The battles ahead in Comcast bid for Disney
The company, and consumer groups, meet the takeover bid with skepticism and resistance.
LOS ANGELES AND NEW YORK
The mouse is in for a rough ride.
Comcast's hostile bid for the Walt Disney Co. this week has created turmoil on three pivotal fronts - and the outcome of each skirmish could have a direct impact on what most Americans see on their television screens and when they use a high-speed cable Internet connection.
The first battle is on the business front. Analysts expect Disney's embattled CEO to fight the cable giant's $54.1 billion takeover offer with a stunning counterattack. Michael Eisner is known for his hardball tactics, for taking things very personally, and for winning.
Then there's the Wall Street watch. While news of the bid initially sent Disney's stock higher - many analysts saw it as a brilliant move that would give Comcast plenty of quality content to feed into its massive cable and Internet distribution systems - others are now questioning whether such a merger could work. Bigger isn't always better, particularly for stockholders, as the AOL-Time Warner deal has proved quite recently.
Third are the consumer advocates. They've signaled they're going to fight this merger, and not just at the Federal Communications Commission. In the past two years, their warnings about the impact of media concentration have gained bipartisan ground in Congress - enough to get the Republican-controlled bodies to rebuke the FCC and revoke a decision after it allowed broadcast companies to expand.
Thursday, consumer groups signaled they'll go to Congress again, this time to get it to reinstitute the law that forbade cable companies from owning broadcast companies - a provision that was struck down in 1996.
"This is going to be a horrific fight," says Jeff Chester of the Center for Digital Democracy, a consumer and media advocacy group in Washington. "It will be an uphill fight - but someone has to ask, when is enough enough? How big do we want these huge media combines to be, and do we really want our critical news operations to be in the hands of companies whose mission is primarily entertainment?" (Disney owns ABC News.)
But Comcast, the nation's largest cable operation, doesn't see any problems. Rather, it sees opportunity in what's come to be called "vertical integration" - which gives companies with distribution channels the ability to create and control the content they provide.
"We have a wonderful opportunity to create a company that combines distribution and content in a way that is far stronger and more valuable than either Disney or Comcast can be standing alone," says an open letter from Comcast CEO Brian Roberts to Mr. Eisner.
Some Wall Street analysts agree the takeover makes fiscal sense from a business standpoint, because it could revive Disney's stock, which has been flat the past few years. "Comcast has a long record of making very sound, disciplined decisions," says Kathryn Harris, a writer for Call Sheet Weekly Entertainment who has covered both Comcast and Disney for two decades. "They could very well energize and breathe new life into Disney."
The battle could take on many permutations in coming weeks, from counteroffers by other firms to a hostile takeover of Disney stock and full replacement of the current Disney board.
"There will be a lot of give and take on the details of how exactly this plays out, if at all," says Linda Varoli, senior analyst for Merger Insight.
But if it does, critics worry that all this vertical integration will prevent consumers from having a genuine choice when they turn on their cable TV. Just look at what could happen with sports. Disney owns ESPN, the national sports cable channel. Comcast owns the Golf Channel and Outdoor Life Network. There are already battles over ESPN's pricing to cable operators who want to keep their costs down.
"To me, the biggest thing is what kind of competitive advantage will the company derive in cable and satellite with its rivals," says Andrew Zimbalist, a professor at Smith College and an expert on the business of sports.
For example, Comcast could charge rivals more money to pick up ESPN or one of its other sports channels. Direct TV operators could find themselves frozen out of important sports events or see their pricing models change. "What kind of power plays will be effectuated as a result of these vertical integrations?" asks Mr. Zimbalist.
If the takeover happens, hockey fans will definitely see a change. Disney owns the Mighty Ducks, and Comcast owns the Philadelphia Flyers. The NHL does not allow one organization to own more than one team. "One of them will have to go on the block," says Zimbalist.
There are also questions about Disney's creative viability if it becomes part of the huge Comcast bureaucracy. Corporate analysts like Larraine Segil of Vantage Partners note that managing entertainment companies such as Disney is more of an art than a science. It's dependent on "a world of ephemerals" like public taste and the demands of creative, sometimes quirky artists.
Other analysts worry about the impact of the cable company's voracious appetite for its round-the-clock viewership schedules.
"It seems like all of corporate America is so wedded to the bottom line and stockholder demands to the exclusion of quality and vision," says Dr. Thomas Inge, a pop culture scholar who tracks the Disney company.
But advocates of the merger point out that right now, Disney is suffering from Eisner's penchant to control everything - from the color of hotel rooms to the endings of movies. Comcast is known as a corporation that just wants to make money, and pretty much leaves its divisions alone.
• Ron Scherer contributed to this report.