Is Walt Disney Co. a Populist Hero?

Is Walt Disney Co. a Populist Hero?

Is Walt Disney Co. a Populist Hero?

Moneybox
Commentary about business and finance.
May 3 2000 4:57 PM

Is Walt Disney Co. a Populist Hero?

In the ongoing smackdown between Walt Disney Co. and Time Warner Inc., Disney has fashioned for itself a kind of populist stance, raising questions about the untrammeled power of a media giant. What's odd is how successful this gambit seems to have been, especially considering that there is only an extremely tenuous link between what Disney is "concerned" about--a merged Time Warner/AOL having too much power in the digital, broadband future--and what it is actually doing--squeezing Time Warner for money.

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It's this tenuousness, in fact, that has probably made coverage of the brouhaha so confusing. So let's get a couple of things straight. Time Warner both produces content and, through its cable systems, distributes it. Disney is more of a content company, but it does own ABC and some cable channels; buying these was meant to be a move into distribution, but while broadcast networks are useful for distributing shows, networks in most situations themselves must also be distributed, via cable or other systems (broadband, satellite, etc.).

This state of affairs would seem to give cable systems all the power. Certainly that is what Disney's rhetoric would suggest. But it isn't Disney that pays Time Warner to make sure ESPN and the Disney Channel are made available to consumers. It's Time Warner that pays Disney. Which brings us to the current dispute.

According to all reports, Disney and Time Warner were pretty much in agreement on new licensing terms until the Time Warner/AOL deal was announced. Suddenly Disney was "really scared," a company executive told the Wall Street Journal. Scared, Disney says, that Time Warner/AOL could offer enhanced digital features for its own content and channels while withholding such features from Disney and other content competitors. So scared, in fact, that Disney demanded Time Warner convert the Disney Channel from a premium to a basic offering, pay more to keep carrying ESPN, and also either carry two new Disney channels (Toon Disney and Soap Net) or pay to carry ABC stations that it currently carries for free.

Normally, of course, the "scared" party doesn't go around making a lot of demands. In any case, Time Warner's response was incredibly foolish. After months of negotiations seemed to go nowhere, it pulled the ABC signal off several of its cable systems, asserting that "Disney has taken ABC away from you." This was foolish because it's the distributor who deals directly with the consumer and must face the consequences of that consumer's annoyance: Everyone with cable also has a cable bill with the company's phone number on it. Hardly anyone has ABC's phone number sitting around, let alone Walt Disney Co.'s.

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In New York, two key players sided with Disney. Rudolph Giuliani called Time Warner an "out-of-touch monopolist," and the New York Times editorial page opined that the "threat" Disney describes is "real." Neither of these statements is very compelling.

To the extent that cable companies are monopolies, they are peculiar ones. They do have considerable power locally. But nationally, there are many significant players. No single cable system controls what most Americans can or cannot see. Thus, it turns out, Who Wants To Be a Millionaire posted pretty respectable numbers on Monday night despite the several-city blackout. (This is also probably because ABC is, after all, a broadcast network. While Giuliani offered that it would be "stupid" to try to simply tune the station in over its normal broadcast channel in the steel and concrete canyons of New York City, that is actually an anomalous situation. I grew up 30 miles outside of Houston, another affected area, and I seem to recall that in our non-cable-equipped neighborhood, watching ABC was a routine affair.) In any case, it is hard to imagine that Time Warner is looking to create a world in which ABC is at a permanent disadvantage: One of the shows that presumably would have been hurt by Time Warner's keeping ABC off the air through tonight was the Drew Carey Show--a production of Warner Bros.

As for the "threat" of Time Warner/AOL's great broadband advantage over Disney, that is still in the future, and Time Warner is correct to say that it should be addressed--in altered licensing deals if need be--when it is more of a reality. It's perfectly reasonable for Disney to have concerns over the merger, but there are legitimate forums in which to explore such concerns. If Disney fundamentally believes the deal should be blocked because it will put Disney and others at a drastic disadvantage, that's fine. But in that case, what difference would a rejiggered licensing deal make?

In one sense, it sounds as if Disney is simply asking Time Warner to a pay a penalty of some sort--and for offenses it has not yet committed. But in another, and probably truer sense, it sounds an awful lot as though Disney has simply calculated a way to parlay a long-term concern for consumers into a short-term bargaining advantage for itself.