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October 24, 2014

Disney and Time Warner Cable Reach Truce, But More Battles Loom

by Gary Susman, posted Aug 30th 2010 9:00PM
ESPN's Ron Jaworski and Mike Tirico with Frank Gifford
The good news for Time Warner Cable's nearly 15 million subscribers in 28 states: It looks like the cable behemoth is no longer in danger of losing such Disney-owned channels as ABC and ESPN on the eve of college and pro football seasons and the new primetime broadcast season. The bad news: The deal between the two entertainment giants leaves the door open for further clashes between programmers and cable service providers, disputes that are likely to add to your cable and Internet bills in the near future.

Disney and TWC had been battling for weeks
in the run-up to Sept. 2, the day Disney's current contract with TWC expires. Disney wanted higher fees for its popular channels, including ABC (which cable service providers used to pay nothing for, since its signal was broadcast over the air for free), the Disney Channel, ESPN, ESPN2 and other viewer favorites. If its terms weren't met before the contract expired, Disney had threatened to pull the signals and darken those channels for TWC subscribers. For its part, TWC had resisted the higher carriage fees, though it would ultimately be passing on those increased costs to its subscribers.

Now, however, the two sides have reached a truce, and while there is no official deal in place, both sides seem to expect the details to be worked out before the threatened signal pull-out at midnight Wednesday night. While neither side will discuss the details of the negotiation, it's clear that Disney has won some concessions, which will eventually mean higher cable bills for TWC customers. And probably for other cable customers as well, since the current battle is hardly the first that has erupted this year over carriage fees; nor is it likely to be the last.

ABC logoBoth sides had made their case to the public via ad campaigns and websites, with Disney reminding subscribers via IHaveChoices.com that they have alternative outlets besides TWC where they can see their favorite Disney, ABC and ESPN programming, while TWC told subscribers their choices were to RollOverOrGetTough.com. Today, both sites bear the same joint message from Disney and TWC: "The Walt Disney Company and Time Warner Cable have made significant progress in our negotiations for continued distribution of ABC, Disney and ESPN networks and services. We are now focusing all our attention on a successful conclusion of these efforts prior to the September 2 deadline."

Of course, TWC rolled out RollOverOrGetTough.com long before the current impasse. It did so last winter during a similar dispute with Fox. This year has also seen carriage fee clashes between Cablevision and Scripps (parent company of Food Network and HGTV), one between Cablevision and Disney, and one between The Weather Channel and Dish Network. In both of the Cablevision clashes, the stations actually did go dark for a while before the service provider reached a deal with the programmers. During its negotiations with Cablevision, Disney actually yanked ABC during the Oscars, traditionally the network's highest-rated show of the year, and didn't restore the feed until 12 minutes into the broadcast, when a tentative deal was reached.

It's not clear how much more Disney wants in carriage fees. ESPN is already the costliest channel on cable, with subscribers nationwide paying an average of $4.10 per month for the sports channel. The Disney Channel and ESPN2 average above 50 cents per subscriber. The Los Angeles Times quotes a media analyst who believes Disney can demand from 40 to 60 cents for ABC.

Disney Channel logoThe Disney vs. Time Warner Cable dispute, however, is over more than just carriage fees. According to Reuters, it's also over online programming, something cable operators see as a growing competitor for viewers' attention and entertainment dollars. Noting recent news that Disney was in talks with Apple to make much of its programming available for 99-cent rentals at iTunes, TWC reportedly wanted Disney to make shows available for similarly low prices or even for free via the Time Warner Cable's video on demand service. TWC had also reportedly resisted Disney's request that it pay a fee to carry Disney's online ESPN3 outlet, which streams video of content like World Cup soccer games.

In other words, the issue at the heart of these disputes -- how content creators can find alternate revenue streams now that they can no longer count on a robust advertising market -- is spreading from cable to the Internet. Programmers will leave no potential revenue source unexploited, while service providers, rather than lose popular content, will ultimately acquiesce, knowing they can pass the cost on to the consumer.

In this particular instance, it's not clear how much TWC will give Disney in concessions, but a CNBC report today estimates the figure at $110 million per year. (That's an average of 63 cents per month for each of TWC's 14.6 million subscribers.) CNBC also says that TWC won't pass the cost on to subscribers right away but will factor it into its next annual price increase, when customers should expect to see their bills rise 5 percent.

Meanwhile, The New York Times reports that a new carriage fee brouhaha is brewing between AT&T and Crown Media Holdings, the parent company of the Hallmark Channel, which threatens to yank the channel from the 2.3 million subscribers of AT&T's U-verse service at the end of the month unless a new deal is struck. Whatever the resolution of the Disney vs. Time Warner Cable tangle, it seems clear that other programmers will feel free to demand more from cable operators and hold viewers' favorite shows hostage until they get what they want.

•Follow Gary Susman on Twitter @garysusman.

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