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Mergers May Give Viewers Less Choice


John Schwartz started The 90's Channel in 1989 to give viewers genuinely "interesting television." At its peak, 600,000 homes from Los Angeles to Baltimore could tune in to its documentaries, independent films, and progressive political analysis. Then suddenly, in 1995, it disappeared from the dial.

Tele-Communications, Inc. (TCI), the country's largest cable operator, had bought the company that leased The 90's Channel space and raised its monthly rate from less than $7,000 to $250,000. "There was no way we could pay it," says Mr. Schwartz.

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The 90's Channel was swallowed up in a rapid consolidation of cable companies, which, critics charge, has created a few mega-companies with an increasing chokehold on cable programming. Between them, TCI and Time Warner, the country's second largest cable distributor, now control access to more than 40 percent of American homes that have cable.

The creation of such megacompanies makes it increasingly difficult, if not impossible, for independent programmers to gain access to cable systems and has raised alarms over who controls what Americans see on TV. Critics warn that trend will be exacerbated by the proposed merger between Time Warner and Turner Broadcasting, one of the country's leading programmers. The Federal Trade Commission (FTC), the country's antitrust watchdog, agrees. Because TCI has a financial stake in Turner, the merger would link the nation's two largest cable companies. As a result, the FTC has formally recommended denying the merger unless those antitrust concerns are resolved.

While Time Warner declined to be interviewed because of the pending merger, a TCI spokeswoman dismissed such charges as alarmist. "We do carry a wide variety of programming in which TCI doesn't have an interest, and the company is in full compliance with all federal regulations," says LaRae Marsik.

To guarantee that channels owned by someone other than the cable companies reach viewers, the Federal Communications Commission (FCC) requires cable systems to carry public-access channels for local community groups, if requested. It also requires cable systems to lease up to 15 percent of their channels to unaffiliated companies, like The 90's Channel, for a fee.

But only about 1 percent of the leased access channels are used nationwide, primarily because cable companies have made it extremely expensive.

"The 90's Channel experience shows you there are ineffective safeguards to ensure there is a real diversity of information getting out over cable operations," says Jeff Chester, executive director of the Center for Media Education, a media advocacy group based in Washington. "The cable companies can charge outrageous fees for leased access, and the programmers without deep pockets are at their mercy."

Cable TV started almost 40 years ago as a way for communities with poor television reception to reap the benefits of the broadcast revolution. They were originally called Community Antennae Television, or CATV. One neighbor would put up a large antenna, then send the signal, via a cable, to the rest of the community. Everyone shared the cost. The small operations grew as people realized that cable did away with static and offered far more variety than the local stations.

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"Very few regulators foresaw there would be a time when there would be programming that would be developed to be delivered just over these community systems," says Matthew York, publisher of Video Maker Magazine and founder of a new lobbying group for small programmers called the Video Information Providers for Nondiscriminatory Access.

Today, almost 70 percent of American homes are wired for cable. Most of the mom-and-pop operations have sold out to larger companies, a trend that accelerated in the late 1970s, when TCI started snatching up cable companies at a dizzying rate. He made 482 deals over a 16-year period, or one every two weeks, according to a 1993 lawsuit brought by a competitor, Viacom, which charged TCI with conspiring to monopolize the cable industry.

TCI has now amassed about 25 percent of the country's cable operations, while Time Warner, its closest competitor, controls another 15 percent.

While the cable systems were busy building their muscle, many cable programmers were also struggling to get a foothold in the new industry. Turner Broadcasting's CNN is a case in point. Started in 1980, the now-profitable cable-news company almost went under. Both TCI and Time Warner bailed it out, and in return, each got a stake in the company. Suddenly, the cable distributors had an interest in ensuring their cable channel succeeded, and not others.

That hit home with NBC 10 years ago, when it wanted to start its own cable-news operation to compete with CNN. Both TCI and Time Warner made it clear at the time they had no interest in carrying another news channel, according to Larry Grossman, then the network's president. So NBC bought the failing Financial News Network (FNN) and started the business-news channel CNBC instead.

"The only condition under which the major cable operators agreed to carry it was that NBC had to agree that it would never turn into a strictly news channel," Mr. Grossman says.

Now, most large cable companies want stakes in a channel if they're going to carry it on their systems. In large part, they've managed to get it. "ESPN, Lifetime, and Arts & Entertainment are the only major cable channels that are not affiliated with cable companies; virtually everyone else is," says Tillman Lay, who represents independent programmers.

The 1993 Viacom suit also charged TCI was using its accumulated power to "extract unfair and anti-competitive terms and conditions from cable programmers."

But Ms. Marsik of TCI points out that many of those channels wouldn't have survived without financial support from TCI, and rather than apologizing, the company is proud of the contribution it has made to the development of the cable industry.

"CNN, The Discovery Channel, BET, all had support from companies like TCI," Marsik says.

Nonetheless, a tangled ownership web has been woven that left control of the cable industry and much of the programming in just a few hands. If the Time Warner/Turner merger is approved by the FTC, the number would get even smaller. As the merger is currently structured, TCI would receive 9 percent of the new company in exchange for its current 22 percent share of CNN. It would also receive preferential rates on Turner programs for up to 20 years. That would give the country's two largest cable operators a large financial stake in each other.

For Schwartz, that's too much power in too few hands. "What's free about a monopoly?" he asks. "The people who want to start programming suffer, but so do the viewers. They don't get to choose what channels they can watch - their cable companies do."

The FTC is negotiating with Time Warner, Turner, and TCI to restructure the deal to dilute the concentrations of power.

The FCC is also aware the leased-access rules have failed to create the diversity envisioned in the Cable Act of 1984. It is currently reviewing the rates cable companies can charge for leased access.

NBC has also finally developed the cable channel it coveted a decade ago. A joint venture with Microsoft, called MSNBC, will premire on July 15. It will start with 20 million homes, as NBC will convert its America's Talking cable channel - along with its 20 million viewers - into the new 24-hour news channel. Many analysts credit TCI's and Time Warner's desire not to antagonize regulators with their decision not to fight NBC's move.

As for the suit brought against TCI, Viacom dropped it and subsequently sold many of its cable systems to TCI.

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