Friday, February 14, 2003

Dead Again

The ABCNN deal is dead. On one level, this is too bad. On the other, it offers me the opportunity to tell all my close personal friends at CNN and ABC: I told you so.

The Wall Street Journal

Will there be an ABCNN ? Two major networks, CBS and NBC, have already explored the possibility of combining their news operations with CNN. Now, apparently, it's ABC's turn to try to square the circle. At a Goldman Sachs investment conference last week, Disney Chairman Michael Eisner gave his blessing to the proposed merger, saying, "We'd be thrilled if it happened." These remarks were taken to mean that Disney would be willing to make real concessions to get a deal done.

It's a good deal on a number of levels. First among these is that news from the war on terror is going to be very relevant to American (and global) audiences for at least a decade and probably longer. Covering the war requires a news division that has global reach and very deep pockets. Combining ABC News with CNN would provide the newly merged entity with the capability to cover the war on terror in an almost exclusive fashion. It's not often that a news organization has the opportunity to "own" the most important ongoing story of its time.

Second, by combining the star power and broadcast distribution of a network television news division with the journalistic reach and 24/7 presence of CNN, redundancies would be eliminated and economies of scale achieved. The combined entity would be larger, cost less money to operate and have more platforms from which to derive advertising revenue.

Third, and this is no small thing in a business populated by air-hog egomaniacs, ABCNN would create for the people who work there more opportunities to get themselves or their stuff on the air. Which in turn would make it easier to recruit the most talented producers and correspondents.

Finally, the newly merged entity would have enormous leverage in Washington, D.C., and in world capitals. In the same way that Dow Jones is the de facto news operating system of the business and financial world, ABCNN would instantly become the de facto news operating system of the political/diplomatic world.

All that said, this proposed deal will likely go the way of its predecessors. CBS and NBC couldn't make a combination work primarily because neither network could resolve (with CNN) the issue of control. CNN wanted it, CBS and NBC refused to give it up. ABC has tried to elide this issue by proposing the creation of an entirely separate company, combining CNN, ABC News and, in the words of Sanford Bernstein analyst Tom Wolzein, "condominiums of time" within the ABC Television Network's broadcast schedule.

Such an arrangement seems like an elegant solution to the control issue. AOL Time Warner Inc. and Disney each own 50% stakes. A management committee oversees the newly combined entity. ABC guarantees that the newly formed ABCNN will be the sole provider of more than 20 hours of programming for the ABC Television Network. (ABC News currently provides about 24 hours of programming for the network). Packaged together with CNN's roster of cable outlets and programming, a pre-eminent powerhouse is born.

But the devil is in the details, as Time Warner has learned from the debacle known as AOL TimeWarner. To begin with, access to ABC Television Network airtime must be guaranteed into the foreseeable future. But what happens if the ratings of, say, "20/20" or "Nightline" tank? Would ABC Television Network still be required to carry ABCNN programming? Would ABCNN be required to develop new programming? What would happen if the new programming delivered even lower Nielsen numbers?

Then there are the cultural issues. When former ABC News producer Rick Kaplan left the network to join CNN back in 1998, it was thought that many of ABC's most talented correspondents and producers would follow. Few did and those that headed south came to regret it. CNN's Atlanta hub is close knit and notoriously xenophobic. Shortly after Mr. Kaplan's arrival, CNN divided into two warring camps, the Atlantans and "Rick's people." It was Sherman's March to the Sea in reverse. The Atlantans won. And everyone at ABC News in New York and Washington got the message.

Down in the trenches, the two organizations couldn't be more different. ABC News is unionized, CNN is not. The salary costs of just three ABC News "anchors" would pay the combined salaries of all the anchormen and anchorwomen who work at CNN. ABC News generated $30 million in profit last year but looks down on CNN as the kind of junior varsity of news. CNN generated $200 million in profit last year and thinks of ABC News as a second-rate newsgathering operation.

It must be tempting for the executives working on this proposed combination to imagine that they can work around what, on paper, look like minor issues. But the fact is that ABCNN will not work unless one or the other of the parent companies controls the newly formed company. ABCNN cannot serve two masters because those masters have very different agendas. Mr. Eisner would like to get out of the news business but wants to keep the Washington leverage that a news division makes tactile. CNN would like to throw off its cable chains and become a broadcast news organization but wants no part of Disney management. Mr. Eisner puts the odds of a deal getting done at "less than 50-50." That seems optimistic.


Mr. Ellis is a columnist for Fast Company magazine and a partner in Ellis-Kreamer, a media consulting firm.