Time Warner to Disney: It's All About the Pipes

SAN FRANCISCO (05/03/2000) - When Time Warner Inc. and America Online Inc. stunned the world with the announcement of their plans to merge, the combination was widely heralded as a boon for content. But while Hollywood was encouraged by the deal that it thought was about getting the Net, the real deal was about who gets the pipes.

Time Warner's decision Monday to boot ABC from its cable networks in several markets may have nothing to do with the Net yet, but once again, it was all about the pipes. As of Tuesday morning, Time Warner Cable viewers in New York and throughout the country were still getting the message "Disney Has Taken ABC Away From You" where they once saw "Who Wants to be a Millionaire" and other network shows.

The move seemingly sends a message to content providers that they are beholden to AOL-Time Warner's power over the pipeline. ABC, which is owned by Disney, might be the first content provider to feel the impact of that power though others have seen it coming. A petition to the Federal Communications Commission argued that the AOL-Time Warner merger would decrease competition. That argument gained legitimacy today as Disney was forced to cede to the "pipe masters" - despite its distribution of satellite dishes in markets missing ABC, and despite the fact that the signal it provides is free, unlike cable.

The battle shows the importance - at least for now - of a cable connection, and with AOL on board, that connection is likely to become even more essential to millions of consumers. AOL and Time Warner have pledged in an open memorandum to the federal government that they are committed to letting cable broadband companies other than AOL and Road Runner compete on their cable platform. AOL and Time Warner have put forth no timetable, however, and have given no indication of the terms they will demand from ISPs. EarthLink has been the most vocal among ISPs trying to get access to AOL-Time Warner's pipes.

Dave Baker, EarthLink's VP of law and public policy, charges that the companies have been long on promises but slow to reveal how fairly they will treat outside providers. "No branch of the federal government has shown any interest in addressing the issue," he says. "Without any real oversight, there's no telling how open access will play itself out or whether these guys will play fair." Time Warner, for its part, has proven repeatedly that it doesn't yet understand how to manage the creation of content on the Web. It seems logical, then, for the company to muscle up in a different division, and it's looking more and more like that division will be its pipes.

Disney, on the other hand, has what the content people want, but in a hit-driven business, the company's value resides within the moving target of consumers' fancy, unlike, say, a basic connection to a range of content options. So at the same time that today's disappearance of some ABC affiliates on Time Warner systems displays the latter's distribution strength, what the contretemps really illustrates is that content isn't king. Disney's kingdom of content creation, therefore, is going to have to imagine a new plan if it wants to succeed in the Internet Economy.

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