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Online Extra: The Case Against an ABC/CNN Merger

At first glance, merging ABC News and CNN seems like a compelling business proposition, saving $100 million to $200 million in costs. Paring that kind of expense is exactly the kind of message that ABC parent Walt Disney Co. (DIS) and CNN parent AOL Time Warner Inc. (AOL) want to broadcast to a Wall Street bearish on both media empires. This year, Disney's stock is down 12%, and AOL's is down 53%. And as war with Iraq looms, the price tag for covering the news is only trending higher.

What's more, the fit between the news operations appears to be good. ABC is a broadcast network with big-name on-air personalities and an emphasis on in-depth coverage. CNN reaches households by cable with its nimble, nonstop coverage of global news. Push the two weakened organizations together and you've created a much stronger worldwide news operation, right? Wrong.

CABLE ENVY. For starters is the inevitable clash of cultures. One group puts on a half-hour of news each night and lots of magazine shows, while the other is a 24/7 news outlet. Don't forget that Disney execs are still nursing ulcers from their $19 billion purchase of ABC six years ago and that AOL Time Warner is drowning in America Online's troubles. Surely the last thing either Disney CEO Michael D. Eisner or AOL Time Warner CEO Richard D. Parsons needs is another integration nightmare.

"You would be guaranteed at least a couple of years of disruptions," says Tom Wolzien, a media analyst at Sanford C. Bernstein & Co. and a former NBC News exec. "It's hard to put a price on that."

In the early and mid-1990s, when NBC launched its own cable units, CNBC and MSNBC, stand-alone broadcast networks had plenty of cable envy. Today, a cable asset such as CNN, with a household name and 42 bureaus worldwide, still looks tantalizing. But NBC's combos have been disappointing, with not much sharing of programming between the broadcast and cable sides. What is recycled on cable draws few new viewers. In fact, the average number of households tuning in to MSNBC during prime time has dropped this year to 289,000, from 382,000 for all of 2001, according to Nielsen Media Research.

TOO FEW VOICES. Even involvement with a wealthy third party isn't very helpful. MSNBC partner Microsoft Corp. (MSFT) showed no special allegiance to the venture when, in September, 2001, it signed up ESPN, owned by rival network ABC, to be the exclusive sports-news provider for Internet service MSN. "MSNBC is in third place [among cable-news channels] and hasn't exactly been a wildly successful enterprise," says Richard Wald, a consultant to ABC News and its former head of editorial quality.

Would TV news be any better as a result of such a union? On the contrary, a merger of ABC News and CNN would eliminate a national player from a news arena that's already considered overly homogenized. An array of voices is supposed to drive competition and spur newspeople to dig up great stories.

It's bad enough that this is an age of media conglomeration, in which fewer and fewer outlets are left as companies amass ever greater scale. Those that remain face constant demands from Wall Street for profitability in a business that can't always be measured by financial returns. Last year, CNN slashed 10% of its 4,000-person workforce, but it still put aside $36 million in a contingency fund to cover a war in Iraq.

MORE FLUFF? A merger with ABC would by definition involve more layoffs as redundancies are done away with. And consolidation and the inevitable push for more eyeballs would likely mean less hard news and more of the fluff that advertisers prefer. "There's already a tendency to dumb down in TV news as you go for the bigger audience," says Wald, a journalism professor at Columbia University. "You will see more of that."

Eisner, who desperately needs to show he can fix ABC, says the partnership has a "50-50" chance. That may be too optimistic. AOL execs are downplaying the possibility, saying privately that it's not a top priority. True, CNN could use some help fending off ratings winner Fox News, but that's what competition is all about. Commentary by Tom Lowry, who covers media from New York

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