DISNEY DUELS WITH TIME WARNER

May 2, 2000
		Time Warner pulled ABC from seven metropolitan markets this week, after its transmission deal with Disney expired. The two media giants are in dispute over fees Time Warner must pay to show Disney-owned ABC on its cable system. Margaret Warner looks at both sides of the dispute. The NewsHour Media Unit is funded by a grant from the Pew Charitable Trusts.

April 5, 2000: Transforming television Jan. 24, 2000: Time Warner-EMI merger Jan. 12, 2000: AOL and Time Warner chiefs talk about their merger July 29, 1999: The ratings game July 12, 1999: Vying for viewers Browse the NewsHour's coverage of the media.   ABC Disney Federal Communications Commission Time Warner	JIM LEHRER: Margaret Warner has the cable story. DIANE SAWYER: I'm Diane Sawyer. CHARLES GIBSON: And I'm Charles Gibson. MARGARET WARNER: Millions of television viewers awoke yesterday not to Charlie Gibson and Diane Sawyer, but to this announcement from their cable company, Time Warner, charging that Disney, the parent company of ABC, had pulled all ABC programs from Time Warner's cable systems. ABC disputed that, saying Time Warner had pulled the plug on ABC. The clash between two media conglomerates centers on how Time Warner will compensate Disney to be able to offer Disney-owned programs to Time Warner cable subscribers. The two companies have been haggling over the terms ever since their previous agreement ran out December 31. SINGING: A little bit of heaven next to mine … MARGARET WARNER: According to published news reports, Disney is insisting that if Time Warner wants to continue to carry ABC, it also has to carry Disney's cartoon and soap opera networks, and shift the Disney Channel from a premium offering -- for which the subscriber pays extra -- to the basic cable lineup. Time Warner says that would cost it an additional $300 million a year. CARTOON CHARACTER: Hello.
	Millions affected by the blackout
	MARGARET WARNER: 3.5 million Time Warner cable customers in cities across the country were affected by the blackout, nearly two million of them in the two largest media markets: New York and Los Angeles. The dispute comes at a crucial time for ABC. It is the beginning of May sweeps, the period during which a network's ratings are measured to set advertising rates for the coming months. That means ABC's powerhouse programs like the wildly successful "Who Wants to be a Millionaire," sporting events like this Saturday's Kentucky Derby and widely watched news programs were in blackout jeopardy. The arrangement between the cable provider and the network works like this: Time Warner owns the cable system that runs into subscribers' homes. Disney owns the content that is delivered over those cables. Their business arrangement -- like all arrangements between broadcast stations and their local cable systems -- is governed by the 1992 Cable Television Act. The broadcaster has a choice. It can opt for the act's so-called "must carry" provision, under which the cable operator must transmit the broadcaster's signal, but pays no fee, or it can opt for the act's so-called "retransmission consent" provision, which sets up a negotiation between the two. The cable system doesn't have to carry the local station's programs, but if it does, it must pay a mutually agreeable price. Most large broadcasters, including ABC, opt for the latter arrangement. Disney/ABC and Time Warner each accused the other of abusing the law. Yesterday, it was Disney President Robert Iger. ROBERT IGER, President, Walt Disney Co.: On Time Warner's side, it's about, in my opinion, using their power as a monopolist. As an unbelievably strong gatekeeper, it has a choke hold of sorts on the consumer, in terms of controlling television access to their home -- using that power in an abusive way, to essentially drive the economics of a business arrangement in their favor. MARGARET WARNER: Joseph Collins, chairman and CEO of Time Warner Cable, responded today. JOSEPH COLLINS, Chairman, CEO, Time Warner Cable: We don't feel that we're using anybody to achieve corporate goals. As I think I've just said in my statement, we want our customers to have ABC, we've never said anything differently than that, and we think they should have ABC -- but we don't think ABC should be using the retransmission consent rules to extract things from our customers. We don't think that's it right there. MARGARET WARNER: Late this afternoon, ABC and Time Warner reached a truce to of sorts to put ABC programming back on Time Warner Cable until July 15th while the two companies continue to negotiate.
	Negotiating power
	MARGARET WARNER: For more on this controversy, we're joined by Bruce Leichtman, director of media and entertainment strategies for the Yankee Group, a technology research and consulting firm; and Jeffrey Chester, executive director of the Center for Media Education, a consumer advocacy group. MARGARET WARNER: Bruce Leichtman, this was a pretty bold move on Time Warner's part. It's not often that a cable system yanks some of its most popular programming. Why did Time Warner do it? BRUCE LEICHTMAN, The Yankee Group: Well, they were caught in a very complicated negotiation and they had to show that they had some power, that they could when pushed get rid of ABC and they were -- they felt that they were pushed to the point where they had to take action. And they took action at a point where it would most damage ABC. MARGARET WARNER: All right, why is Disney/ABC pushing so hard? Is it just about getting more money for these programs or is it bigger than that? BRUCE LEICHTMAN: Well, at a large part it is about getting -- what? -- more money. More money is what they're looking at and saying, OK, I've got the Disney Channel. I've got Disney Toon. I've got my other cable networks. I want to get as much as I can from each of these entities and basically, I don't have the hand that the cable operator has. All I've got in my hand are the major networks like ESPN, and eventually they used that arrow to come back at Time Warner and said, you know what we're going to raise our price on ESPN, and you can't take off ESPN.
	Competition and retransmission
	MARGARET WARNER: But otherwise what you are saying is they're trying to use, say, ABC as leverage to get good positions for some of their lesser-known products like the cartoon network or the soap opera network? BRUCE LEICHTMAN: Well, it's interesting because the carton network goes head-to-head. That is a Time Warner property that goes head to head with Disney Toon. It is a complicated equation when you have these two giants going against each other. But most of the broadcasters now also have major cable properties and they use those major cable properties in those retransmission consent debates that you described before. They use them to get leverage because they don't get money from the transmission of ABC. So they say, what can we make money from? And they can make money from introducing new channels like Disney Toon, like bringing Disney to basic and getting consumers all to pay for that rather than just premium consumers who elect to pay for that. MARGARET WARNER: Finally before I go to our other guest, why would Time Warner not want that? BRUCE LEICHTMAN: Well, Time Warner wouldn't want it for many reasons: One, they are looking at their own properties. They look and again they say I've got Cartoon Network, I've got Boomerang, two different cartoon networks -- do I want to put on Disney Toon? Well that is one looking at their own entities. I've got CNNSI. Do I want to put on ESPN Sports? And then on the other side of the equation they look at something like taking Disney to basic. What that means is passing the cost to all their consumers and then -- MARGARET WARNER: As opposed to subscribers who pay extra? BRUCE LEICHTMAN: Exactly. That would then increase their rates not just to those who choose to get it, but increase their rates to everyone. MARGARET WARNER: OK. Jeff Chester, what do you think drove this, what would you add to this? JEFFREY CHESTER, Center for Media Education: This is about who will control the Internet and our television system in the 21st century. What ABC -- was to ensure that it would be able to compete in this new broadband high-speed Internet future. What Disney understands is that in the new media world, the company which owns the cable wire will be able to control its destiny. And if Disney is alarmed about the power that Time Warner will have over its corporate future, every other content Web site and competitor should also be alarmed. MARGARET WARNER: Explain this. That's because in the new Internet world or where we're heading, only the cable line into your house has the transmission to really do the high-speed Internet whereas your phone line doesn't?
	Broadband Internet content
	JEFFREY CHESTER: We are we are creating a new Internet, a broadband, high-speed Internet. It's going to come to new a number of different ways but for the most part, I and other consumer groups believe it will come to residential consumers, the average people, through the cable line. This high-speed Internet has to come through a wire that can send all kinds of multimedia, all kinds of data, all kinds of phone traffic. In essence, broadband will replace the current system of television and the cable industry because of the way it's regulated can decide, well, I don't want you, your program or your Web site on my network or it can decide, you know, you compete with me. I control the flow of traffic on this network. I'm going to slow you down so people will see CNN a few seconds faster than they will see ABC News, and that will make all the difference. MARGARET WARNER: And pointing out Time Warner owns CNN. JEFFREY CHESTER: That's exactly right. MARGARET WARNER: In other words, both these companies in this case played both roles. They both provide pipelines in certain cities and then they also provide content. JEFFREY CHESTER: That's true, but I think what this battle illustrates is that the power rests with those people which own the cable wire and there are only a handful of companies -- they all own programming and unfortunately the way we are regulating cable, unlike the way we've regulated the Internet, the cable companies can make all kind of content decisions about who has access to the wire and what terms. That's why we need to have some new public policies. MARGARET WARNER: Bruce Leichtman, do you agree this larger issue also was at stake and was behind the scenes in this situation? BRUCE LEICHTMAN: I think the larger issue is absolutely at stake. Whether that fell in Disney's hands or not is another question. The retransmission "must carry" debate is one that has been going on for four or five years in the cable industry. And I think when push came to shove when Disney was pushed up the wall, they used that argument of look at the market power that Time Warner has today. Imagine what they are going to have when AOL is partnered with them. But one thing we do have to keep in mind is there is a lot of legislation today that do prohibit cable. Cable can only own up to 30 percent of territory in America. So that is a legislation that prohibits them. Broadband is a very important factor in the future, but even if we look five years down the road, we project that while 70 million people will be online only 20 million of those will have broadband. So broadband is an element of the future but not the be all-end all and also it will not affect the market power that content, rich content has in making operators like Time Warner decide that they can't prohibit ESPN from being on their system.
	The Time Warner and AOL merger
	JEFFREY CHESTER: But because of all the mergers that we've witnessed two cable companies in essence -- AT&T and when it combines with AOL, AOL/Time Warner -- will control half of all cable households. In January, American Online agreed to merge with Time Warner. Up until January, America Online was arguing for the kind of policies that all the consumer groups have been arguing for -- an open access policy, to make sure that the new Internet is as open and as competitive as the current Internet has been. But once AOL bought access to the cable lines it no longer supported a policy. There are only a handful, a tiny handful, of cable companies which will have tremendous control over the future of our media system. We need to have -- and there aren't public policies to ensure that they will treat everyone fairly. That's why we need some new rules. MARGARET WARNER: And, Bruce Leichtman, why do you think then both Time Warner and ABC/Disney decided to call a truce here? BRUCE LEICHTMAN: Well, ultimately, it makes no sense for anyone. And to the consumer they don't care who is right or who is wrong. They just want to see "Who wants to be a Millionaire." JEFFREY CHESTER: I think we need to thank both Disney and Time Warner for this, because they've taken an issue that's been fairly invisible and now placed it in front of the American public. If Disney is scared I think everyone else should be scared. MARGARET WARNER: All right. Gentlemen, thank you very much.

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