Time Warner escaped the open access trap in settling its retransmission consent dispute with Disney/ABC, avoiding firm commitment to a laundry list of harsh Internet content-related demands Disney sought to impose in the agreement.
But Disney says it will keep up its lobbying campaign to prevent Time Warner from discriminating against rival content providers after the cable giant merges with America Online.
Time Warner and AOL have verbally assured Disney that they are completely open to content deals with Disney and any other content company, for their high-speed Internet and broadband networks. But the formal retransmission agreement contains no Internet-related language.
"There is nothing in the agreement that will cause any change in our advocacy in Washington or on the local franchising level," says Preston Padden, head of Disney's Washington office.
Disney had sought to include antidiscrimination terms in its retransmission contract with Time Warner, but dropped the demand after the bitter contract dispute boiled over on May 1 resulting in blackouts, nasty words and a public-relations disaster for both companies.
Disney officials say they fear that AOL-Time Warner will have so much control over the distribution of high-speed interactive cable and Internet service that it will try to hinder customers' access to rival content. Possible dirty deeds include disabling two-way communications and slowing the data stream of unaffiliated programmers and "force feeding" Time Warner content to viewers by controlling electronic program guides, they argue.
Both companies say they are continuing to talk about the antidiscrimination issue, but that no deal is close.
But both media behemoths last week walked away with some of the things they'd fought for. Disney got its flagship cable channel converted from a premium to a basic network. Time Warner got a reduction on the escalator in its ESPN deal that currently boosts the $1 per subscriber monthly license fee by up to 20% each year.
The contract calls for Time Warner to convert Disney Channel, now a premium-pay network in about 80% of Time Warner's systems, to a basic network by January 2003.
The conversion was a point of contention for Time Warner, which will end up paying as much as 70 cents a subscriber instead of getting a revenue split from carrying it.
In return Time Warner gets a restraint on future price increases for ESPN, according to sources.
ESPN imposed an annual 20% rate increase after paying $4.8 billion for eight years of NFL rights. This year's increase makes ESPN's cost about $1.20 per subscriber per month, tops in the industry.
The reduction, even at 6%-8%, could start saving $100 million-$200 million per year beginning in four years and trim Time Warner's ESPN bill $975 million-$1.3 billion over the life of the agreement.
The ESPN part of the deal also includes equal distribution for ESPN2, 9 million additional subs for ESPN Classic and carriage of ESPNews on all Time Warner digital systems.
Sources said the agreement resulted in $1.05 billion for Disney. The two companies nearly cut a $1 billion deal in December, but Disney pulled out and demanded another $300 million, according to sources at Time Warner.
The MSO resisted and eventually resorted to the 39-hour May blackout of the ABC signal on its systems. The cable operator then said the higher price would cause a nearly $1 rate hike per subscriber.
Time Warner would not disclose the dollar figure on the new deal, but characterized the rate hike as "pennies" and within Time Warner's 5% annual rate-hike lid.
Time Warner will also give Disney's soap-opera channel, SoapNet, 6 million subscribers in an eight-year carriage deal. Disney's animation entry, Toon Disney, also will be launched in 4 million Time Warner households over an unspecified time period.