Time Warner Makes Nice with Merger Foes

Washington-Aside from the now-infamous retransmission-consent dispute with The Walt Disney Co. in early May, Time Warner Inc. has been on its best behavior.

And that's understandable with its America Online Inc. merger pending before the Federal Communications Commission and the Federal Trade Commission and sticking out as a fat target for rivals, friendly and otherwise, to use as leverage in various negotiations.

In just the past few months, Time Warner has made several concessions to stave off potential and real threats to the merger, which is still months away from clearing all of the hurdles in Washington, D.C.

While the AOL-Time Warner deal has plenty of opponents and worriers remaining-Disney, BellSouth Corp., consumer groups, Internet-service providers and instant-messaging companies, to name a few-Time Warner has managed to scratch a few off the problem list.

Last month, Time Warner allowed AT & T Corp. to close on its purchase of MediaOne Group Inc., even though Time Warner arguably could have left AT & T in limbo until early August.

Time Warner let the deal close even though Excite@Home Corp., in which AT & T owns a controlling stake, co-signed a letter June 7 to the FCC complaining about AOL's IM policies.

The company also made peace with Gemstar International Group Ltd. (now Gemstar-TV Guide International Inc.) by temporarily restoring the company's electronic program guide, which Time Warner Cable had been stripping, triggering a complaint at the FCC. Both companies have pledged to attempt to reach a negotiated settlement, although Gemstar's FCC complaint remains alive.

Time Warner ended a six-month retransmission-consent feud two months ago with Dispatch Broadcast Group-owner of CBS Corp. affiliate WBNS-TV in Columbus, Ohio-by agreeing to carry all-news cable channel Ohio News Network on digital in four Ohio cities under a one-year deal. The ONN move ended a brief court battle.

Time Warner's latest agreement came two weeks ago-smack in the middle of the FCC's five-hour forum on the AOL merger-when Time Warner president Richard Parsons agreed to some key demands by small cable operators.

The small operators, led by the American Cable Association, raised questions about the AOL-Time Warner merger, insisting that the combined company planned to force its distribution of AOL's Internet service as a condition for gaining access to Time Warner's stable of cable networks.

At the FCC forum, Steven Weed of Millennium Digital Media, a cable operator in Bellevue, Wash., with 75,000 subscribers, said Time Warner had given conflicting signals to the FCC about tying AOL to the cable networks. Weed demanded that Parsons clear the air.

"Unequivocally, we will not tie them together in that way," Parsons said. "We thought we were clear in our previous submissions. Obviously, we weren't."

Within hours, ACA president Matt Polka issued a press release stating that the ACA now backs the merger.

"Time Warner-AOL's statement today is a first where a merged company of this sort has gone on record to support the important programming concerns of independent cable," Polka said in a prepared statement.

Polka also used the occasion to point out that Disney continues to link carriage of its 10 ABC Inc. stations to carriage of Disney's vast cable-programming networks.

"It's ironic that the Disney company is going before the FCC and complaining about Time Warner-AOL's concentration of content when Disney has been using its content as a hammer on the heads of independent cable for years," he added.

Polka acknowledged that Parsons' commitment did not cover the bundling of Time Warner's cable networks in the sense that Time Warner could demand carriage of CNNfn in cases where the small operator wanted to buy just Cable News Network and Turner Network Television.

But he said he was not as concerned about that business model because Time Warner has agreed to sell to small operators though the National Cable Television Cooperative Inc., a program-buying consortium that includes 12 million cable subscribers.

Soon after the ACA's and Time Warner's public agreement, FCC chairman William Kennard indicated that he didn't like feuding companies to use the commission as a vehicle for settling business disputes.

Turning to Preston Padden, Disney's executive vice president of government relations, Kennard recalled that in 1994, NBC challenged whether Rupert Murdoch's control of TV-station owner News Corp. was consistent with prohibitions on foreign ownership of broadcast licensees.

News Corp. is an Australian company controlled by Murdoch, who is an American. Padden represented News Corp. in the dispute.

In February 1995, NBC withdrew its complaint when Murdoch agreed to carry CNBC Asia and NBC Super Channel Asia on his Asian satellite service, called Star Asia.

But the issue didn't die at the FCC when NBC withdrew because the National Association for the Advancement of Colored People had filed a similar complaint.

"Serious public-policy issues were addressed. We developed a record, and then there was a deal that was made between NBC and the Fox network. Suddenly, there allegations disappeared," Kennard said. "We don't like to have our processes here used as leverage in a contractual dispute."

Padden responded that the situation was different now in that ABC and Time Warner had already concluded their retransmission-consent agreement soon after the May flare-up.

But Disney is still upset with the carriage deal, claiming that Time Warner refused to provide assurance of equal treatment of interactive TV and Internet content.

For a while, Disney was alone among major media companies to question the AOL-Time Warner union. But in the past two weeks, NBC and USA Networks Inc. chairman Barry Diller also began to voice troubles.