AOL's ad interruptus?

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Raising the anxieties of some broadcasters, America Online is planning to include its own ads in an interactive TV service it hopes to introduce later this year that could overlay traditional broadcast or cable programming on a consumer's set.

Under the concept, subscribers to the new AOL TV service would have the option of pulling up AOL interactive services on-screen at the same time they're watching traditional TV programming.

But some broadcasters are now raising a fuss about AOL piggybacking its ads on top of broadcast programming without paying broadcasters a dime.

Indeed, under one scenario, broadcasters fear that AOL could use the new technology to advertise a competing brand on the same screen on which an ad appears for the sponsor of a broadcast program.


"We're paying a billion dollars a year for Sunday night and Monday night football, and these yahoos want to hitchhike their ads for free?" said Preston Padden, exec VP-government relations at Walt Disney Co. "It's outrageous."

But an AOL spokeswoman said AOL TV would simply offer consumers new ways to use their TV sets, without rebroadcasting traditional TV signals.

"AOL TV allows consumers to bring the benefits of the PC -- interactivity and navigation -- to the TV viewing experience, enriching it and adding a new level of convenience," she said. "It's up to consumers to decide what applications to run on their TV sets."

Once the AOL TV service rolls out, consumers will be able to use set-top boxes to tap into a host of interactive services, including e-mail, instant messaging and chat rooms.

The technology also will enable them to pull up AOL screens at the same time they're watching traditional TV fare.

WebTV, another interactive service for TV sets, also offers its own advertising, according to industry executives. But Mr. Padden, for one, said he had been unaware of that capability.


As part of a broader Disney campaign to raise qualms about AOL's pending acquisition of Time Warner, Mr. Padden said he also has been alerting lawmakers to Disney's concerns that AOL-Time Warner, with its newfound clout over broadband Internet services and traditional cable delivery, could discriminate against competing content providers.

Disney, for example, Mr. Padden said, wants its interactive services to enjoy the same capabilities on AOL-Time Warner facilities that the merged companies' services do.

"We are asking Time Warner to pledge they will treat our channels the same way they treat their own," Mr. Padden said. "So far, they haven't been willing to make the commitment."

The AOL spokeswoman responded, "AOL and Time Warner are strongly committed to offering consumers a broad choice of the best content available, regardless of who is producing it, and distributing our own content as widely as possible on a variety of platforms."

Ken Johnson, a spokesman for Rep. W.J. "Billy" Tauzin, (R., La.), said the lawmaker is concerned enough about some of the points Mr. Padden has been raising to consider a new round of hearings on the proposed merger.

"They [Disney] are simply asking the same questions many people are. . . . Will the new company have a stranglehold on content?" Mr. Johnson said.

Mr. Johnson said one of Rep. Tauzin's particular concerns is that in the wake of the merger, AOL and AT&T will control the cable industry's two dominant broadband Internet services.

"Obviously, they're not going to be competing against each other," Mr. Johnson added. "If they're not going to compete, where's the competition coming from?"

Mr. Johnson also expressed skepticism about industry vows to open broadband facilities to competitors.

"The most overused and least-fulfilled phrase on Capitol Hill is, `I promise you,' " Mr. Johnson said.


Meanwhile, federal regulators warned recently that the planned AOL-Time Warner deal and other blockbuster media mergers will receive close scrutiny from the government.

"I do look at each of these mergers, especially the mega-mergers, with heightened concern," Federal Trade Commission Chairman Robert Pitofsky said, addressing a Senate panel. The FTC will be toughest on deals with valuations of $100 billion or more, he said.

The AOL-Time Warner union has been estimated at between $130 billion and $185 billion.

But two other pending mergers -- the union of AT&T-MediaOne Group and Viacom-CBS -- are well below the threshold.

And there may be a silver lining for AOL-Time Warner. Joel Klein, assistant attorney general for the Justice Department's antitrust division, told the Senate antitrust subcommittee that concerns over broadband open access -- an issue at the heart of the deal -- may be overblown.

He said he expects several broadband pipes to reach into the home, with competing services offered by cable, phone and wireless/satellite TV providers.

Meanwhile, Time Warner Vice Chairman Ted Turner said no conditions should be imposed on a merged AOL-Time Warner.

"We have very excellent [corrective] measures in the United States," he said.

Emphasizing the need to preserve media diversity, Mr. Pitofsky hinted at a close review of Tribune Co.'s proposed $5.9 billion acquisition of Times Mirror Co.

"For that reason, one takes a more careful look at mergers or behavior with respect to newspapers or networks or even the Internet than you might otherwise do. It's not that the rules are different, but it's what I refer to as `heightened scrutiny,' " he told reporters.

While relatively small in scale, the Tribune-Times Mirror deal would put newspapers and TV stations under common ownership in three markets.

Words of caution also came from lawmakers.

Discussing the entertainment, news and media businesses, Sen. Mike DeWine, (R., Ohio), chairman of the Senate antitrust subcommittee, said, "I have repeatedly expressed my concern that increased consolidation in these industries will decrease the number of information and entertainment providers and may eventually erode competition in the so-called `marketplace of ideas.' "

He said government regulators may need to review deals not only for their anticompetitive impact but for their "ripple effect" in the marketplace.


"In other words, even if a particular merger is not anticompetitive, it's argued the agencies should consider whether it will kick off a miniwave of industry mergers that will decrease competition and ultimately harm consumers," Sen. DeWine said.

Added Sen. Herbert Kohl (D., Wis.), "Big is not necessarily bad, to be sure, but we must always be careful to ensure that increasing levels of concentration do not hurt folks that we represent."

He and Sen. DeWine vowed to continue pushing legislation that imposes strict time limits on the FCC's merger review process.

Mr. Pitofsky noted that mergers of all sorts are on the rise. He said merger filings are up threefold since 1991 and are on a record pace in 2000.

Mr. Halonen is Washington bureau chief of Electronic Media; David Hatch contributed.

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