Cable TV Dispute Cuts Off ABC for Millions of Viewers

Time Warner dropped the ABC television network from its cable systems Monday, denying millions of television viewers across the nation their “Who Wants to Be a Millionaire” fix and other ABC programs because of a bitter dispute between the top-rated broadcaster and the nation’s largest cable operator.

At 12:01 a.m. Monday, Time Warner’s cable systems stopped transmitting the signals from ABC stations in 11 cities, including Los Angeles, cutting off 3.5 million households nationwide.

KABC-Channel 7 in Los Angeles was not available to about 625,000 Time Warner cable customers in Bakersfield, Chatsworth, Huntington Beach, Orange, Palm Springs, Gardena, Canyon Country, Barstow and South Pasadena. Viewers in those areas who get their television via Time Warner’s cable systems saw a blank screen, with a notice and a number to call at ABC’s parent, Walt Disney Co., to complain.

The blackout confused television viewers and destroyed cherished daily rituals. Irate Time Warner customers jammed the telephone lines at both companies and government offices with complaints.

Possibly lasting for days or even weeks, the skirmish will hurt Disney’s bottom line by jeopardizing ABC’s ad rates during the all-important May “sweeps.” It is the most severe service interruption ever to result from a breakdown in the negotiations between broadcasters and cable companies. Government laws mandate that cable companies renegotiate the right to air broadcast stations such as ABC at least every three years.

Time Warner’s action is a sign of how complicated these negotiations have become as media assets consolidate into the hands of only a few companies that, at times, have several conflicting agendas.

In this case, Time Warner is refusing to meet Disney’s terms for carrying three Disney channels--Disney Channel, Toon Disney and the Soap Network--on its cable systems in exchange for the right to air ABC. These quid pro quos are common and the networks have over the years used their popularity to get cable operators to carry several new channels, including Fox’s FX, ABC’s ESPN2 and NBC’s MSNBC.

In Monday’s battle, Disney accuses Time Warner of using its cable monopoly to favor its own programming, including the Cartoon Network, which competes against the Disney Channel. Disney claims that it gave Time Warner an extension until May 24 to carry ABC and that Time Warner pulled its signal anyway--in a demonstration of these gatekeeping powers.

Time Warner says it did not agree to the May 24 deadline because it preferred extending the negotiating period through the end of the year because of the failure of the companies’ month-to-month extensions. The company said it also refused to go along after it received notification Friday that ABC would be raising rates on ESPN this year by 20%, which Time Warner has been loath to pass on to customers as laws permit in an effort to honor an industrywide commitment to keep rate hikes to below 5% annually.

The blackout comes at an inopportune time for both companies, turning it into a corporate game of chicken with the heads of two of the world’s largest entertainment companies pitted against each other. Analysts say that both Disney Chairman Michael Eisner and Time Warner chief Gerald Levin have billions of dollars at stake in the battle.

Eisner is just beginning to lift Disney out of a prolonged slump, and ABC’s top ratings with the success of “Millionaire” has been among the biggest drivers. ABC is kicking off the first week of the May rating sweeps when viewership determines advertising rates for the coming months.

At the same time, the cable industry is battling to keep its subscribers from defecting to satellite service. Levin is also trying to get federal regulators to approve the acquisition of Time Warner by America Online, merging the world’s largest entertainment company with the planet’s biggest Internet provider.

Federal regulators have long disapproved of cable’s monopoly and its aggressive rate hikes--a history not lost on Disney or the public.

The interruption created havoc for both companies on Monday, with hundreds of caller complaints clogging their lines and those of city offices in Orange County, the Valley and Los Angeles. “Time Warner has a monopoly where I live,” said Orange resident Tonna Chun, who regularly watches Channel 7, and tried Monday to buy service from another cable company without luck. “I just think it stinks. I’m going to talk to my husband about getting satellite, and I just hope Time Warner doesn’t buy that company out, too.”

Chun was so miffed she was considering canceling her AOL service because of the planned merger.

Disney used the opportunity to showcase Time Warner’s clout as both the largest cable operator and one of the biggest owners of cable channels, which it claims get preferential treatment. “It comes down to one company that controls the pipe into the home and whether that company should have unfettered control of everything we see on TV and everything we see on the Internet,” said Preston Padden, Disney’s executive vice president for government relations.

Padden dispensed with the usual public niceties between rivals, lashing out in the most venomous diatribe by an industry executive yet against the Time Warner-AOL merger. “This is a sign of things to come with the AOL-Time Warner merger,” said Padden, one of the most formidable entertainment lobbyists. “AOL brags that their customers spend 80% of time with its borders, but AOL uses a lot of anti-competitive practices to achieve that dominance.”

Time Warner said Disney warned the company that they would make a stink in Washington. “They told us the AOL merger had shifted the balance of power in their favor and that we could agree to their concessions or they would take their fight to Washington,” said Fred Dressler, senior vice president of programming for Time Warner Cable, who handled the negotiations.

Disney, scrambling for a way to deliver programming to its viewers, conducted the first simultaneous broadcast of “Millionaire” on its local radio stations such as 790 AM in LA on Monday night so Time Warner subscribers could listen to the popular game show’s first celebrity contestants answer Regis’ questions.

Disney also planned to unveil a national promotion Wednesday to give away DirecTV satellite dishes to Time Warner subscribers so they wouldn’t miss ABC programs. EchoStar Communications, DirecTV’s largest competitor, jumped on the opportunity with its own freebie dish deal, which will last until May 14. Since the beginning of the year, satellite providers have been offering local network channels in major cities, including Los Angeles.

Disney also filed with the Federal Communications Commission for an injunction to get Time Warner to restore its signal during the critical May “sweeps” period when viewership is used to set advertising rates. The FCC said these disputes are by law supposed to be resolved by the companies, but that it was getting involved because of a disagreement about the interpretation of federal laws governing service interruptions.

The customer outrage grew so intense Monday that callers to Time Warner’s Orange County office typically heard recordings that high volumes had put them in a queue with scores of others and that the service interruption was due to “unacceptable” Disney demands that would add hundreds of millions of dollars to customers’ costs.

“It’s really incredible they would risk unnerving so many consumers,” Barbara Clark, a retiree who lives in Tarzana. “We’re caught in the middle.”

On Monday afternoon, Jessica Winslow, 22, was shopping at Northridge Fashion Center rather than following her usual routine of watching “One Life to Live” and “General Hospital” on ABC after classes at California State University Northridge.

“I was so mad,” Winslow said, about missing Monday’s soaps. Her boyfriend, Cathal Kerr, 23, said Winslow should probably be studying anyway.

Others were upset that they would miss “Millionaire,” which is ABC’s most popular program. “I’m disappointed because I like ‘Regis & Kathy Lee’ and ‘The View,’ ” said Ann Scalzi of Northridge. “And of course I’ll miss the ‘Millionaire,’ ” she added, referring to the celebrity version scheduled for Monday night.

Scalzi concluded, “I’ll live.”

At Gold’s Gym in Northridge, Joanne Richards of Granada Hills said she has been hooked on ABC’s “All My Children” for more than 20 years. On Monday morning, she set up her videocassette recorder expecting to tape that day’s episode. “I hadn’t noticed [ABC was off the air],” Richards said.

The blackout sent another Time Warner customer into a tirade about how the cable company was charging customers $10 a month for the Disney Channel when other operators around the country were getting it as part of the basic package.

Indeed, the conversion of the Disney Channel from a premium pay service to a basic service is the crux of the breakdown in negotiations between Time Warner and Disney. Time Warner and Comcast are the only cable operators in the country that have refused to give up the millions they collect--and split with Disney--charging for the channel. In a deal that cost cable operators a fortune, most of the industry agreed three years ago to pay Disney between 60 and 70 cents per subscriber to carry the channel as part of the basic offering.

One cable executive said it was not economically prudent to pay for Disney Channel when it is less popular than Nickelodeon, Cartoon Channel and Noggin, which cost them a third the price.

Dressler concurred. “They are trying to force Disney Channel down our throats, charging us prices that would make it the second most expensive channel, after ESPN,” he said, referring to the fees that cable operators pay programmers to license their channels. “We tried to get Disney to let us sell commercials to recoup the cost, but they told us they wanted to keep it exclusive to Disney alone--they use it to promote their theme parks and their movies.”

He said all customers would have to foot the bill for Disney on basic cable instead of the 4% of customers who are willing to pay extra for it. “Why should we raise our basic rates for everyone just because Disney wants to get its propaganda to 100% of our subscribers?” he asked.

Cable leaders say it is unreasonable for networks to expect to leverage cable operators every time these rights come up for renewal. “To think they’ll get a bunch of freebies--better rates, better channel positions, the launch of new networks--is unrealistic,” said the executive. “And then to cry to the government when you can’t work out a business deal--it’s crazy.”

Yet a third cable industry executive said Disney would be forced to give in because it is heading into the critical advertising selling season. “Advertisers will use any leverage they can to lower their rates,” said one cable executive, adding that the standoff would cost Disney millions even if it was resolved this week.

Neither Disney nor Time Warner gave any indication Monday of when the dispute would be resolved, although several industry experts predicted that the matter would be worked out within a week to 10 days. Ratings on which advertisers rely to set rates will surely drop in large cities like Houston, Raleigh Durham and New York, where Time Warner is the dominant cable provider.

The dispute subjected local ABC viewers to distractions Sunday. KABC-TV ran text across the bottom of the screen every half-hour during prime time urging all cable subscribers to call Time Warner cable to ask that ABC programs continue to air without interruption. Arnie Kleiner, president of KABC, said that only 7% of its viewers watch over Time Warner systems locally.

Moreover, Sunday featured the opening half of the $30-million miniseries, “Arabian Nights,” which attracted almost 18 million viewers.

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Times staff writers Leslie Earnest, Jean Guccione, Brian Lowry and E. Scott Reckard contributed to this report.