Disney is concerned that the pending union between the largest Internet and media companies will exclude rival entertainment companies from reaching Internet consumers. It also is concerned that AOL Time Warner may limit access to its high-speed Internet network.
"We have been on the Hill sharing with people our fear that our content might not get equal treatment by someone who controls the pipe and is also the content provider," said Disney spokesman John Dreyer. "Time Warner and AOL would be the case in point right now."
Disney is not alone in its lobbying efforts. Staff members for several legislators, including members of Senate staffs in the Judiciary and Commerce committees, are approaching other entertainment companies as well, according to one entertainment industry lobbyist who spoke under condition of anonymity.
In addition, a source close to entertainment and beverage company Seagram said the company has been approached by regulators and legislators "repeatedly to discuss concerns" over the AOL-Time Warner merger. Seagram owns Universal, which produces music and films.
An AOL spokeswoman declined to comment on Disney's lobbying efforts, although she alluded to previous statements by AOL CEO Steve Case and Time Warner CEO Gerald Levin during their testimonies before the Senate Judiciary Committee.
"Let me be clear: We do not intend to limit content diversity on any of our systems," Case said during the hearing. "If we limit content, if we do not promote a diversity of voices, if we do not maintain scrupulous journalistic standards, then consumers will waste no time migrating to other Internet and media services."
At issue is the future of convergence between traditional entertainment vehicles and the Internet. Media companies are concerned that the AOL-Time Warner merger would create a powerhouse that could dictate which content providers can deliver their products on the merged company's dial-up and high-speed networks. Rival companies also fear that AOL Time Warner's own content might get preferential treatment in being presented to AOL's sizable Net audience.
The combination of AOL and Time Warner will encompass a wide range of leading products, bringing together diverse businesses including Internet access, music, film, broadcasting and e-commerce. The companies will own brands popular among online and offline consumers, such as CNN, Time magazine, Netscape and the ICQ instant messaging service.
Critics and legislators are concerned that the combined company's grip on high-speed Internet access lines will make AOL Time Warner the gatekeeper to broadband consumers. Many entertainment companies are banking on broadband as a way to deliver their existing content online.
AOL and Time Warner have been taking steps to ease concerns among rivals and regulators. The companies last month issued a memorandum of understanding that the merged company would open its cable lines to outside competitors, but details remain murky.
Last month, Case and Levin testified in front of the Senate Judiciary and Commerce committees to mollify concerns that the merger would spark unfair competition. But during the hearing, Senate Judiciary Committee chairman Orrin Hatch questioned the companies' pledge to open their cable TV systems to other Internet service providers.
Entertainment industry executives, meanwhile, want to see AOL Time Warner act on its rhetoric.
"We are trying to put some teeth into some of the commitments that Mr. Levin and Mr. Case have made orally about what open access means," the entertainment lobbyist said.
Disney's Dreyer would not elaborate on who the company has contacted. But he said Disney would continue its lobbying push.
"We're concerned about having access, and we are studying the situation and determining how we will deal with the situation," Dreyer said. "Increasingly, the owners of the pipes will be owning the content. What marketplace is there, then, for other creators of content?"
Netpliance apparently has undergone a change of heart.
The company appeared to be unfazed earlier this week when Las Vegas slot machine mechanic Ken Segler revealed that the company's i-opener Internet appliance could easily be modified to function as a Linux-based PC. But in a tersely worded statement today, the company said it has reconfigured the i-opener to prevent unauthorized upgrades.
Netpliance sells the i-opener, which is designed to offer simplified Web access and email, for $99, plus $21 for monthly service. The cost of manufacturing is closer to $300 or $400, but the company plans to recoup the deficit with the ongoing service revenue.
Segler's discovery, which involved outfitting the device with a hard drive loaded with the Linux OS, presented a problem for the company's business plan, as buyers wouldn't necessarily have to subscribe to the service to find a use for the i-opener.
Although Netpliance shares sunk as word of the hardware hack spread, the company initially expressed interest in harnessing the creativity of people like Segler and the Linux development community to enhance the i-opener. It gave no indication of plans to block the unauthorized modifications.
Netpliance declined today to elaborate on the nature of the new hardware fix, but the alterations likely involve blocking the method engineers were using to add a hard drive to the device.
For its part, Netpliance says its stance on the situation hasn't changed. Although the company still says it wants to work with outside engineers and developers, it needs to do so in an organized manner, which makes the hardware change necessary.
Netpliance said that it does not endorse the hardware reconfiguration. "We want to protect our customers," said Munira Fareed, a spokeswoman for the company. "At the same time, let's figure out an organized fashion, so that when developers come to us we give them all the info they need instead of making them have to go through the backdoor."
Towards that end, Netpliance has added a "Developer's Corner" to its Web site and is considering instituting some type of formal developer support program. "We certainly don't want to resist any kind of innovation, but we think the best way to leverage this is to develop a program where we become the authoritative resource for developers."
Relatively few people have bought the device and opted out of the service, Fareed said. "The reality is that the vast majority of customers sign up for the service and never get off," she said, explaining that the technical labor involved in adding the necessary hardware to the box is way over the heads of most of Netpliance's target market. "It requires a whole bunch of things my mother will never be able to do."
After reports of the unauthorized hardware upgrades surfaced, Netpliance, which only went public last week, watched its shares sink quickly as investors questioned the impact of the news on the company's business model.
The company offered its shares at $18, raising $144 million in its IPO last week. The stock was as high as $26 on the opening day but is trading around $16 today.
Investors feared the company would be taking a significant loss on each unit outfitted with the Linux upgrade, because users would not necessarily be paying for the monthly service. Further, there were reports the product had become scarce as news of the hack hit the Web.
The company said today it doesn't expect to be hurt financially by the situation.
"The company believes the reported unauthorized reconfiguration of the i-opener Internet appliance has not had a material impact on its operating results or general product availability," it said in the statement.
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