Disney Wants Limits on AOL-Time Warner

WASHINGTON (05/12/2000) - Media giant Walt Disney Co. is asking U.S. federal regulators to impose a series of stringent antidiscrimination rules on the proposed merger of top cable company Time Warner Inc. with Internet behemoth America Online Inc. (AOL) .

The request for regulatory limits on AOL-Time Warner is no shocker, given that Disney has stepped up its criticism of the merger after a dispute between Time Warner Cable and Disney's ABC-affiliated TV stations led to a brief blackout of the stations for 3.5 million cable viewers on May 1. The U.S. Federal Communications Commission (FCC) subsequently has ruled that Time Warner's move, coming in the midst of the ratings "sweeps" period, was illegal.

In a filing with the FCC yesterday, Disney warned that the proposed AOL-Time Warner merger would have a commanding reach to distribute all manner of media content over cable wires and the Internet, meaning that the combined company could use that position to discriminate against other content producers.

"This level of integration of control of content and broadband distribution will create undeniable economic incentives and opportunity for the merged entity to favor its own affiliated content and to discriminate against unaffiliated content providers, thereby limiting and skewing consumer choice," Disney said in the filing.

Disney asked the FCC to prohibit the merged company from engaging in a series of business practices, such as refusing to deal with unaffiliated content providers or distributors, opting out of presenting competitors' information on electronic programming guides, and even using Internet routers to slow down the Web sites of competitors on its broadband network. Disney offered no evidence that any of the practices had already occurred.

Ironically, many of the objections raised by Disney were made against the company's own acquisition of Capital Cities/ABC back in 1995. That deal combined Disney's extensive entertainment production facilities with the major TV network. Additionally, Disney faced accusations of excessive corporate meddling in 1998, when ABC News pulled the plug on a story about pedophilia and lax security in Disney theme parks.

AOL and Time Warner also filed documents with the FCC today, replying to earlier briefs from consumer groups and others that called for a rejection of the merger; divestiture of AOL's stake in DirecTV, GM's satellite TV service; or limits on the merged company's business practices. The merger partners denied that they would have either the incentive or the ability to discriminate, and they added that many of the supposed harms mentioned had nothing to do with the merger.

"In light of both market conditions and the two merger partners' long-standing strategic goals, suggestions that the merged entity will manipulate its content or facilities to unfairly compete for subscribers are not valid," the companies stated. "Given the vast and diverse availability of content choices, the economic incentives for a mass-media company clearly militate for the widest possible distribution to the largest audience obtainable -- everywhere and anywhere."

The FCC has an unlimited amount of time to review the proposed merger, which was announced in January. Typically, the agency reviews large deals for six to 12 months though in some cases the process is longer. The agency has not rejected a major merger in decades but often imposes stringent conditions or requires divestitures. The proposed merger is being reviewed separately by the U.S. Federal Trade Commission (FTC).

Disney's filing included at least one proposal that the company has requested, both from regulators and in business negotiations, for some time -- even before the AOL-Time Warner merger was announced. Disney asked the FCC to require that AOL-Time Warner give its cable TV customers all data embedded in new digital-television broadcasts as long as the information is made available for free.

Digital technologies slowly coming into use by Disney and others will allow TV stations to send as many as six ordinary programs over airwaves that now carry a single analog channel. In addition, digital broadcasts could carry high-definition TV shows or even Internet and computer data.

The cable and broadcast industries have for several years been hotly debating before the FCC and U.S. Congress the issue of digital TV signal carriage over cable TV systems.

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