Disney triumphant

Last week's blackout of ABC was about programming costs, but it was also about the Time Warner-AOL deal

As Walt Disney was heading for its April 30 Sunday-night showdown with Time Warner over carriage of ABC stations, another Disney division sent a daunting missive to cable operators: ESPN notified Time Warner and other MSOs that it would expand its lead as the most expensive national basic cable network and boost its license fees to operators by 20%.

ESPN will now cost operators $1 to $1.20 monthly per subscriber. A network like Discovery Channel or MTV costs 20 cents per sub.

While the price hike to Time Warner and other operators wasn't the trigger point, it does reflect the pressure that prompted Time Warner to take ABC O & O stations off systems serving 3.5 million homes on May 1.

But in the week just passed, Time Warner lost the public relations battle and, for now, the war with Disney. And by week's end, executives were sounding a lot like that old jingle for Dr Pepper: They're so misunderstood.

ABC lost virtually nothing. To the extent that Time Warner's blackout of ABC in seven major markets last Monday was intended to put a serious crimp in ABC's audience, it backfired.

The network's prime time lineup won the night, delivering ABC's best Monday-night ratings in two years, and the best Monday 8 to 9 p.m. performance in 15 years (with a special celebrity episode of Who Wants to Be a Millionaire?). Robert Iger, Disney's president, told analysts last week that the economic impact was so minimal as to be "difficult to measure." But public sentiment was not. For a day, Disney, which often can't buy good press, was the media version of Elián Gonzáles.

Tuesday afternoon, Joe Collins, chairman and chief executive of Time Warner Cable, threw in the towel and picked up the ABC signal again.

The issue, however, didn't go away. Time Warner is fighting the fat $1.3 billion Disney wants Time Warner to pay for its channels over 10 years. "What they don't want to accept is that, with competition and the government looking over shoulders, we can't pass this through to our subscribers," said Fred Dressler, Time Warner Cable's senior vice president of programming.

Disney executives see ownership of ABC, whose prime time viewership equals that of the top six cable networks, as their best leverage to get distribution of new products like SoapNet and Toon Disney.

And, while Time Warner executives contend Disney is trying to force regulatory review of their company's sale to America Online, Disney executives are expressing severe and detailed concerns.

As TV and Internet functions begin to converge, Disney worries about AOL's control over more than 20 million Internet homes-eclipsing any single MSO's hold on cable homes. That combination of conduit and Time Warner's content holds fearsome portent for programmers on the outside looking in.

Just a week or so ago, Disney notified Time Warner Cable that it was granting a fifth extension. That would allow the cable MSO to carry the signals of the ABC television stations in seven markets through the end of the May sweep on May 24.

But by Friday, April 27, Disney had not heard back from the MSO-a clear sign that Time Warner was at least contemplating the possibility of yanking the signals off its systems on May 1, the expiration date of the fourth extension.

Sure enough, it pulled the plug. But after 40 hours of tremendous pressure from viewers and politicians, and the contention that an FCC regulation prevents a cable operator from yanking a broadcaster's signal during sweeps, Time Warner relented and agreed to a new extension, through July 15.

The day after Time Warner restored the signals, Disney took out two-page ads in papers in New York and other affected cities, offering Time Warner subscribers $198 rebates for the purchase and installation of satellite dishes to receive program service from DirecTV.

Time Warner executives howled. Disney President Iger scoffed at those protests. "They demonstrated that we should be working as a company to ensure that we get our signals to as many viewers as possible in these markets in any way possible," Iger told Broadcasting & Cable last week. "They demonstrated to us the need to maintain access in whatever form we can, because clearly they're willing, wantonly, to deny that access."

Time Warner chief Gerald Levin told a CNBC audience last week that Disney was abusing the retrans rules by linking carriage of cable services to the talks. Levin said the FCC ought to amend those rules to curb such links.

But the Disney-Time Warner brawl is just the first of what many believe will be a series of high-stakes fights between the handful of big-league media companies. Most of CBS' retransmission deals come up for renewal between a year and two years from now. By that time, the company should be well integrated into its new owner, Viacom-known as a tough negotiator.

Those fights, it is feared, will cause similar disruptions in service. Congressional hearings are planned this summer to probe how to avoid a repeat.

But those concerns aside, last week's eruption demonstrated how retransmission consent talks have evolved from a series of talks between broadcasters and cable operators to a game of one-upmanship among a small group of mega-media companies with growing interests in both businesses.

In January, a similar battle between FOX and Cox resulted in a six-day loss of Fox's TV signal to Cox Cable subscribers. The two sides came to their senses on the eve of an NFL Washington Redskins playoff game, which would have been blacked out in the D.C. suburbs without a settlement.

Both Time Warner and Disney face deadlines with others in the coming months. The MSO faces a June 30 deadline to settle a new retrans deal with Hearst-Argyle Television, which is demanding a two-fold increase in fees for Lifetime-an increase Time Warner says is unacceptable. Lifetime also tried to link the Hearst-Argyle deal to carriage of new movie channel Lifetime is trying to launch. But Time Warner says the movie channel is now a separate discussion not linked to retrans.

Disney also faces an Oct. 15 deadline on retrans talks with Comcast-the other major MSO, besides Time Warner, which has resisted Disney's terms for shifting The Disney Channel from a pay service to a basic service.

But while further battles are expected, many retrans deals have been reached. ABC and Time Warner say the vast majority of their deals are done. CBS was the first to do a long-term digital must-carry deal, ironically with Time Warner, in late 1998.

Both NBC and FOX have retrans deals with most of the cable industry, including all of the top-five MSOs. NBC's deals extend to 2008, while most of Fox's deals are three-year agreements.

For the most part, NBC's deals include digital must-carry, full carriage of CNBC and MSNBC, and incremental fee increases totaling more than $1 billion for those services, including fees for the next five Olympics.

Among the top-five MSOs, the network is still negotiating with Time Warner and Comcast on the digital retrans and Olympics pieces of the deals. NBC's digital agreements, company executives say, guarantee pass-through of multiple video signals from NBC, as well as data signals, and also guarantee that all of those signals be translated through digital set-top boxes directly to analog TV sets that make up most of today's viewing universe.