Allen February 26th, 2004
Knowledge@Wharton is a business ezine that I get in my inbox roughly monthly. It usually tackles a defined business theme (outsourcing, intellectual property, etc), but this month’s newsletter seemed to be a grab-bag of articles. One article was about outsourcing and I’m still attempting to digest the article and determine if I have anything else to contribute.
The article I am interested in commenting on is Comcast vs. Disney: Facts and Fantasia - Knowledge@Wharton. Given that I am both a Disney fan and a Disney shareholder, I’m following the Comcast bid for Disney with some interest.
As with most articles of this type, it has a pro and con view taken by opposing authors.
Experts at the Wharton School are divided on that issue. Some, such as public policy professor Gerald Faulhaber, say buying the kingdom that Walt built would give Comcast much-needed leverage as it negotiates with competitors such as Rupert Murdoch’s News Corp., which already controls both distribution and content. Others, including marketing professor Peter Fader, fail to see how Disney’s content complements Comcast’s distribution. Plus, even if Roberts wins, he’ll be stuck with Disney’s theme parks, which do nothing to advance his perhaps ill-conceived aim of marrying cable and content.
The same sentiment seen elsewhere is found in this article. To wit: Comcast seems to need Disney more than Disney needs Comcast.
Two of Comcast’s main competitors in the distribution business — Time Warner, which owns cable systems, and News, which recently acquired the DirecTV satellite system — also control lots of content. For Comcast to negotiate with them on an equal footing, it needs the same thing, Faulhaber argues. Say Comcast wants to run News’s programming on its cable systems. It has to have valuable programs of its own to offer in exchange. Otherwise, News can extract high fees. “If you’re Comcast, and Rupert has Fox and Fox News, [you may be asked] what have you got? You need to be able to say that we’ve got ESPN and the Disney Channel.â€
ESPN, especially, is a valuable coin. Analysts have speculated that Comcast’s desire to own it is the real motivation underlying the Disney bid. ESPN started in 1979 as a single cable channel and has grown into a franchise of its own. Today, it encompasses multiple cable channels, a print magazine that rivals Sports Illustrated for influence and readership, and even a chain of sports bars. Disney doesn’t break out ESPN’s results, but it is estimated to generate $1 billion a year in profits and could be worth $15 billion to $20 billion, standing alone.
Assuming that Comcast does acquire Disney, there is the remaining problem of what to do with the theme parks. They do not “fit” into the model of a media company producing and distributing content. Will Comcast keep it or spin it off into a separate business?
As stated in earlier articles, I hope that Comcast fails in their takeover attempt. Recent rumbling I’ve heard has suggested that Comcast plans to sweeten the offer with more cash. I still don’t like the idea, however.