Creating Static For Aol

Few have seen "the video," as Disney's latest production is known around Washington. But what they remember is a truly scary movie: an apocalyptic, though speculative, vision of a combined AOL and Time Warner. With monopoly control over a big chunk of broadband cable--the high-speed interactive cable service now inching across the nation--AOL Time Warner could, the video warns, obstruct rivals' Web and interactive-TV offerings. "Gatekeepers like AOL Time Warner," it predicts, may "force feed" their own new media to captured customers and control the converging worlds of TV, the Net and computers.

AOL Time Warner executives are unamused by the video, part of Disney's militant lobbying against the merger. Apparently at least one Disney employee sympathizes with them. Someone identifying himself only as "Mickey" (Mouse?) mailed an early version of the video to AOL. He also faxed a copy of the video script, which apparently emanated from "Good Morning America," owned by Disney's ABC network. "Pass this on to the boys at the top," Mickey instructed, referring to AOL's Steve Case and Time Warner's Gerald Levin. Disney's alarm, says Levin, "has no reality."

Rather than improving daily life as we know it, the emerging world of Convergence is a contentious place. The battle of the hour surrounds the proposed gargantuan new media-old media marriage of AOL Time Warner. If regulators approve it, the resulting empire would be the premiere Web-age colossus, joining the largest Internet player (AOL's 23 million subscribers) and media giant (Warner Bros. films, Turner cable networks, HBO, Warner Music, Time Inc. magazines and the sprawling cable plant).

Since the proposal in January both companies' many rivals, along with the nation's major consumer groups, have been trying to curtail, if not derail, the deal. These opponents, AOL and Time Warner all collide in Washington this week at hearings before the Federal Communications Commission. AOL and Time Warner say the deal raises no antitrust issues because the two aren't competitors and operate in different markets. The sniping, the companies say, comes from self-interested rivals who are seeking their own advantage in the wired world. The foes say they worry most that AOL Time Warner will use its uniquely powerful mix of content and distribution to operate unfairly. Microsoft worries about AOL's dominance in instant messaging. Gemstar-TV Guide complains Time Warner, through cable, will have a lock on electronic program guides, the opening screen on the emerging interactive-TV systems consumers use to navigate services. Consumer groups want the government to impose an "open access" policy that requires AOL Time Warner to welcome all Internet and television services, not just its own, for delivery over its broadband cable.

Disney is the most determined foe. Time Warner's and Disney's mutual enmity exploded this year in a business dispute when the cable giant blocked ABC's signal to millions of cable customers. Disney has waged war ever since, calling recently for regulators to separate AOL Time Warner's content and cable businesses into two companies. This week Disney premieres the video for key Capitol Hill staffers.

The video is slick. Ten minutes long, it combines ominous music, catchy graphics and a smooth narrator to clearly explain the complex means by which AOL Time Warner could exert monopoly power. AOL Time Warner, for instance, might store only its Web sites on its servers, providing faster access to its offerings and slower connections to rivals' sites. Or it could boldly highlight its cable channels and Web sites on the local cable electronic program guides, making its offerings perhaps more enticing than competitors'. On AOL's new interactive service, AOL TV, it could run AOL programming and advertisers alongside rival networks' shows right on the TV screen. AOL Time Warner would be "the mother of all bottlenecks," says Preston Padden, Disney's lobbyist.

Disney is "inventing issues," says Barry Schuler, president of AOL Interactive service. "I laughed when I saw the video." With AOL's copy of the video running, Schuler dismisses each of Disney's charges. In fact, subscribers, not AOL, determine which Web sites get stored on its servers and are available for fast access. AOL TV, Schuler says, helps enable networks like ABC to offer interactivity, and AOL has offered broadcasters the opportunity to superimpose additional advertising or other content around their regular programming. ABC refused. And if AOL Time Warner, which has voluntarily committed to "open access," were to provide erratic service, its subscribers would quickly abandon the company for its rivals, such the phone companies that are offering DSL high-speed Internet access. But until regulators make a final call on the merger this fall, Disney's video may foreshadow a few plot twists.