Disney Pushes Aol-Tw Split

Television Digest with Consumer Electronics, July 24, 2000

Renewing their offensive against proposed merger of America Online (AOL) and Time Warner (TW), Walt Disney executives called on govt. to split AOL-TW's vast content and distribution assets into 2 separate companies. In recent meetings with and letters to FCC staffers, Disney proposed that AOL-TW be forced to spin off its cable networks and other TV programming and Internet content holdings from its cable systems and online services as basic condition of merger approval. Now, pressing their case further, Disney executives intend to spell out split-up plan to Commission this week, in time for its July 27 public hearing on AOL-TW union. "We'll be filing a detailed proposal," said Preston Padden, exec. vp- govt. relations for Disney.

Besides drastic content and distribution split, Padden said Disney would suggest "a menu of [other] possible remedies" to FCC, including secondary measures "involving behavioral oversight to prevent discriminatory conduct" by AOL-TW. He declined to elaborate other than to say that proposals "all [are] rooted in existing laws and regulations." He said "whole focus" of regulatory maneuvers is to protect consumers. "We're in this because of our own self-interest but it's completely consistent with the interests of consumers," he said.

Padden and other Disney officials based their new proposals on their charge that AOL-TW would own "bottleneck distribution facilities and content" through its control of: (1) Cable systems passing more than 20 million homes. (2) Online service reaching more than 50% of U.S. residential subscribers. (3) Huge TV and motion picture library. (4) More than dozen top cable networks. (5) Cable set-top box equipment and software. (6) Dominant online instant messaging service. (7) 80% of most popular music licensed by film and TV producers. (8) "Sticky" online applications such as chat rooms, buddy lists, e-mail. In testimony before House Judiciary Committee July 18, Padden called that combination "an unprecedented concentration of content, bottleneck pipelines, sticky applications and operating systems" and contended that "unlimited and unfettered consumer choice in interactive television content and services" must be assured. "Bill Gates on his best day never dreamed of having this much power," Padden told us.

Miffed Time Warner executives, who had dismissed Disney's latest maneuvers as "silly" and "absurd" earlier last week, took similar tack July 20. "Disney's proposal is absurd," spokesman said. "There is absolutely no basis for any conditions of this sort on this merger." Privately, Time Warner officials noted that Disney wasn't one to talk since it owns its own major distribution pipeline in ABC and produces 69% of prime-time programming now running on that network.

FCC spokeswoman declined comment on new Disney-TW imbroglio. In last dispute between companies over TW's carriage of ABC and other Disney programming on its cable systems, Commission eventually intervened after TW pulled ABC off its systems in 11 markets for nearly 2 days.

Latest battle comes after Disney had sought for months to negotiate how its future interactive TV services would be carried on AOL-TW cable systems and online services. In recent letters to TW executives, Disney pushed for "certain basic nondiscrimination assurances" on channel position, Web page placement, navigation, menu placement, return path functionality, customer interface, caching and overall consumer availability and prominence. In response, TW Pres. Richard Parsons proposed "a [joint] public statement on the principles we hold in common."

Despite such concerns about AOL-TW merger, FCC Comr. Furchtgott-Roth lashed out at agency's plan to hold en banc public hearing on proposed union this week. Speaking to reporters July 19, he argued that public hearing would merely delay merger review without shedding light on license transfer issues central to FCC's statutory authority over big media deals. He called hearing big waste of "valuable staff time" and questioned why AOL-TW merger, unlike most license transfers weighed by Commission, deserved such treatment. "I'm very skeptical of the value of this hearing," he said. "I find nothing transparent about holding a public witch trial."

Furchtgott-Roth charged that rare public forum, scheduled to be attended by all 5 commissioners, top executives of both companies and slew of observers, would "create a media circus" and amount to "a public humiliation" of AOL Chmn. Steve Case and Time Warner Chmn. Gerald Levin. Noting that such issues as cable open access and online instant messaging were likely to be prominent at hearing, he contended that Commission was straying far from its core mission: "I think this is symptomatic of this agency's devoting a lot of staff resources to delaying license transfers on issues that have nothing to do with license transfers."

Furchtgott-Roth contended that AOL-Time Warner's application should have been approved or rejected months ago, or within 90 days as he said federal law requires. He lamented application of tougher public interest standard to merger, saying Commission routinely acted on tens of thousands of license transfers without resorting to such measures. "There's nothing in the statute that says 'treat biggest differently,'" he said. "We cannot have a different public interest standard for Time Warner than for Jeb's hardware store."