By Reshma Kapadia
In New York story with headline "UPDATE 1-CNN CEO says not close to deal with other networks" please read in ninth paragraph "ABC News President David Westin..." instead of "ABC News President David Weston..." corrects spelling of name. (Updates throughout) ADVERTISEMENT
NEW YORK, Sept 24 (Reuters) - CNN is not close to a deal to combine its 24-hour news operations with those of ABC News or any other network despite periodic talks with news groups, CNN head Walter Isaacson told staff in a memo on Tuesday.
"It's no secret that for many years CNN has had talks with other news organizations that currently have no 24/7 cable news distribution about working together or combining assets," said Isaacson, chairman and chief executive of CNN News Group, in a memo obtained by Reuters.
"The idea is intriguing and we expect that these talks will pick up again from time to time," he said, but added, "At this time, CNN is not close to making a deal."
Talk of combining the news-gathering operations of a major network with CNN has circulated sporadically -- at different intensities -- ever since General Electric Co's (NYSE:GE - News) NBC and Microsoft Corp. (NasdaqNM:MSFT - News) created cable news network MSNBC in 1995, said network news analyst Andrew Tyndall.
MSNBC's model, which allows sharing of resources and programming between NBC's broadcast news and sister cable channel CNBC, could serve as a template for future deals, industry experts said. Such a deal would be a way to cut costs as media companies contend with slowing growth, they added.
The Los Angeles Times reported on Tuesday that top executives from CNN parent company AOL Time Warner (NYSE:AOL - News) and Walt Disney Co. (NYSE:DIS - News) , owner of the ABC television network, had again been discussing plans to spin off their news divisions into a a stand-alone news entity.
The newspaper said AOL Time Warner would own two-thirds to three-quarters of the entity that would have revenue of more than $1.6 billion -- more than $1 billion coming from CNN.
"We've had conversations for the last 18 months and no deal has been reached," said Disney spokeswoman Zenia Mucha.
ABC News President David Westin told staff this morning that the network has the luxury of "doing nothing at all" and "also the luxury of doing a deal -- if any is done -- from a position of strength."
A source familiar with the situation said AOL Time Warner has also had on and off talks with Viacom Inc.'s (NYSE:VIAb - News) CBS News over the last three years.
A CBS News spokeswoman declined to comment.
Both AOL Time Warner and Disney have been facing a business downturn. Disney is trying to stage a turnaround at ABC, which is suffering from falling ratings.
Meanwhile, AOL Time Warner is trying to offset the sharp slowdown at its America Online unit by paring costs and hoping its traditional media businesses, including cable networks and film, will help carry the day.
"I think something like this has been in the wind for some time," said Robert Thompson, director of the Center for the Study of Popular Television at Syracuse University. "Given also the nature of the ad market and the slow income stream, it makes the inevitability closer."
WHILE FAVORABLE, A MERGER COULD BE DIFFICULT
"Both of those operations have a long tradition. Putting them together is going to be a dicey thing," Thompson said.
Control has been one of the sticking points in past discussions between CNN and other networks, sources said.
"When Time Warner merged with AOL, they were basically committing themselves to make a basic commitment to saying the future of news is going to be 24 hours cable plus online rather than going backward looking for a broadcast partner," Tyndall said.
"This would seem like a retrograde step in that ambition for those who still believe the future is online and broadband, not broadcast," he added. "Those people could be opposed to this merger."
The 60-percent drop in AOL's stock this year has led many investors to suggest that perhaps the media giant should go back to its old way of thinking and give up on the idea of convergence that was prominent in its $106.2 billion merger.
AOL Time Warner executives, while admitting some missteps along the way, have said they are still committed to the basic premise of the deal even as many critics have torn it apart.
While morale at CNN may be low as it faces stiff competition from rivals such as News Corp.'s (Australia:NCP.AX - News) Fox News, the network is not in a dire situation and any deal should not be viewed as a move out of desperation, Tyndall said.
CNN has gone through several changes in the wake of the mega-merger as it tries to fend off competition. Some of its rivals have gained momentum by wooing big-name personalities. A merger with a broadcast network could also bring CNN more high-profile anchors, industry players said.