02.13.2004 12:00 PM
Comcast bid could signal new round of media consolidation

As the Walt Disney Company ponders Comcast’s $66 billion bid, other media giants are considering jumping into the fray, fearing the consequences of being left behind in a rapidly consolidating media landscape.

Pixar, the successful animation studio run by Apple Computer chief Steve Jobs, was considering the formation of a consortium of financiers to counter Comcast’s bid. Pixar, long a filmmaking partner with Disney, recently broke off negotiations with Disney CEO Michael Eisner.

Time Warner is also reportedly considering entering the bidding. The London Times reported that Time Warner had called an emergency meeting with its bankers last week and didn’t rule out making a counter offer. Analysts expressed doubts that Time Warner could pull it off, however. The company is still reeling from its merger with AOL, which has left it saddled with $20 billion of debt.

Others said to be considering a bid are Barry Diller’s Interactive Corporation, an Internet and media transaction firm, and Liberty Media, John Malone’s company. Rupert Murdoch’s News Corporation, the new owner of DIRECTV, has ruled itself out as a potential bidder for Disney.

Disney’s bankers, Goldman, Sachs, Bear, and Stearns, began working up valuation models that published reports predict will show that Comcast’s $66 billion bid fails to appreciate Disney’s value as a business and a cultural institution, an executive close to Disney said. It is unclear how quickly Disney’s board will be presented with this material and how long it will take the directors to evaluate it.

Observers of the proposed Comcast takeover noted that it could tip the balance in a power struggle between cable companies and film studios over the rights to sell films to subscribers via digital video-on-demand services. Brian L. Roberts, chief executive of Comcast, has been leading an effort to license the right to make new films available to subscribers for high fees at or near the date they appear in video stores or even theaters.

In a note to investors, Jessica Reif Cohen, an analyst at Merrill Lynch, said selling access to Disney’s films through video-on-demand could be a major source of revenue for Comcast.

Others see the proposed deal as a way for Comcast to regain some control over rising program costs. “Comcast can make a strong case that this just gets them back to a level playing field. With some relatively small exceptions, they have been pretty much at the mercy of the content owners, the studios and the network owners without any means of really effectively addressing their single largest expense, which is programming costs,” Larry Gerbrandt, chief content officer of the research company Kagan Media World, told The New York Times.

The biggest advantage for Comcast, Gerbrandt said, may be in defending itself from the threat of competition from News Corporation, since it took control of DIRECTV. In a conference call with investors last week, Murdoch predicted a three-way battle for the commanding heights of the media business among his company, Time Warner and Comcast.

Still, some in the industry argue that the proliferation of channels with digital cable and satellite services has partly offset the obstacles to entering the business. Hit shows can now come from anywhere, and young males (the most sought after demographic) are rapidly turning off traditional television completely in favor of other forms of media.

“The three broadcast networks used to have 90 percent of the viewing out there and now they have less than half,” Gerbrandt noted. “People have voted with their remotes.”

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