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AOL's regulatory migraine?
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May 2, 2000: 4:54 p.m. ET
Bitter dispute between Time Warner, Disney could hinder pending merger
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NEW YORK (CNNfn) - The ongoing spat between Walt Disney Co. and Time Warner Inc. ultimately could come back and haunt the latter media and entertainment titan when it seeks regulatory approval for its merger with America Online later this year, some analysts said Tuesday.
The increasingly bitter, and very public dispute, concerning the transmission of the ABC television network on Time Warner's cable systems received at least a temporary reprieve Tuesday afternoon when the two companies agreed to continue negotiating until July 15 -- an agreement that returned the ABC network to Time Warner's systems in 11 U.S. cities.
But some analysts were still left questioning whether prolonged negotiations would ultimately turn public sentiment against the company's planned mega-merger with AOL (AOL: Research, Estimates), complicating their ability to strike an accord with regulators focused on antitrust concerns.
 "It certainly doesn't do anything for PR, but how much of an issue it is [with regulators] I just don't know," said Lise Buyer, an Internet analyst with CS First Boston, before the agreement was announced Tuesday. "It's certainly a bad time to be doing this though."
"I think it may have the ability of scaring some of the FCC commissioners who may have to approve the merger; about the potential power of the AOL Time Warner combination," said Jordan Rohan, a media analyst with Wit Soundview, also before the agreement was announced.
Investors were clearly worried as well as both America Online and Time Warner shares lost ground for the second consecutive day Tuesday. AOL closed down 1-1/2 to 57-3/4 while Time Warner (TWX: Research, Estimates) lost 2-3/4 to 86-1/8.
Regulatory reviews begin
Both the Federal Communications Commission and the Federal Trade Commission must sign off on the AOL/Time Warner deal. The FTC must determine if the merger raises antitrust concerns while the FCC must determine if the union is in the public's best interests.
Either agency can object outright to the deal, or impose any number of conditions on its approval.
The FCC just concluded its public hearings on the proposed merger, which drew loud protests from consumer advocacy groups concerned about open and fair access to Time Warner's cable lines following the union, but nary an official objection from the company's potential competitors.
Still, Walt Disney and others have quietly been bending ears on Capitol Hill, raising their own concerns about the combination and how it might stifle competition.
In written statements released Monday, shortly after ABC was pulled off of Time Warner's cable networks, network general managers all said the pending merger was having "a significant impact" on its negotiations with Time Warner, noting the media and entertainment company had rejected two ABC proposals regarding non-discrimination and consumer impact.
"Time Warner wants to extend for eight months so they can get their merger approved," said Tom Kane, president and general manager for WABC in New York, in a written statement echoed by other network executives. "They want to duck the issues of monopoly control and consumer access while their merger is pending."
Disney mulling its options
Walt Disney has yet to take an official position for or against the merger with federal regulators. A company spokesman said Tuesday that the company was still mulling its options.
"We're weighing all of our options and deciding what to do," said John Dreyer, a Disney spokesman. "We're very worried this [combination] could become the 900,000 pound gorilla that limits open access to content."
But American Online officials said Tuesday they were not concerned about impact the ongoing dispute might have.
"No, we're not worried," said Jim Whitney, an AOL spokesman. "We expected the merger process to conclude this Fall."
Tuesday's agreement delays another possible standoff between the two parties until mid-July, by which time federal regulators may have concluded their reviews.
But the two-day standoff may have already raised warnings in the eyes of regulators, particularly given the recent attention given to Microsoft Corp. (MSFT: Research, Estimates) by the U.S. Justice Department.
"The Department of Justice has just spent an enormous amount of time and money suing Microsoft because it prohibited competition," Dreyer said. "There could be a parallel situation here." 
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