NEW YORK — The Walt Disney Co. and Time Warner skirted a public-relations disaster for the second time this month when both sides agreed to postpone a Friday deadline that would’ve deprived 650,000 Houston cable subscribers of KTRK, the local ABC-owned TV station. The new deadline is March 31.
KTRK Houston is the flashpoint in an all-out war that started last summer between Disney, which is trying to parlay its ownership of 10 ABC TV stations into jacked-up revenues for the Disney Channel and other owned cable networks, and Time Warner, which is balking at paying big bucks for these networks. TW’s resistance is threatening to leave its subscribers with blank screens instead of such ABC hits as “Who Wants to Be a Millionaire” and “The Practice.”
Houston mayor Lee Brown had to intervene on March 1 to prevent Disney from yanking KTRK off TW’s cable system. Instead, both parties resumed the stalled talks, with Disney/ABC executives at one point journeying to the Ritz-Carlton in Naples, Fla. — where TW Cable officials were on a retreat last week — to discuss a new contract that would transform the Disney Channel from a pay to a basic network and add Soap Net and Toon Disney to the TW lineup.
High-level executives for both Disney and Time Warner, insisting on anonymity, are generating the kind of partisan spin to reporters that would make handlers for George W. Bush and Al Gore jade-green with envy.
Disney’s spinmeisters say the ABC station is worth far more than such general-entertainment cable networks as TNT and USA, which TW pays big monthly fees to carry, particularly now that ABC is the No. 1-rated broadcaster in primetime.
A law passed by Congress in 1992 gives a TV station the right to withhold its signal from a cable system if the system refuses to hand over something of value, such as a cable network created by the broadcaster. From day one, cable operators refused to pay cash to carry a local TV station, a position they’ve held firm to ever since.
Using that law, Disney has succeeded in getting a number of cable operators to agree to changing Disney Channel from pay to basic and to carrying the company’s newest channels like Soap Net and Toon Disney.
TW is willing to do these deals, but only at volume discounts that, in Disney’s mind, seriously undervalue both the cable networks and the ABC TV station. For example, Disney wants TW to pay a monthly fee of 71¢ a subscriber for the Disney Channel, a whopping figure that represents the industry average. (Only ESPN and various regional sports networks cost more, on average.) TW is offering to pay only 30¢ a month for the Disney Channel.
Merger made difference
TW said it had verbally agreed to the 30¢ figure until 10 weeks ago, when Disney pulled the deal off the table following the announcement of the proposed merger of Time Warner and AOL. The difference between 30¢ and 71¢ boils down to extra expenditures for TW of $100 million over the six-year life of the contract, according to TW.
Disney said that figure is a gross exaggeration, putting the increase at somewhere in the $50 million range.
TW said that when Disney came back with a counteroffer that would include renewals of cable carriage for other Disney networks such as ESPN2, ESPN Classic, Lifetime and LMN (Lifetime Movie Network), the added hit to TW Cable’s bottom line would rocket to $350 million over the course of the various network contracts.
Disney said TW is not taking into account the revenues TW Cable will generate from the two minutes an hour that Disney makes available to the systems to sell locally. These revenues would substantially lower the $350 million figure, Disney said.
Line in the sand
Disney has chosen Houston as the battleground at least in part because DirecTV is, for the first time, offering KTRK on the satellite. Disney is offering a $98 rebate to TW Cable subscribers who agree to buy a satellite dish so they’ll be able to continue to receive KTRK if Disney — unable to make a deal with TW –has to remove it from cable system as of March 31. Disney says 9,000 subscribers have said yes to the rebate so far.
Not to be outdone, TW has bought at least 6,000 indoor antennas that will bring KTRK’s signal to subscribers over the air. TW is also awarding $100 to every customer in Houston who trades in the satellite dish for a subscription to TW Cable.
If no deal is forthcoming on March 31, other subscribers who could end up pining for the vanished ABC O&O are TW customers in New York City, Los Angeles, Philadelphia, Fresno, Raleigh-Durham and Toledo.