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Mounting Fines For Time Warner & AOL

The continuing tribulation around the merger of Time Warner and America On-line now includes impending separate fines looming over the two firms. The Los Angeles City Attorneys Office and Information Technology and General Services Committee are looking to the recent dispute between Disney and Time Warner, which resulted in Time Warner pulling ABC from its cable service. The move affected some 400,000 subscribers for 36 hours, which included the sweeps week celebrity broadcast of WHO WANTS TO BE A MILLIONARE. The problem originated when Disney was negotiating the price to carry the Disney Channel and two new cable channels on the Time Warner operating system. In a recent TIME MAGAZINE article, Time Warner claimed that after the AOL merger announcement, "Disney tacked US$300 million onto the price that Time Warner would have to pay to carry the channels, an increase that would have raised the cable companys costs to $1.3 billion over 10 years. Disney naturally disputes that amount." Subsequently under the current licensing ordinance, the Los Angeles City Attorneys Office and Information Technology and General Services Committee could find Time Warner liable for disrupting service to the tune of hundreds of thousands of dollars. In a separate case, AOL has agreed to pay a $3.5 million fine to settle federal allegations that it violated financial reporting rules by counting advertising costs as assets. AOL counted its new start-up computer disk mailings that lure in new customers under assets instead of costs. Accounting rules dont allow a company to count direct-response advertising costs as assets unless it can show past experience that future revenues resulting from the advertising will exceed its costs, said the Securities and Exchange Commission. In recent months, Time Warner and AOL have tried to stay clear of any actions that would bode badly for their merger. With the current monopoly issues surrounding Microsoft, Time Warners block of ABC may cause unpleasant ramifications. In addition with both companies stocks dropping, the fines to both businesses could sour stockholders hopes for success. On Tuesday, May 16, 2000, AOL and Time Warners stock both closed down at 58 and 86 dollars per share respectively. After the merger announcement and before the mounting concerns, AOL surged to 95 13/16 and Time Warner peaked at 105 1/2. To add more heat to the topic, the Los Angeles City Board of Information Technology will vote on June 11 for a new ordinance that would force AOL to carry all Internet service providers that the council desires. City Councilman Alex Padilla said, "The idea is to create a level playing field for all ISPs in every region of the city, not just where Time Warner and AOL may have a license. But its a complicated issue, because we must define what represents consumer choice."

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Rick DeMott
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