In FCC Filing, Disney Blasts Time Warner and AOL Merger Plan

Walt Disney Co. warned regulators Tuesday that an America Online-Time Warner merger would severely limit entertainment programming and urged that tough restrictions be imposed on the deal.

Disney called on federal regulators to split the vast content and distribution holdings of the two into separate subsidiaries, or force AOL-Time Warner to provide its television and Internet rivals with nondiscriminatory access to their cable networks.

“AOL and Time Warner will have more market power than Bill Gates ever dreamed of,” said Preston Padden, Disney’s chief Washington lobbyist.

Disney’s 83-page filing with the Federal Communications Commission intensifies the issue as the agency moves toward a public hearing Thursday on the proposed merger of AOL, the world’s largest Internet service provider, and Time Warner, an entertainment conglomerate and one of the nation’s biggest cable operators.

No immediate decision is expected to emerge from the FCC hearing, and sources close to the agency expect the commissioners to ultimately approve the merger. But public debate about the deal could influence whether the five-member commission will impose any restrictions on the transaction.

Disney, which owns the ABC network, was joined this week by General Electric’s NBC, which also is urging strict restrictions on any AOL-Time Warner deal. Some consumer groups and critics also fear that the combined firms’ huge presence in cyberspace and cable would create so much concentration of power that the companies could restrict consumer choice and raise prices.

They argue that Time Warner’s cable networks and AOL’s Internet services would favor movies, TV shows, music and other content made by its entertainment divisions, which include Warner Bros., HBO and CNN.

But AOL and Time Warner officials counter that Disney itself has a similarly dominant position in the broadcast world. Disney acknowledges that it produces about 70% of prime-time programming on ABC. An AOL spokeswoman said any notion that the AOL-Time Warner merger would create a powerful new Information Age gatekeeper is a fantasy.

“AOL and Time Warner have been crystal clear about our commitment to content diversity, open access and consumer choice,” said AOL spokeswoman Kathy McKiernan. “That means ensuring that consumers have access to a wide array of content--regardless of who is producing it--and the opportunity to choose from multiple” Internet service providers. “I think the bottom line is that Disney’s lobbyists are less interested in the facts than [in] spinning fantasies,” she said.

Among traditional media companies, NBC and Walt Disney are alone in their objections to the AOL-Time Warner marriage. Neither News Corp. nor Viacom Inc. plans to join in.

Industry executives say it is unusual for rivals within the same industry to object to a merger for fear of retaliation when they ask government regulators to approve their own acquisitions. That’s what made Disney’s protest so surprising.

Industry watchers say Viacom’s acceptance could be attributed to its recently approved purchase of CBS. And News Corp. faced opposition when it recently folded TV Guide into Gemstar in a merger of dominant on-screen TV program guides, but that deal was approved without conditions month by the Justice Department.

Sumner Redstone, chairman of Viacom, which owns Paramount Pictures, CBS, UPN and a host of cable channels such as MTV, has said he is not opposed to the AOL-Time Warner merger, citing his close frienship with Time Warner chief Gerald Levin. And News Corp. and its Chairman Rupert Murdoch believe in market forces rather than regulatory mandates to determine the competitive landscape.

FCC officials have long resisted calls by consumer and some industry groups to order cable operators to open their networks. Instead the agency has worked to foster more competition. FCC officials note that there are now more than 4,000 Internet service providers in the U.S. and a robust and competitive broadband market in which dozens of companies are racing to wire homes and businesses for high- speed access to the Internet.

Disney officials acknowledge the activity, but contend that the emerging field of interactive TV can be handled by only the huge data pipelines in cable networks. Those cable networks, they say, are now dominated by Time Warner and AT&T; Corp. and neither telephone lines nor satellite networks offer adequate competition to cable because they lack the capacity or speed for interactive TV.

Disney’s filing was bolstered Tuesday by a separate effort led by Microsoft Corp., AT&T; Corp. and other partners to establish a common open standard for instant Internet messaging. The companies hope a new standard will force AOL to open to outsiders its hold on the 90 million Web surfers who use AOL’s instant messaging service. Instant messaging technology, which allows Web surfers to chat live with other Internet users, has become a significant issue in the Time Warner-AOL merger.

FCC spokeswoman Joy Howell said the agency will study Disney’s comments but otherwise declined to comment on the filing.

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Times staff writer Sallie Hofmeister contributed to this report.