“This is an example of what happens when you let a monopoly get too big,” New York Mayor Rudolph Giuliani said of Time Warner after his city was rendered a Regis-free zone. Time Warner’s hardball tactic, part of bitter negotiations over what it pays Disney to carry its networks, was widely seen as a major strategic blunder. With the Justice Department determined to cut Microsoft in half, the moment was hardly right for Time Warner to flaunt its power.
While the company blames a greedy Disney, and insists the move was legal and should have no effect on the AOL merger, it clearly lost the public-relations battle. The New York Times weighed in with two editorials condemning Time Warner’s “blunt use of monopoly power.” Media watchdogs had a field day. “This incident took the theoretical danger of media consolidation and control and made it a very real problem,” says Gene Kimmelman of Consumers Union. Time Warner also felt the wrath of the Federal Communications Commission, which said the company violated an FCC rule and was subject to a fine. While Disney executives cheered, a Time Warner attorney said the company would pursue a further review of the ruling.
But the FCC finding could be just the beginning of the media giant’s troubles. “As a result of this flap, every member of Congress now has the AOL Time Warner merger on their radar screen,” says Ken Johnson, spokesman for Louisiana Congressman Billy Tauzin. Tauzin, who heads the House Telecommunications Subcommittee, moved up a hearing on the merger to early June, and a Senate hearing on the issues behind the ABC blackout is also planned.
Time Warner doesn’t consider itself the sole target. “Because of what happened this week, a number of issues are top-of-mind for some people, and they want a chance to discuss them,” said spokesperson Lynn Yaeger. “But I don’t think Time Warner and AOL are the total focus of interest here.”
The two companies are proceeding with plans to integrate operations, last week announcing a new structure that gave considerable responsibility to AOL’s Robert Pittman. While it’s unlikely the merger will be derailed, AOL Time Warner will probably be born into a different world than it would have been if all those screens hadn’t gone blank.
