Commentary: A Media Monopoly In The Making?

Like most other spats among media behemoths, it was over before those writing the press releases could get warmed up. Scarcely 48 hours after Time Warner Inc.'s cable unit pulled ABC off the air in seven cities, the network's black-and-yellow logo was back on TVs every- where. Crisis resolved--for the next three months or so.

The issues that prompted the public brawl won't go away with the cease-fire announced on May 2. Negotiations are likely to remain bitter, with Walt Disney Co. demanding a hefty fee for Time Warner to carry the Disney channel and two other cable channels in return for carrying ABC's broadcast signal on its cable network. For its part, Time Warner doesn't want to pass the added freight on to its already rate-sensitive customers. But as media companies scramble to add distribution outlets and more programming to compete in the new digital world, the real issue is elsewhere. This childish financial spat between Disney Chairman Michael Eisner and Gerald Levin, his counterpart at Time Warner, is cover for a far more critical battle: What constitutes monopoly control of your TV.

POWER TO BLOCK. Underlying the Disney-Time Warner fight is the pending merger between Time Warner and America Online Inc., which Disney has been quietly lobbying against for months. The deal is likely to get approved. But in signing off on it, the Federal Communications Commission may be forced to address the thorny issue of "open access": In a broadband world, will media giants be able to exclude programming and Internet services from their cables, phone lines, or satellites?

For months, Disney has been telling politicians and regulators in Washington that a combined AOL and Time Warner could block Disney programming from the estimated 12 million cable homes and 23 million Internet users the new company would eventually control. To hear Disney tell it, the new AOL-Time Warner would have ample reason to steer its customers to its own Cartoon Network instead of The Disney Channel, or to CNN instead of ABC News. If Time Warner could take the nation's top-rated network off the air in New York, Los Angeles, and elsewhere, imagine what it could do if it had even more clout. "The issue is one of monopoly control," says Preston Padden, the Disney exec who has spearheaded Disney's lobbying against the deal. "And now that we've taken the genie out of the bottle, it's out there for everyone to see."

That's why Disney will press the FCC to be more aggressive in ensuring "open access" in the new broadband world. The agency has sided with Disney, ruling Time Warner illegally yanked ABC during a sweeps period. The FCC also has "must carry" rules, which require cable companies to carry major local channels. Some have argued that, as it did with "must carry," the FCC should set requirements for what a broadband network would have to carry under "open access" policy. Until now, the regulators have avoided stepping in.

REAL CONCERNS. Of course, Disney's arguments are hugely self-serving--as is its timing. Hoping to pick a public fight just as Time Warner was seeking approval in Washington for the merger with AOL, Disney pulled out of a deal for Time Warner to carry ABC in January and demanded a price hike that would have added an estimated $300 million over the eight-year pact. Time Warner balked and ended up the loser in the ensuing PR battle. But Disney's concerns about a more powerful AOL-Time Warner hook-up are real enough. Even though studios frequently produce shows for other networks, the incentive is always there to produce more of them for their own distribution outlets. Check out how many TV shows Disney itself makes for ABC.

Both AOL and Time Warner say their incentive is to offer the best shows possible. In its negotiations with the FCC, AOL has also submitted a memorandum of understanding that it won't discriminate against others' Internet services.

Still, there is a lot left unsaid in that document. The FCC has asked for more details, and it should. This is uncharted territory for the FCC, Congress, and media companies everywhere. Until clear access rules are adopted that go beyond traditional media, there will be a lot more skirmishes between its superpowers --and possibly more nights without prime-time TV.

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