC Inc. entered into an amazingly comprehensive retransmission-consent deal last week that also includes launches or increases in distribution for a half-dozen cable networks owned by The Walt Disney Co., ranging from ESPN and its spinoffs to Disney Channel and SoapNet.
Under the agreement, Disney got its No. 1 wish: to have Time Warner move Disney Channel to basic from a premium tier.
And in a new element not previously disclosed, the pact calls for "an exclusive development period" for two new Disney cable channels. Time Warner will reportedly help Disney to develop those new services, with one likely to be based on the programmer's
library and the other a preschool channel, sources said.
Last week's deal-the written culmination of a "handshake" agreement Time Warner Inc. chairman Gerald Levin announced May 18-gives Time Warner carriage of ABC-owned TV stations until May 2006.
Also in the wide-reaching retransmission-consent pact were a seven-year carriage agreement and conversion by January 2003 of Disney Channel from premium to expanded basic on all Time Warner systems. The MSO has 12.7 million subscribers.
"Disney Channel has 2.5 million basic subscribers now with Time Warner, and this will add the balance of its subscriber base," Disney/ABC Cable Networks president Anne Sweeney said.
As part of the deal, Time Warner has also done a "multiyear" carriage extension for ESPN, ESPN2, ESPN Classic and ESPNews. As part of that arrangement, the MSO will increase ESPN2's distribution to that of ESPN (a gain of 2 million homes), boost ESPN Classic's reach to more than 9 million homes and carry ESPNews on all of its digital systems. ESPN Classic will reportedly gain 6 million subscribers.
In exchange for the ESPN extension, according to sources, Disney has agreed to "contain" and restrain future price increases for ESPN, which is raising its monthly license fee 20 percent this year.
Last week, Disney and Time Warner sources were still putting their spins on the deal, offering wide variations on the value of the agreement ranging anywhere from $1 billion to $2 billion. A Time Warner spokesman would only say that the total retransmission-consent deal and its various elements "will have a minimal impact on prices to consumers."
Time Warner has also done an eight-year carriage deal for SoapNet, committing 6 million subscribers to the service, which airs same-day repeats of ABC soap operas. "This is a very significant commitment from Time Warner," Sweeney said. "This is 50 percent of their base."
SoapNet, which launched in January, is now in 2.5 million households, and it has commitments that will take it to 10 million subscribers during the next two years, according to Sweeney.
Last year, ABC gave its TV-station affiliates-not its owned-and-operated stations-stakes in SoapNet. The affiliates can "participate" in SoapNet by either getting an undisclosed percentage of its cable-subscriber revenue or its profits, whichever is greater.
Time Warner also signed a long-term carriage agreement for Toon Disney, which is currently in 15 million homes. The MSO has committed 3 million to 4 million subscribers to the all-animation channel, according to sources.
And in a joint press release, ABC and Time Warner announced "an exclusive development period for two additional cable channels."
According to Sweeney, some Time Warner systems may be used as test beds for new cable-channel concepts from Disney, possibly including networks based on two Disney Channel program blocks: "Playhouse Disney," targeted toward preschoolers and kids under the age of eight during the day; and "Vault Disney," an overnight block that airs Disney library product.
Sweeney said that development effort would be similar to the arrangement Disney and ABC had in 1998, when Time Warner systems in two different DMAs-Houston and Raleigh, N.C.-tested a precursor to SoapNet. Those cable systems aired time-shifted ABC soap operas as part of the test.
In addition to Playhouse Disney and Vault Disney, Sweeney said, Disney and ABC are considering a number of potential new cable channels, from information-based services to entertainment to channels aimed at kids and families.
"We've got a lot of concepts on the table," she added. "Time Warner will give us an exclusive period of time to develop them, but there is not a carriage commitment."
But Time Warner has reportedly agreed not to roll out networks similar to those Disney is proposing during the development period.
Referring to Time Warner's plans to move Disney Channel to all of its expanded-basic homes, Sweeney said, "It's very significant for us. For the past nine years, we've been in the process of moving it from a pay to a basic service. This has proven to be a successful strategy."
Disney Channel now has 62 million basic subscribers and 1 million premium homes. The Time Warner deal will bring the network to more than 70 million subscribers, according to Sweeney.
Time Warner now has long-term retransmission-consent deals with ABC, NBC, CBS Corp. and Fox Broadcasting Co.
The MSO sparked a furor-and a reprimand from the Federal Communications Commission-earlier this month when it pulled the signals for ABC stations off in markets reaching 3.5 million subscribers in New York; Los Angeles; Houston; Fresno, Calif.; and Toledo, Ohio.
The stations were off for 39 hours May 1 and 2 during the sweep period, when subscribers were clamoring to see the celebrity version of Who Wants to Be a Millionaire.
In a prepared statement, Time Warner Cable chairman Joseph Collins said, "We are very pleased to have reached this long-term, wide-ranging agreement with Disney that puts an end to the companies' programming dispute."
He continued, "At the same time, we want to reiterate our regret that Time Warner subscribers were out into the middle of these negotiations. This agreement guarantees that our customers will continue to enjoy their favorite ABC shows and Disney and ESPN cable channels for many years to come."