While embattled Disney has rejected this takeover offer, we think this is a mistake.
Even more than weak ratings at ABC and pressure to cut fees at ESPN, Disney faces a long-term problem: As digital video recorders (DVRs) and video on-demand (VOD) take off, the power of networks will fade. Here's what Comcast - and networks - will do:
- Comcast will not favor Disney content
Just as with News Corp.'s takeover of DIRECTV, this merger won't pass regulatory muster unless Comcast promises not to favor Disney content. For networks like ABC, ESPN, and The Disney Channel, Comcast/Disney must offer the same content deals to its satellite competitors that it does to its cable brethren like Cox Communications. Comcast will argue that this deal is required in the era of News Corp./DIRECTV and AOL Time Warner and that it doesn't increase its TV distribution share.
Comcast will use Disney to jump-start VOD and broadband
Despite its aggressive moves in VOD, Comcast has failed to get mainstream networks to offer popular content in VOD tiers. This would change. By including Disney content, ESPN sports events, and ABC network shows - with advertising - in its free VOD offering, Comcast could: 1) make VOD a popular destination, rivaling broadcast television, and 2) develop an advertising model that benefits both Comcast and its network content partners. Similarly, we expect Comcast's high-speed Internet offering to feature Disney content.
Other networks will eye distribution
With Comcast owning Disney, Viacom looks vulnerable, despite its strong media properties. With cash generated from the planned Blockbuster sale, it could make a move for financially troubled operators Charter Communications and Adelphia Communications and their 12 million households. NBC, digesting Universal Studios, is more likely to cozy up to Comcast than plan a cable operator acquisition.