Time Warner Exits Big Apple Interconnect

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New York -- Time Warner Cable, acting onrepeated threats, pulled out of the New York Interconnect, putting an endto one-stop shopping for spot cable time in the country's No. 1 market.

Time Warner's withdrawal diminishes the attractiveness ofthat entity, which ranked as the largest by far, with 4.5 million subscribers. Time Warneralone accounted for nearly 1.3 million of those, including upscale-demographic consumersin Manhattan and Queens.

David Kline, president and chief operating officer of RainbowAdvertising Sales Corp., in a March 20 letter to Larry Zipin, Time Warner's vicepresident of ad sales, said its pullout "damages all cable operators in the New Yorkarea." Time Warner's exit is "bad for cable," forcing a partial revertingto the "archaic" practices of 1990, when agencies could only buy cable time bycalling a bunch of individual operators, he added.

In separate interviews, Kline and Zipin disagreed sharplyabout the reasons behind the MSO's exit. Zipin said Kline's letter "misrepresents thefacts substantially."

Kline said a dispute over zoned sales sparked Time Warner'sdeparture, but Zipin said this was only one of five key issues. He would not specify theother four, but he and Time Warner spokesman Michael Luftman hinted at some:

• The interconnect must be owned by the MSOparticipants, and not by RASCO;

• It must be a true partnership, with the MSOs sharingin the profits and having more say about its goals; and

• RASCO's technical plan for the planned digitalupgrade from 10 to 16 networks was deemed by Time Warner engineers to be "flawed andunacceptable." Kline countered that the upgrade delays, since late last year, weredue to Time Warner. "I guess they didn't want the interconnect to go forward."

Kline, reiterating points that he made in his letter toZipin, said RASCO had "ceded a number of significant issues to Time Warner" indrafting the proposed new contract, in order to keep the interconnect intact. Besidesagreeing to make the MSOs equity partners, Kline said:

• RASCO "agreed to waive our commissions,management fees and profit potential, in effect creating a co-op," although RASCOwould continue to operate and manage the interconnect;

• RASCO agreed to give up budget approval and other"aspects of operational control"; and

• RASCO's Cable Networks Inc. repfirm agreed to lower its commission rates.

Luftman maintained that RASCO had done "anabout-face" and "reneged" on those previously agreed-upon terms. Not so,said Kline, who emphasized that RASCO will honor its concessions despite Time Warner'spullout.

Kline, in his letter, said RASCO was "very close tofinalizing" a new ownership structure when it got Zipin's letter, dated Feb. 20,"in which [Zipin] threatened to withdraw from the interconnect again unless we agreedto the additional demand of discontinuing subzone and soft sales."

That zoning dispute came "late in the game," inlate February, a RASCO spokesman claimed, adding that Time Warner doesn't want to sell byzone since it does well DMA-wide. Luftman disputed that timetable, saying that Time Warnerhad opposed zoned sales since January 1997.

Dropping those sales would mean a "major loss,"Kline said, noting that such sales totaled $14 million last year across its four zones.Even though 80 percent of the interconnect's customers buy the entire DMA, Kline said, theremaining 20 percent shouldn't be barred from the desired zoned options.

("Soft sales," Kline explained, involveindividual systems within one or more zones -- for instance, buying four systems in theNew Jersey zone and two in the Long Island, N.Y., zone. Eliminating that would mean thatbuyers would have to contact six or more systems in those areas to complete those buys, hesaid.)

Ignoring zoned sales would be "unresponsive to theneeds of our advertising customers that desire to choose between DMA-wide and subzonesales," he said. Blue Cross and Blue Shield of New Jersey and New Jersey Ford, forexample, want only the New Jersey zone.

"Time Warner's insistence that all of the otherinterconnect members sacrifice these revenues in order to conform to Time Warner'smarketplace philosophy is extremely unfair to the other interconnect members," Klinesaid. "Cablevision [Systems Corp.] is not the only interconnect member that feelsthis way."

Moreover, Kline said that even though Time Warnerexecutives have told him that other interconnects sell by DMA only, RASCO checked andfound that "every one sells zones."

Nor do the other MSO participants agree on the zoning issue-- at least the two that were willing to discuss it publicly: Jack Olson, vice presidentof Media Partners, the ad-sales arm of Adelphia CommunicationsCorp.; and Filemon Lopez, senior vice president of ad sales at ComcastCorp. The other interconnect participants -- Tele-Communications Inc. andMediaOne -- could not be reached for comment last week.

Olson said the last straw seemed to be the fact that RASCOfeels that the interconnect should be able to sell zoned and subzone sales, whereas TimeWarner wants it to sell marketwide. Olson counted himself among those favoring zonedsales. "Subzone sales [by the interconnect] are important to me, since I don't have aNew York presence."

But Lopez felt otherwise. "We tried to form aninterconnect with a primary mission of driving DMA-wide sales," he said."Otherwise, why have an interconnect?" About $1.4 billion are spent byadvertisers on broadcast TV, covering the entire New York DMA, he estimated, and that'swhat this interconnect should be targeting.

Now, of course, with Time Warner's pullout, "the valueof the interconnect is greatly diminished" in that regard, he said.

While there are no Time Warner/RASCO meetingson the horizon, both Lopez and Olson were hopeful that talks will resume. Kline said he'dbe "more than happy to talk with them [Time Warner]" to re-establish theinterconnect's full coverage. Zipin wouldn't rule it out, either, saying, "I neversay never." 

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