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Comcast Takeover of Disney Could Impact VOD

16 Feb, 2004 By: Erik Gruenwedel

The short-term impact on home video of a successful $66 billion hostile takeover of the Walt Disney Co. by cable operator Comcast Corp. is negligible, analysts say. Five years from now, however, things could be different.

“I think it will have a profound effect,” said Phil Leigh, senior analyst with Inside Digital Media. “I don't think [the deal] is strictly limited to the value of [Disney's] content for [Comcast's] video-on-demand service. It echoes back to the acquisition that Turner Broadcasting made a couple of decades ago with MGM. They wanted the content, and it turned out to be a valuable resource.”

In a call to investors, Comcast CEO Brian Roberts said Disney's content coupled with his company's 21.5 million cable subscribers, including 3.8 million receiving digital VOD, would be a natural addition. “We just dream of what the Disney library could do for that business,” Roberts reportedly said.

Josh Bernoff, media analyst with Forrester Research, in a report agreed, saying previous unsuccessful attempts by Comcast to get mainstream networks to offer VOD would change with the acquisition of Disney. “[It would] make VOD a popular destination, rivaling broadcast television,” said Bernoff, who believes Comcast would also offer Disney content through its high-speed Internet connections.

Comcast's surprise offer -- which surfaced as Disney executives, at a two-day investor conference in Orlando, Fla., announced favorable first-quarter results (ended Dec. 31, 2003), including sales of about 140 million DVD and VHS units -- received a measured reply from Disney's board. The board stated it would “carefully evaluate the unsolicited proposal.” Embattled Disney chairman and CEO Michael Eisner -- under siege from two former Disney board members, including Walt Disney's nephew Roy Disney, who are calling for his resignation -- said the board would “have a response” in “due course.”

Comcast's bid, which was 10 percent above Disney's market value Feb. 11, would have to pass federal government scrutiny should Disney's board accept it. That's a big obstacle, according to analyst Leigh, who compares the merger with AOL's $100 billion acquisition of Time Warner. “This decision is being made at a time when sobriety rules,” Leigh said. “The AOL/TW deal was done more at a time when [the atmosphere] was Mardi Gras.” Ultimately, Leigh doesn't believe the deal will come to fruition due to Disney's far-reaching clout. “Comcast, by comparison, is nouveau riche, and I think [the deal] is going to be hard for them to pull off,” he said.

For the quarter, Disney, on revenue of $8.5 billion, posted a net income of $688 million compared with a net income of $36 million (on revenue of $7.1 billion) during the same period last year.

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