Disney-Time Warner Brawl Escalates as ABC Programming Pulled

Updated from 12:21 p.m. EDT

A squabble over transmission rights between Time Warner's (TWX Quote) Time Warner Cable and Walt Disney's (DIS Quote) ABC television network has escalated into a nationwide dispute that has left 11 Disney-owned stations off local cable systems.

The timing of the dispute couldn't be worse for Disney and ABC. The May "sweeps" -- the ratings period during which advertising rates for the next television season are set -- began last week, and ABC, like its competitors, has scheduled numerous TV specials to strengthen ratings. As a result of the disagreement with Time Warner, ABC programming will not be broadcast via cable in much of New York and Los Angeles, the two biggest TV markets in the country.

In total, the fight has left 3.5 million homes without cable access to ABC programming. In addition to New York and Los Angeles, ABC stations in Houston, Texas; Raleigh-Durham, N.C.; Toledo, Ohio; and small parts of Time Warner systems in Fresno, Calif. and Philadelphia have been affected by the dispute.

The quarrel centers around negotiations between Time Warner Cable and Disney-ABC for a new agreement to transmit ABC over Time Warner's cable systems. The main point of disagreement has been Disney-ABC's desire to move the Disney Channel from premium to basic service and to add two new cable networks, SoapNet and Toon Disney. Time Warner agreed to make some of the changes, but balked at the compensation Disney-ABC is seeking. "Disney is trying to inappropriately use its ownership of ABC to extract excessive and unreasonable terms for its cable channels--terms that would hundreds of millions of dollars in costs for Time Warner Cable and its customers," Time Warner Cable said in a statement.

The original national transmission deal expired Dec. 31, 1999, and Disney-ABC offered five deadline extensions since then. The most recent deadline, offered in March, gave Disney-ABC the authority to withhold its programming from Time Warner cable systems if no deal was reached by 12:01 a.m. EDT Monday.

Disney-ABC said Monday that it gave Time Warner its consent to carry its programming until May 24, when the sweeps period will end, but that Time Warner "unilaterally pulled [ABC] off its systems." Disney-ABC called the move illegal and blamed Time Warner's pending merger with America Online (AOL Quote) for the escalation of the dispute.

"This blackout is a frightening foreshadowing of the implications of the Time Warner/AOL merger," said Arnold J. Kleiner, president and general manager of ABC's Los Angeles affiliate, KABC-TV, in a statement.

"[Time Warner] wants to duck the issues of monopoly control and consumer access while their merger is pending," he said.

Time Warner, not surprisingly, blamed Disney for the dispute. "In the past week, Time Warner has made two reasonable proposals to Disney that would have kept ABC on Time Warner cable systems through the end of the year," Time Warner said.

Disney reportedly appealed to the Federal Communications Commission on Monday to intervene on its behalf. An FCC representative did not immediately return our call for comment.

The fight will likely prove more costly to Disney-ABC than Time Warner, said Michael Goodman, analyst with the Yankee Group, a research firm in Boston.

"It's in their best interests to get it settled as quickly as they can," he said of Disney-ABC. The network has several high-profile sweeps shows scheduled for May, including celebrity appearances on its runaway game show hit "Who Wants To Be a Millionaire" and Michael J. Fox's last appearance on "Spin City."

"This is loaded with A-list programming," Goodman said. "Who's got more to lose? Disney-ABC."

While viewers can still receive ABC programming via antennas or satellite transmissions, Goodman said he doubts enough would do so before the key ratings period ends May 24 to ease a ratings erosion on ABC.

The highly public nature of the dispute is nettlesome for Disney, which historically has tried to maintain a great deal of control over its family-friendly image.

Disney shares declined 11/16 to 42 7/8 in midday Monday. Time Warner fell 13/16, or 1%, to 89 1/8. (Disney closed down 1 5/8, or 4%, at 42 while Time Warner closed down 1 1/16, or 1%, at 88 7/8.)