Time Warner-ABC dispute concerns cable industry, FCC

Time Warner pulled ABC programming in several markets last week after the cable operator, one of the nation's largest, failed to reach an agreement with ABC owner Disney over terms of a contract. By doing so, Time Warner violated so-called retransmission consent procedures, part of the complex set of rules that govern the relationships among TV programmers, broadcasters and cable operators.

The dispute has simmered here at the National Cable Television Association's (NCTA) annual convention as the industry calls for revisions to the rules, which some say unfairly allow programmers and broadcasters to extort high costs from cable operators.

Federal Communications Commission chairman William Kennard blasted the industry here this week, saying the situation raises questions about the cable industry's dominance and that a dispute like the one between Time Warner and ABC should never happen again.

In a keynote panel session Monday, Time Warner chairman Gerald Levin said the law makes it difficult for cable operators to keep subscription costs down as programming costs increase, an ongoing issue for the industry. Levin vowed to try to change the laws.

NCTA president Robert Sachs, at his first convention since being named the cable association's top executive, stopped short of calling for specific changes but suggested that retransmission consent laws need to be "revisited."

A day later, Kennard warned the cable industry that the dispute could lead to a backlash among consumers and public policy-makers.

"The Time Warner-ABC dispute raises demons of distrust among consumers, and it raises concerns about whether or not the cable industry is capable of being the honest gatekeeper to the Internet that it says it wants to be," Kennard said at a breakfast speech.

AOL president Bob Pittman today disputed the notion, saying that the Internet is too big for one gatekeeper.

Although the lessons have been learned, Kennard said that "there are still lingering questions about undue market power that will be debated in the coming months."

"The public's fear is that in the Internet age, such market power will thwart consumer choice. We all need to take a close look at that question, but I remain optimistic that the market will sort out these issues," he said.

The issue holds even greater weight given the pending merger between Time Warner and AOL, the world's largest Internet service provider. The deal, if completed, would be the largest corporate merger in U.S. history.

Kennard and the FCC have taken a "hands off" approach to regulating the Internet and cable Internet content thus far. But the flap could bring back pro-consumer cries of monopoly control of TV and Internet content by the cable industry.

Tomorrow marks the FCC's deadline to file public comments about the effect of the AOL-Time Warner merger. Analysts and insiders here expect Disney and cable Internet "open access" proponents, among others, to highlight the dustup as reason for federal policy-makers to carefully scrutinize the corporate combination.

"There is a view here that Disney delighted in the situation because it gives them the perfect opening to raise the implications of AOL-Time Warner. It gives them a horror story to point to," said Cynthia Brumfield, a cable industry analyst and author of the "Broadband Intelligence" newsletter.

"This could be the opening salvo in regulating broadband content," she said. "It could be the precipitating factor for an entire examination of cable Internet content, high-speed Internet access, and who controls it all."

Meanwhile, several companies are considering filing formal complaints about the AOL-Time Warner merger as a result of AOL's refusal to open its instant messaging system to competitors.

Already, there is speculation that the dispute has caught the attention of Capitol Hill and that it could lead to new legislation. But with this year's congressional session nearing a close, cable industry executives remain confident that no new legislation will result as long as the industry can come to an agreement.

"I would expect to see the broadcast and cable industries will work out agreements over the next six months, because the message was very clear that that is the FCC's expectation and our customers' expectations," the NCTA's Sachs said in comments to reporters this morning. "We really have to see what transpires the rest of this year. But if the parties can come to an agreement, then it's not going to become a public policy issue in the next Congress."

Regardless, the dispute has been a constant topic of discussion on the trade show floor and serves as a reminder for cable's leaders that consumers and Washington, D.C., continue to watch the industry closely.

Time Warner and Disney have extended their talks until mid-July, giving the companies and the cable industry time to work out a compromise before policy-makers might intervene.