News Nets Hit TWC Logjam

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Ohio News Network, Florida's News Channel and Texas Cable
News (TXCN) all bill themselves as statewide news networks. But while they cover news all
over their states, they don't have much coverage -- meaning distribution -- throughout
their states.

The missing link in their carriage is Time Warner Cable, a
major operator in Ohio, Florida and Texas.

All three statewide news networks have been negotiating for
some time -- for years, in some cases -- to reach affiliation deals with Time Warner
Cable.

FNC has been so stymied in its bid to strike a deal with
the cable operator that it is now talking with two TV stations in Orlando, Fla., to find
an alternate distribution outlet in that DMA.

"I would love to hold out some hope, but we just have
made no progress with Time Warner," said Bob Brillante, Tallahassee, Fla.-based FNC's
founder and CEO. "Not having Time Warner in the state of Florida is a huge loss and
setback for Florida's News Channel. They have more than 1 million subscribers here, and
they control one-quarter of the cable subscribers in Florida."

Columbus, Ohio-based ONN, which lost a major round with
Time Warner Cable late last year, and Dallas-based TXCN are currently in discussions with
the MSO as part of their ongoing quest to get launched.

Officials at those two news channels said they are
optimistic about ultimately getting Time Warner Cable to carry them, but some skeptics in
programming circles are doubtful.

The big problem, according to those naysayers, is that Time
Warner Cable is an aggressive player in the local-news-channel business itself, with its
own networks in Orlando and Tampa, Fla., as well as Austin, Texas. The MSO also has other
local-news channels in the works, with Milwaukee, Cincinnati, Houston and Kansas City,
Mo., previously cited as possible markets.

The bottom line, critics charged, is that Time Warner Cable
is simply not going to carry statewide news channels that will compete with its own
local-news outlets.

"It continues to be a sensitive topic," said a
top official at a local news channel, who didn't want to be identified. "There's a
lot of justification to the complaints. It seems clear to me that Time Warner could carry
these [statewide news] channels, and they don't because they want to do it themselves.
This is the problem when a distributor is also a programmer."

Proponents of the statewide news channels maintained that
viewers lose out by being denied access to networks that cover statewide issues -- and
that often offer C-SPAN-type coverage of their respective state houses -- because Time
Warner Cable won't carry them.

For its part, Time Warner Cable officials simply said they
have concrete evidence that their customers want local news channels, not statewide ones.
The proof is in the numbers, since Time Warner Cable executives said the MSO's
local-news-channel business is thriving financially, delivering strong ratings and ad
sales.

"We're going to continue talking to [ONN and
TXCN]," Time Warner Cable spokesman Michael Luftman said. "But from our
perspective, from what we've experienced, what our customers value most are local news
channels, not statewide ones. If they live in Tampa or Austin, they want to hear news
about that city."

As for the fight to get carriage, Time Warner Cable said,
statewide news channels have to compete for channel slots just like any programmer, based
on their services' content and license-fee prices.

"It's a question of how much channel capacity we have
and the cost of the product," Luftman said. "Even when you expand channel
capacity, there will always be more programming services that want to be put on than you
have capacity for."

In fact, gaining carriage on a Time Warner Cable system
isn't easy for any programmer. Turner South, the regional entertainment network owned by
Turner Broadcasting System Inc., is a corporate cousin of Time Warner Cable, but it still
hasn't secured carriage from the MSO.

Time Warner Inc. vice chairman Ted Turner has also
complained that he can't get CNNfn, another TBS Inc. service, wide distribution on Time
Warner Cable systems.

Several years ago, the programmer-distributor issue was
addressed on the national level by the Federal Trade Commission, which only consented to
the 1996 merger of Time Warner and TBS Inc. when Time Warner Cable agreed to carry
"nonaffiliated" news networks after the deal closed.

In other words, Time Warner agreed to distribute services
that were competitors to Turner's Cable News Network, such as MSNBC and Fox News Channel,
to 50 percent of its cable systems within three years.

Even after that concession to the FTC, the issue remained
touchy. Time Warner Cable and Fox News got into a nasty battle in 1996 and 1997, when the
MSO's New York City system decided to carry MSNBC instead of Fox News.

News Corp. filed an antitrust action, claiming that Time
Warner Cable was trying to protect CNN from Fox News. The matter was eventually settled,
and Fox News won a berth on Time Warner in the Big Apple.

Time Warner's prickly standoff with statewide news networks
came to a head late last year in Ohio, in a battle that made national headlines. ONN lost
that skirmish.

ONN's owner, Dispatch Broadcast Group, also owns WBNS-TV, a
CBS affiliate in Columbus. Dispatch tried to link retransmission-consent renewal for WBNS
to carriage of ONN on expanded basic on Time Warner Cable systems in central Ohio.

At the time, Time Warner Cable officials in Columbus made
the argument that their customers in surveys were clamoring for networks such as MSNBC and
The Biography Channel, and not ONN, which was pricey with its 25-cent monthly license fee.

ONN officials maintained that when viewers are made aware
of the programming the statewide channel carries, such as state-final high-school sports
tournaments and even Ohio State University games, they want the channel.

During the faceoff last year, Time Warner Cable not only
refused to carry ONN in Columbus, but it wound up dropping ONN on systems it had acquired
from other operators. As a result, ONN lost roughly 125,000 subscribers, which cut its
distribution by about 25 percent, to 415,000.

After a brief court battle, WBNS and Time Warner Cable
signed a retransmission-consent renewal in December. As part of that pact, they said they
would negotiate for a period of 120 days on the potential carriage of ONN by Time Warner
Cable.

ONN and Time Warner Cable are talking now, according to
John Butte, the news channel's vice president and general manager. "Those discussions
are under way," he said. "I can't talk about the details."

Time Warner Cable does carry ONN on several smaller
systems, representing roughly 68,000 subscribers. But that's just a sliver of the MSO's
1.4 million homes in Ohio, or one-half of the state's 2.8 million cable households.

Late last year, Time Warner Cable offered ONN digital
carriage, which the news channel rejected at that time.

As Butte sees it, since ONN has more than 400,000 homes and
Time Warner has 1.4 million homes in Ohio, this still leaves the news channel with another
1.4 million households to pursue for distribution if it can't get a deal with Time Warner.

ONN recently got some launches from Armstrong Cable
Services, and it has high hopes that Adelphia Communications Corp. will launch it to
310,000 homes in Cleveland once it acquires that system from Cablevision Systems Corp.

Even without Time Warner Cable, ONN can survive
financially, according to Butte. "Obviously, we'd have a better business with Time
Warner," he said. "Our goal is to be statewide. But we're still a good business
with the commitments we have."

In Columbus, Time Warner Cable spokeswoman Mary Jo Green
would only say, "We are talking. The talks are confidential."

So far, TXCN -- which launched one year ago, and which is
owned by Dallas-based A.H. Belo Corp. -- only has carriage on 600,000 homes through
AT&T Broadband & Internet Services and Charter Communications Inc. systems in the
Dallas-Fort Worth area.

TXCN is in discussions with Time Warner Cable, which has
1.7 million of the Lone Star State's nearly 4 million cable homes. Time Warner Cable's
strongholds are in key DMAs such as Houston, San Antonio and Austin.

"I'm optimistic based on the conversations that have
taken place," said Skip Cass, who was TXCN's general manager until his promotion at
Belo in early February. He wouldn't discuss the news network's rate card.

Like ONN, Cass said, even without Time Warner Cable, TXCN's
financial prospects are good. "We can survive without having Time Warner," he
added. "We have a viable business here in north Texas."

But TXCN officials have conceded that their start-up losses
in the first year were larger than expected because the channel had less distribution than
anticipated.

In September, Time Warner Cable started a news channel in
Austin, News 8 Austin, after TXCN debuted. News 8 reaches 250,000 homes.

Time Warner Cable, citing its commitment to the local
communities it serves, now has five 24-hour local news channels, including Bay News 9 in
Tampa and Central Florida News 13 in Orlando.

Luftman said Time Warner Cable's local news channels have
not only prospered in bigger markets, but they are also showing promise at systems in the
300,000-subscriber range, such as Austin.

"Our local news channels are doing extremely well,
delivering good ratings, growing advertising and strong customer-satisfaction marks,"
he said. "We've proven that not only can local news be an attractive programming
option for our customers, but it can also be a moneymaker."

FNC, which launched in September 1998, now reaches 1.2
million homes, with carriage by MediaOne Group Inc., Comcast Corp. and GTE Corp., but not
Time Warner Cable.

Brillante -- who at one point talked with Time Warner about
taking equity in FNC -- said he calls Time Warner Cable officials periodically, most
recently in February, to try to pitch his channel to them.

"The message we received is that they are not
interested in sitting down with us," Brillante said. "It's disappointing. We
have a lot to offer."

FNC, while specializing in state news coverage, also
provides customized local news and branding to its affiliates, according to Brillante. The
news network can do that kind of zoned programming because it is delivered via fiber, and
it gets news coverage provided by six Florida NBC affiliates, its broadcast partners.

FNC is owned by individual investors, with MediaOne and
Comcast having small stakes, as well.

Time Warner Cable's critics pointed out that the operator
carries a number of national news networks on some of its systems -- CNN, Fox News, CNN
Headline News and MSNBC -- and therefore, it should be willing to carry both local and
statewide all-news networks.

And other cable operators with their own local news
channels carry those owned by others. In northern New Jersey, for example, Comcast carries
both its own CN8: The Comcast Network and News 12 New Jersey, the local news channel owned
by Cablevision.

But this is not Time Warner Cable's approach. According to
Luftman, "We have very clear objective evidence that the local-news-channel model is
the way to go and seems to us to be preferable to a statewide model. That's not to say
that it may not be useful to use a component of state news on our local news
networks."

One local-news-channel official said Time Warner Cable's
channels accomplish two strategic objectives. First, they give Time Warner Cable an
influential voice in local communities where the operator must get franchise approvals.
Second, the local services act as flanker channels, grabbing any viewers who may defect
from CNN.

Sources said some local news channels, which they declined
to identify, have mulled taking legal action against Time Warner Cable to try to get
carriage, but they have opted not to take that route. In the meantime, all a network can
do is talk with the MSO and hope.

"What can you do about it as a programmer?" asked
a second local-news-network official. "Not a damned thing. You have to live with
it."

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