Man Without Qualities

Thursday, February 19, 2004

The Fall Of The House Of Eisner VII: Love from A Python

A curious perspective is developing among some analysts concerning the Comcast/Disney matter. This view holds that the Comcast bid for Disney is a way of signaling to the nation's regional telephone companies (RBOCs) that Comcast will not aggressively pursue telephony.

Comcast controls 40% of the homes passed in the U.S. and a Comcast decision not to go into the local telephone business would be a huge relief to the RBOC's. Comcast is concerned about retaliation from the RBOCs if it decides to aggressively pursue telephony and compete with them. The RBOCs have already signaled their willingness to accept a zero return on the Echostar deal for their video offer, for example. But a naked promise from Comcast to the RBOC's not to compete with them would raise anti-trust problems to the extent it had any content.

The analyst theory further holds that Comcast therefore instead is focusing away from distribution and towards the part of the business that is creating value i.e. content. That is, the Disney offer is a defensive grab for more value given that distribution is being squeezed. The theory goes on to propose that Comcast can create value through "time shifting" e.g. changing the windows for movies to be available for video on demand. This is the source of the Comcast synergy savings, which investors are skeptical about, since it's never been done.

Such analysts believe that Comcast won't raise its bid, nor will another bidder emerge. Instead, Comcast will just wait for Disney's stock to drift back down and keep selling investors on their offer, which may take 9-12 months.

The willingness of Cingular and other RBOC's to pay so much for AT&T Wireless might have been influenced by the Comcast bid for Disney. If Comcast isn't going to come after the local telephone business, SBC/Cingular and Bell South have more room to overpay for a wireless asset--since wireless substitution is another big threat to their local telephone business. Maybe they have more confidence that Comcast will ultimately be successful in acquiring Disney than the average investor does.

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