On May 1, 2000, over 3.5 million Time Warner Cable customers woke up to find that they no longer had access to the American Broadcast Company (ABC) on their TV dial. The absence of Regis, Kathy Lee, and Susan Lucci left many pondering the possibility of the Apocalypse. News quickly circulated across the country about this unfortunate reality.
After five months of negotiations, ABC service was cut off for Time Warner customers in seven cities, including households in New York, parts of Los Angeles, Houston, Flint, Michigan, Philadelphia, Raleigh-Durham, Fresno, California, and Toledo, Ohio. The dispute arose as the two media giants were arguing over the compensation Time Warner should give to The Walt Disney Company, ABC’s corporate parent, for carrying some of its cable channels such as ESPN, Lifetime, and The Disney Channel. While Disney believes that the price it is asking for its cable channels is reasonable considering that Time Warner receives ABC for free, Time Warner disagrees and wishes to pay a lower price.
The conflict between Time Warner and Disney, as stated in a May 5, 2000 editorial in the New York Times, could be regarded as a significant strategic error in business history. This dispute not only revolves around financial issues but also has potential consequences for the future of corporate media. Time Warner’s decision to blackout ABC may establish a precedent for negotiation tactics used by media conglomerates. Consequently, this event reflects the current state of media consolidation and raises crucial technological, business, and political concerns.
Time Warner faced pressure from angry subscribers, politicians, and federal regulators to end the blackout of ABC shows on its cable TV systems. After 36 hours, Time Warner reached an agreement with Disney to continue negotiating a new contract until July 15. However, the Federal Communications Commission ruled that Time Warner had violated a rule that prohibits the deletion of a local commercial television station during sweeps period, which is a month used to set ad rates. The FCC will decide this week what enforcement action to take and whether any punishments should be enforced.
Bugs Bunny, the Time Warner figurehead, once said, “But that’s not all, folks.” Besides the fees issue at the center of their current disagreement, both parties are grappling with each other and the changing landscape of the cable TV market. These cable operations, essentially monopolies sanctioned by the government, are confronted with both detrimental and beneficial forces resulting from technological advancements.
Cable operators are at risk of losing their monopoly to satellite services. During the recent blackout of ABC, viewers had two options: either purchase traditional antennae or rely on friends’ satellite TV systems. In response, ABC decided to confront Time Warner by offering a $198 refund to specific cable customers who wanted to switch to satellite television. The offer was conveyed through full-page newspaper ads targeting Time Warner cable subscribers in New York City, Houston, and Los Angeles. The ads proclaimed, “If Time Warner can dish it out, so can we – at no cost to you.” Each city had only 1,000 rebates available, and within a remarkably short period of 2.5 hours, they were completely claimed. ABC believed that some viewers would value having a satellite dish as it would enhance their sense of security.
Despite the uncertainty surrounding interactive TV technology, cable companies like Disney and Time Warner can benefit from customers’ increasing use of high-speed internet connections. Disney is particularly interested in establishing an online presence through a joint venture with Go.com, alongside its existing TV and movie holdings. However, during the dispute between the two companies, Disney has expressed concern that Time Warner’s merger with AOL could create barriers for non-AOL Time Warner entities looking to enter the internet and interactive TV technology market. In order to ensure fairness, Disney is requesting assurance from Time Warner that no favoritism will occur. On the other hand, Time Warner considers this demand unacceptable due to the unpredictable nature of interactive TV technology. As suggested by Matthew Diebel, Regis could potentially ask if we want to email a friend.
When it comes to the business issues at the center of this conflict, the term “monopoly” becomes prominent. It is unsurprising that regulators reviewing Time Warner’s planned merger with America Online may have concerns over Time Warner’s unpopular decision to temporarily remove ABC from its cable network. Already, consumer groups and Disney have brought up the issue of monopoly, demanding that the merged AOL-Time Warner allows all Internet service providers to use its cable lines and grants rival entertainment companies access to its internet customers.
The argument arises from the ongoing instant messaging discussion, in which the Internet engineering community is urging the federal government to challenge AOL’s dominance in the “IM” market. Companies that have been excluded from communicating with AOL’s services view AOL’s merger with Time-Warner as a chance to seek government intervention. An Internet executive stated that the purpose of the FCC filing is to bring attention to the anticompetitive and monopolistic actions demonstrated by AOL.
During a cable television company convention held in New Orleans on May 8, experts discussed the future of the industry. They anticipate that competition, international activity, and investor demand will be crucial in driving the industry’s growth. These predictions are grounded in current business trends and are primarily influenced by the impact of the digital age on the cable sector. In response to this revolution, companies are expected to offer high-speed Internet access in addition to their cable services. Furthermore, there is an anticipation of increased consolidation between traditional and new media firms such as AOL-Time Warner. However, as the cable industry continues to evolve, conflicts may arise among major players like Disney and Time Warner. If opportunities for negotiation emerge, it is likely that they will be pursued.
The discussions at the annual cable executive convention in New Orleans centered around the need to reconsider laws governing transmission deals between broadcasters and cable companies. Currently, broadcasters have the right to have their signals carried on local cable systems for free. However, the 1992 Cable Act allows broadcasters to negotiate private retransmission agreements with cable companies. In these cases, a deal must be reached before local channels can be included in cable offerings. Broadcasting firms have taken advantage of this provision by seeking compensation through including new basic cable networks in cable systems. However, cable operators argue that this gives broadcasters excessive negotiating power and puts them in a challenging position as they try to maintain affordable rates for customers. Deborah Lathen, chief of the Federal Communications Commission’s (FCC) cable services bureau, expressed optimism that these issues could be resolved through market dynamics and amicable negotiations among companies.
Senator John McCain, Chairman of the Senate Commerce Committee, voiced his concerns regarding the potential adverse effects of media conglomerates on everyday Americans. Specifically, he highlighted the dispute between Time Warner Cable and ABC over retransmission as a significant example of this issue. Both Disney and Time Warner have been accusing each other for the problem, but McCain asserts that both parties share responsibility. He firmly believes that it is Congress’s obligation to determine who should be held accountable for the situation, beginning with the Federal Communications Commission (FCC).
David Paletz brings up four issues related to the “domination of the few” in the media industry, considering the aforementioned realities. The first concern pertains to entry, as new competitors face significant obstacles in terms of capital cost and required funds for operations. This is not the case for conglomerates with access to substantial financial resources. If the blackout is due to high broadcasting prices, it becomes evident that only a few companies like ABC have the capability to withstand such circumstances. Consequently, any other smaller player stands no chance of succeeding or retaliating in the market, thereby eliminating competition. This is Paletz’s second point.
The availability of Millionaire is the third issue discussed. If ABC is excluded by Time Warner, viewers will have limited options to watch it. Furthermore, Paletz reiterated Ben Bagdikian’s viewpoint on content. The debate has presented two contrasting perspectives depending on the source: ABC provided a sympathetic story for Disney, while CNN offered a report influenced by Time Warner. It is crucial to consider whom you trust and who holds true responsibility.
In summary, it is important to examine the facts. Whether the cause is related to business, finance or technology, the dominance of corporations with media concentration will prevail unless a higher authority intervenes. The average American will either passively observe or choose not to observe the consequences. Considering the immense influence held by conglomerates such as Time Warner, negotiation tactics can be highly effective in achieving their desired outcomes. It is crucial to assess how much additional power Time Warner will be allowed before anti-trust laws halt their progress. Until then, the ongoing conflict will persist, and future battles like the one involving Disney are unavoidable.
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The Associated Press has reported that cable executives are urging for a revision in the legislation regarding agreements with broadcasters. This information was featured on CNN.com, specifically on page 2, on May 8, 2000.
Michael Eisner, despite the dispute with Time Warner, maintains a positive outlook, as reported by Reuters. The New York Times published an article on May 8, 2000, featuring this news on page 1.
The article “Disney Wins Earnings, Time Warner Battles” written by Keith L. Alexander was published in USA Today on May 4, 2000, on page 1.
Matthew Diebel’s article titled “ABC Wins Cable Battle; Will it Win the War?” was published on CNN.com on May 3, 2000 (pg. 1).
7 Bash, Dana, “McCain Speaks Out on Time Warner-ABC Flap,” CNN’s allpolitics.com, May 2, 2000, pg. 2.
On May 3, 2000, the Associated Press reported in USA Today that ABC was able to attract Time Warner viewers to watch satellite television.
10 Diebel, Matthew, “ABC Wins Cable Battle; Will it Win the War?” CNN.com, May 3, 2000, pg. 1.
The CNETnews.com article titled “The Week in Review: Not So Funny” on May 6, 2000, reveals that there were 12 pages.
13 Marsan, Carolyn Duffy, “Pressure Mounts for Instant Messaging Standard,” May 2, 2000, pg. 1-2
On May 8, 2000, Reuters reported in the New York Times that the cable industry will be driven by competition and the demand for revenue.
The article titled “Cable Execs Want Law Governing Deals With Broadcasters Changed” was published by the Associated Press on May 8, 2000, on CNN.com (pg. 1).The source of this information is a book by David L. Paletz titled “The Media in American Politics: Contents and Consequences”. It was published in 1999 by Longman Press and can be found on pages 43-44.
