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Summary:

Comcast, not satisfied with just being a pipe provider is chasing the elusive “convergence” and is attempting to buy Disney for $66 billion. This is clearly a dumb idea and bad timing. It looks like that bad marriage between my employers Time Warner and America Online. […]

Comcast, not satisfied with just being a pipe provider is chasing the elusive “convergence” and is attempting to buy Disney for $66 billion. This is clearly a dumb idea and bad timing. It looks like that bad marriage between my employers Time Warner and America Online. (Read open letter to Michael Eisner via WSJ)

Why is it a dumb idea? Well for starters, Comcast is still digesting the ATT Broadband acquisition, has to spend gazillions on the fast growing demand for broadband and at the same time trying to figure out how to fight off the defectors to the dish land.

Why is the timing bad? Because Disney has just lost its premier earnings growth engine – Pixar. The company is going to lose out to rivals in the highly lucrative animation market. Secondly, its other studios like Miramax are losing some of their fizz. In other words, if Brian Roberts waits for another 12-months, he could have himself a bargain. (Yeah Rupert is lurking around somewhere, but he has his own set of issues!) Roberts move is equally logic defying because the whole content business cannot deal with one thing – the digitization of content. Like Music, Movies and everything else is being reduced to bits-and-bytes. And that is a situation where it is very hard to make money.

Comcast reported its fourth quarter and 2003 numbers as well. Fourth quarter was profitable – net income came in at $383 million, or 17 cents a share, versus a loss $51 million, or three cents a share, in the same quarter 2002. Sales were $4.74 billion. For 2003, Comcast revenues were $18.35 billion, compared with $8.10 billion for 2002. “Financially, we are better positioned today than I thought possible at the beginning of this year,” Comcast President and Chief Executive Brian L. Roberts said in a press release.

But his focus should be cable broadband: in the most recent quarter, Comcast added 422900 high-speed Internet subscribers, and further more its penetration of “ready” homes rose to 15.2%, up from 14.5% for the same quarter a year ago.

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  1. I think your comp is off – the comp isn’t AOL/Time-Warner, the comp is DirecTV/News Corp. Here’s the reasons why it’s different:

    1. Time-Warner was supposed to deliver content to AOL – but they had fundamentally different products – one was a bunch of different content from magazines to video, the other email to chat. There wasn’t a way to deliver TW video, for instance, to the typical AOL customer on a large scale. In contrast, Comcast will be able to immediately use the Disney properties in interesting ways that they’ve already talked about. This is a case of vertical integration – not putting apples and oranges together.

    2. Comcast has shown some ability to absorb another large entity – it makes one have more faith that they can do better on the integration of the two than AOL/TW where the integration was difficult.

    3. Pixar ain’t the reason to buy Disney – it’s the networks and the library.

    All that said, I’m not sure it’s going to be worth the money they’ll have to pay for Disney at the end of the day – especially since their first offer is likely to be rejected.

  2. somewhere I read that Paul Allen ( MSFT cofounder ) is in the board of Comcast.

    I dont know its a conspiracy theory or not, it seems MSFT is using paul as a proxy to own the internet by acquiring ATT broadband and silently using Warren Buffet to get L3 communications. I even read some where they are actually trying to get UUNet. If they get the internet hubs then they control content going back and forth.

    IMHO this bid looks like not for content but to own the Disney’s entertainment collection and the revenue generated from its Disney land which will give a good collection from the PPV channl.Also given the fact that Disney’s board is in quagmire its good time to get Disney. On the other hand, I am confused why comcast hasnt offered only market value for Disney, usually the acquiring company offers a little bit more then market value.

  3. I think that you have a couple of concepts backwards.

    First, the best time to buy Disney is just after the growth engine dropped out of the car – Pixar. If you and I can figure that out the without Pixar Disney is so 1970s, then you have to think that the Disney board has a clue of this as well. What could be better than talking to the board while the feeling of fear and panic is fresh on the minds?

    Second, without the Pixar deal the stock is a cheap, real cheap, and if over the next few weeks Eisner were to come to his senses and find a way to make a deal with Jobs, the price of Disney would rise beyond Comcast’s grasp. Remember Pixar has a gaggle of new movies ready for Fall 04 and early 05.

    This is the golden moment for Comcast, if they are going to make a play they better do it now, while broadband is in high demand, the Analyst think that it is there future and before the Baby Bells figure out how to lay fiber to your home or get the government to subsidize DSL.

    Comcast needs to leap for the golden ring or go home. More power to them.

  4. In general the large cable providers are stuck in a mindset that’s very 1999.

    The approach of their industry technical consortium (CableLabs) is to force vendors to develop Cable-specific proprietary technological solutions (eg. their PacketCable telephony standard which unlike Vonage etc. binds the application to the distribution channel).

    Not only does this leave vendors with little room for product differentiation (so that vendors must then sell these systems at rock-bottom prices), it leaves cable operators messing around with technology that the rest of the internet world is not much interested in anymore (eg. managed quality of service, MGCP).

  5. James – the Disney/Pixar deal not happening is the best thing for all parties involved – Eisner, I believe, is smart to walk away from what Jobs wanted – a flat 10% distribution fee for each movie including the last two on the current contract (The Incredibles and Cars). That would have significantly reduced the income from those two movies, plus all future ones from around $500m to, say $70-100m. Eisner would be letting something close to $1b of revenue walk away by signing that deal. Pixar, meanwhile, gets to go to another studio and get the deal they want – so everyone wins by walking away.

  6. dzwonki polifoniczne nokia Wednesday, February 11, 2004

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  7. atmaspheric | endeavors Wednesday, February 11, 2004

    Comcast bids to merge with Disney!

    Whoa Whoa Whoa!Comcast has made a bid to merge with Walt Disney in a stock swap that the world’s largest cable operator said values Disney at $54.1 billion. The merger is hinged on broadband synergies, according to the statement released by Comcast. Co…

  8. North American Bandwidth News Wednesday, February 11, 2004
  9. Not news

    There’s been a lot of comment passed today about the proposed take-over of Disney by Comcast. Some people claim it’s a good thing, others a stupidity to exceed even that of AOL/Time Warner. I just wanted to pick up on…

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