U.S.

Time Warner Broke The Rules

By CBSNews.com staff CBSNews.com staff

May 1, 2000 / 9:08 AM EDT / CBS

Federal regulators say they will take appropriate enforcement action against Time Warner for dropping ABC signals in seven cities during the television industry's May "sweeps" period.

Stepping in a day after the dispute was temporarily put on hold, the Federal Communications Commission ruled Wednesday that Time Warner had violated communications law by its actions.

FCC officials said their first priority was to clarify the law to make sure a similar situation doesn't occur again during sweeps, a period when ratings are used to set local advertising rates. The sweeps began Thursday and run until May 24.

Commission Chairman William Kennard said the agency now will consider the appropriate enforcement action.

"Time Warner Cable committed a clear violation of FCC rules," Kennard said Wednesday. "Unfortunately, millions of consumers paid the price. No company should use consumers as pawns in a private contract dispute."

If the FCC decides on enforcement action, it could assess forfeitures of $7,500 per violation per day up to a maximum of $250,000, agency officials said.

ABC had filed a petition Monday claiming that Time Warner overstepped the law when the cable company stopped airing ABC programs in a number of markets at 12:01 a.m. Monday.

Cable customers were without ABC programming in New York City; Los Angeles; Houston; Raleigh-Durham, N.C.; Toledo, Ohio; and small parts of Time Warner systems in Fresno, Calif., and Philadelphia. The blackout affected 3.5 million cable TV customers for 39 hours.

The FCC's cable service bureau sided with ABC, asserting that the law did cover the case even though the dispute involved two companies engaged in private contractual negotiations over transmission. The determination did not require a vote of the full commission.

"The clarification provided by today's action will protect consumers from experiencing a disruption in viewing a local television station during the sweeps period," the FCC said.

But Time Warner said it felt the entire commission should have been involved in considering the rule. The company pledged to pursue further review of the order.

ABC said it was pleased with the decision.

The commission's decision comes a day after the two companies called a cease-fire and set a July 15 deadline for their negotiations over compensation for cable channels. The media giants have been fighting over the money The Walt Disney Co. - ABC's corporate parent - wants to receive for letting Time Warner air some of its cable channels.

When they face their new July deadline, the companies will be in another sweeps months - meaning that the FCC rule again would apply.

CBS News Correspondent Jim Axelrod reports what's behind the dispute is as much about who will rule the Internet as a few million television viewers.

This dispute comes during a revolution. Time Warner is trying to merge with America Online, one of many companies trying to ake marriages that could someday blend the functions of a TV with a home computer using a single cable.

Disney is worried that if Time Warner controls that cable, it will control Disney’s future in the wired world.

If one thing is clear from the showdown between The Walt Disney Co. and Time Warner Inc. over carrying ABC and other Disney programming on cable, it is that both companies are willing to suffer high-profile public relations damage.

"Both sides look bad," said Dennis McAlpine, a media analyst at the brokerage Ryan, Beck & Co. "I think it's going to raise some very interesting issues that aren't going to go away just because the two sides have reached a truce."

What's worse, this airing of dirty laundry comes at a highly inopportune time for the media industry, just as CBS, Viacom, America Online and Time Warner were seeking public approval for even larger consolidations of power, and industry titans were vying to expand their reach to the Internet.

Jeff Chester, head of the Washington-based advocacy group Center for Media Education, sees the incident as vindication of the demands by his organization and others for greater scrutiny of media giants.

Chester was among several consumer advocates asking the government to block AOL's pending merger with Time Warner. The CBS-Viacom merger won final approval Wednesday.

But the high profile and wide impact of the ABC dispute may have permanently raised public awareness of the consequences of major sparring matches between media giants.

"You'll see it again," said McAlpine. "It's all about power, and who's willing to fight the hardest for the principle. It also shows that cable operators are, under certain circumstances, willing to cut their head off to spite themselves."