I’ve been watching the fireworks over the controversial merger of America Online Inc. and Time Warner Inc. from my California home. Even from this distance, I know sparks are flying in Washington as federal regulators scrutinize the $138 billion deal.
What makes the scene so vivid? The Internet, which has enabled me to roam through federal agency files to read, firsthand, what the opponents and supporters say about the combination of AOL, the world’s largest Internet service, with Time Warner, the world’s largest media company and second-biggest U.S. cable TV operator.
Almost 600 comments have been publicly filed at the Federal Communications Commission, ranging from the profound to the profane. I can only guess how the files bulge at the Federal Trade Commission, which has conducted a non-public review for antitrust concerns.
There is one central theme: AOL and Time Warner already function as powerful gatekeepers in their businesses. Indeed, AOL President Robert Pittman boasted in April that AOL subscribers spend 85 percent of their time “within the four walls of our service.” That’s great news for AOL shareholders, but competitors and suppliers are terrified that the merger will make it ever harder to reach AOL Time Warner subscribers inside that “walled garden” the industry term for a protected or closed content environment.
As a Hollywood executive told me, what’s the point of having that much power if you don’t abuse it?
That is precisely the concern voiced by unaffiliated program suppliers, Internet service providers, consumers, and entrepreneurs in interactive television and “instant messaging,” who filed comments at the FCC or testified in other forums. Many of them want to see the merger blocked or modified to assure access on a non-discriminatory basis.
In their angst, some have divulged details of battles with AOL or Time Warner that could rivet a Harvard Business School class. Among the stories:Walt Disney Co. no shrinking violet had its ABC programming yanked by Time Warner from some cable television systems in a May dispute, during a ratings “sweeps” period considered vital to the network.
Since then, Disney has become one of the most vocal critics of the AOL-Time Warner merger. Disney has called attention to ways Time Warner and AOL have “discriminated,” in its view, against non-affiliated companies.
Playing favorites
The examples range from Time Warner’s favorable placement of its own programming on its New York City cable system, to AOL’s former practice of demanding that content providers such as ABC News remove or limit links to outside Web sites. (AOL told the Washington Post last month that it no longer demands the right to cancel a contract if 25 percent of user traffic leaves the AOL network.)
“AOL has built what they call a walled garden …and they have built it much like a Vegas casino where they hide the doors so you can’t find your way out,” Preston Padden, Disney’s top lobbyist, said during a panel discussion on the merger at American University last month.
Disney has also called attention to the ability of AOL Time Warner to alter or block the transmission of signals on the basis of brand, individual user or site address.
Some free-speech advocates have weighed in with complaints that both AOL and Time Warner have been highhanded in canceling individual Internet accounts for high-volume usage or the content of their speech.
Florida physicist Thomas Lewis Bonge complained in one petition to the FCC that he was dropped by Time Warner’s Road Runner service without being told the nature of his transgression. Bonge filed a lawsuit in federal court in Orlando, which is still pending.
In his petition to the FCC, Bonge contends that Time Warner retaliated by refusing to provide cable TV service to his 86-year-old mother, who lives in a separate dwelling on the same property.
In another filing, Bonge complimented FCC Chairman William Kennard on a recent speech and dared him to try to post it on the Internet through AOL or Road Runner. “Your account will be terminated. Your speech violated at least three of the standards established by these gatekeepers,” Bonge wrote.
From Oshkosh, Wis., a small Internet service provider called NorthNet Inc. has come forward with a dissection of Time Warner’s proposed term sheet for gaining access to its cable systems. According to NorthNet’s 18-page filing, Time Warner demands 75 percent of subscription revenue and 25 percent of any revenue from advertising, e-commerce or other fees. For every subscription that NorthNet sells to an existing Time Warner cable TV customer, Timer Warner is demanding a $30 minimum monthly payment, NorthNet says.
Major disadvantage
The floor price puts the independent service provider at a disadvantage because Time Warner can offer a discount to its cable customers who agree to adopt Time Warner’s competing online service.
In addition, Time Warner demands “prominent” space on the independent Internet service provider’s home page for its own purposes. And although AOL and Time Warner said earlier this year that they will allow Internet service providers to offer video streaming, the proposed term sheet says that Time Warner cable systems “will not be required” to provide quality-of-service support for either video streaming or telephony, according to NorthNet.
The furor has reminded me of unvarnished remarks made by Time Warner Vice Chairman Ted Turner shortly before the January merger agreement, when AOL was still a competitor clamoring for access to Time Warner’s cable TV systems. Time Warner was engaged in rolling out the Road Runner Internet service for its cable subscribers.
“We have to fight open access, forced access,” Turner said during a panel discussion at the Western Cable Show in Los Angeles on Dec. 15, 1999. “If someone really wants AOL, they can get AOL through their cable. We’re not shutting anybody out. The thing is, we want them to have to go to Road Runner to get to AOL. … It’s our wire, and we’ll do what we want to with it, unless we’re forced to do otherwise.”
No one says it better than Ted Turner.
