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Comcast Wants Disney to Give It Competitive Edge in Content with Consumers

Posted on: Wednesday, 11 February 2004, 06:00 CST

Feb. 12--Comcast Corp.'s bid to take over the iconic Walt Disney Co. is bold and ambitious, with implications reaching into entertainment, telecommunications and cable, industry analysts say.

A merger would create a content powerhouse with an extensive and efficient distribution system. The nation's No. 1 cable provider would be fed by Disney products ranging from movies to ABC and ESPN television programming. Comcast, based in Philadelphia, would be in the same crowd as Time Warner and Rupert Murdoch's News Corp., which recently won approval to buy DirecTV, a satellite service.

"It's like an oil pipeline company deciding to go out and buy an oil field," said Kevin Calabrese, securities analyst with Argus Research in New York.

Competitive pressures in the cable industry have forced companies to offer a combination of services. The "triple play" -- voice, video and data -- lets one company take care of all of a consumer's electronic communication needs. Some say that cable companies will offer local and long-distance calling plans and that phone companies will forge partnerships with satellite businesses.

Coinciding with the competitive pressures are technological shifts that alter how consumers view media.

"Traditionally, broadcast programs are pushed at consumers," said Jonathan Hurd, a media and broadband analyst with Adventis, a business-strategy group in Boston. "But TiVo and video on demand now allow people to watch programs when they want. So now it's more of a pull model," in which consumers have more control over viewing programs.

Hurd said Comcast's video-on-demand offerings are thin because the company provides little content. If a company negotiates licensing agreements but doesn't control content, offering programs is difficult, Hurd said.

Comcast has some content: It owns majority stakes in the Philadelphia 76ers basketball team and Philadelphia Flyers hockey team, the E! entertainment network and the Golf Channel.

But a media library like Disney's would significantly augment Comcast's content. Not only are popular characters like Winnie the Pooh and "The Lion King" 's Simba assets in Disney's Magic Kingdom, but so are popular movies produced by the company's Touchstone Pictures and Miramax studios.

Comcast's distribution pipeline goes beyond cable, where it has about 22 million subscribers, the most of any U.S. cable provider. In North Texas, it serves Arlington, Grand Prairie and parts of Northeast Tarrant County, and it is the dominant cable provider in Dallas and Collin counties.

Comcast is also the top high-speed Internet-service provider, with nearly 5 million customers.

On Wednesday, Comcast executives shared parts of their vision for how the two companies would meld.

"Wouldn't it be wonderful to have a subscription of Disney programming for your kids where you would pay $9.95 a month?" said Stephen Burke, president of Comcast Cable, at a news conference. She said the merger would let Comcast offer new services and programs.

Comcast has a ways to go before completing a takeover. Its $54 billion offer was met skeptically Wednesday by Wall Street, which pushed the price of Disney's shares beyond Comcast's bid. That signalled that investors want more for Disney, either from Comcast or another bidder. Disney also initially turned down Comcast's offer in recent days before Comcast went public with it Wednesday.

Analysts say they also expect regulatory scrutiny. Policy-makers and consumer advocates were recently thrown into an uproar when News Corp. was given approval to buy DirecTV.

It is no coincidence that Comcast announced its bid on the heels of Murdoch's, analysts say.

But the DirecTV deal required months of scrutiny, and Comcast's may as well.

"It's way too early to come to some intelligent solution as far as an impact," said Tom Burnett, president of Merger Insight, a New York company.

Burnett used as an example the AT&T Broadband merger, which Comcast chief executive Brian Roberts orchestrated in 2001. Comcast made the unfriendly offer in July, but it was quickly rejected. The two sides subsequently agreed to a deal.

Comcast emerged as a top player in the cable industry after pressuring AT&T Broadband's shareholders to sell the company. Before the sale, Comcast was a regional business owned by the Roberts family with about 8 million subscribers. Comcast, capitalizing on the robust economy during the last boom, went on a two-year buying spree ending with the 2001 purchase of AT&T Broadband, which had about 19 million subscribers. The purchase brought Comcast into Tarrant County.

Brian Roberts' tenacity in closing the deal around 9-11 reinforces Burnett's belief that a huge new media company will eventually be formed.

"It will definitely take some time, but they are very persistent, and I am compelled to believe they could pull it off," he said.

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(c) 2004, Fort Worth Star-Telegram, Texas. Distributed by Knight Ridder/Tribune Business News.

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