Washington -- Facing regulatory threats at a politically
unripe time, Time Warner Cable agreed last week to waive its exclusive rights to ESPN
Classic Sports in Midwest markets where it competes with cable systems owned by Ameritech
Time Warner disclosed its decision July 1, a few hours
after Ameritech New Media, Ameritech Corp.'s cable-system division, filed a complaint
at the Federal Communications Commission, alleging unfair business practices by Time
Warner and MediaOne.
"After reviewing the issues that they've raised,
we've decided that we won't enforce those exclusivity clauses against
them," said Lynn Yaeger, Time Warner Cable's senior vice president of corporate
Time Warner and MediaOne have exclusive rights to
distribute Classic Sports starting Jan. 1, 1999 -- the day after Ameritech's
three-year, nonexclusive contract with the network expires.
According to ANM, Time Warner can enforce exclusivity in
Wayne, Mich., and Glendale Heights, Ill., and MediaOne can do so in nine Detroit-area
In the complaint, ANM said the deals would force it to drop
Classic Sports in 30 Detroit-area and 10 Chicago-area communities, totaling 750,000
households, due to the prohibitive marketing and technical costs of selling Classic Sports
in some areas and not selling it in others from a single headend.
ANM demanded that the FCC void the exclusivity clauses and
order Classic Sports to renew ANM's contract in the 50 markets that it currently
serves in Michigan, Ohio and Illinois.
Although Time Warner opted to avoid waging a potentially
nasty fight in front of Capitol Hill lawmakers who track programming spats closely,
MediaOne said it would not follow suit.
"Our contract with Classic Sports is legal and proper
in every respect. We intend to maintain it," said Steve Lang, MediaOne's
executive director of financial and corporate communications.
ANM president Deb Lenart said Comcast Corp., another
Ameritech competitor, asked for 30 days to renegotiate with Classic Sports for the purpose
of removing exclusivity provisions. A Comcast spokesman said exclusivity "won't
be an issue with us" regarding Classic Sports.
The flap has an odd feature: Ameritech is asking the FCC to
act against two cable operators to obtain programming from Classic Sports' parent,
The Walt Disney Co., which is a partner in the Americast program-purchasing venture with
Ameritech, BellSouth Corp., GTE Corp. and Southern New England Telecommunications Corp.
Lenart told reporters here that sports programming was
vital to her business, accusing Time Warner and MediaOne of locking up Classic Sports,
knowing that it would hurt ANM's business.
"It's really the cable operators that are pushing
the exclusivity component of these agreements," she said. "It's not really
Classic Sports who's making that decision."
The retreat by Time Warner and Comcast was surprising
because it appears that the law is on their side.
Under FCC rules, cable operator-owned programming that is
satellite-delivered may not be sold to other cable operators on an exclusive basis unless
the FCC grants a waiver.
Classic Sports, which is owned by Disney, is not covered by
the exclusivity prohibition, because Disney does not own cable systems.
"The contract, as we see it, is perfectly lawful and
legal the way that it's drafted," Yaeger said.
"I don't believe that vertical integration can be
used as a carte blanche excuse to cut this kind of a deal," Lenart said.
Classic Sports spokesman Mike Wade declined to comment,
saying that his company was unaware of ANM's complaint.
But it's possible that the MSOs thought that it was
wiser politics to yield to ANM's demands than to defend their legal rights in a noisy
dispute at the FCC less than one year before large cable operators are broadly
Rep. Billy Tauzin (R-La.), concerned that cable competition
isn't flourishing, is preparing a bill that would require cable operators that
don't face competition from overbuilders like ANM to offer several programming tiers
after the expiration of expanded-basic-rate rules March 31, 1999.
In late July, Senate Commerce Committee chairman John
McCain (R-Ariz.) plans to hold a cable-rate hearing, at which Tauzin said he expects to go
public with his legislative proposals.