Cable Operators

Comcast Crashes Sony-MGM Party

9/14/2004 5:15 AM Eastern

Sony Corp. won the battle for Metro-Goldwyn-Mayer Inc. late Monday night, bringing on a surprise partner in the deal, Comcast Corp.

Comcast could contribute up to $300 million to the final price of the deal -- $4.8 billion, including the assumption of $2 billion in MGM debt.

More important, however, the MSO gets access to the MGM film library (with more than 4,000 titles) for video-on-demand content, and it has agreed to form a joint venture with Sony to develop new cable channels.

Sony’s sweetened bid came shortly after Time Warner Inc. dropped out of the contest, claiming that the price was too high.

Sony’s partners in the deal are private-equity groups Providence Equity Partners Inc., DLJ Merchant Banking Partners and Texas Pacific Group. Debt financing is being provided by J.P. Morgan Chase & Co. and Credit Suisse First Boston LLC.

MGM management is expected to recommend the proposal to its board of directors by Sept. 27.

“We are very pleased with these new content agreements, which confirm the value of our scale and distribution platform,” Comcast chairman and CEO Brian Roberts said in a prepared statement. “This represents our first major studio deal for VOD content, and it will enhance the attractiveness of our VOD platform. The agreement also provides us with some very interesting channel-creation opportunities.”

According to the statement, although the partnership contemplates the completion of a Sony-MGM deal, Comcast’s VOD arrangement with Sony will take place whether it buys MGM or not.

Sanford C. Bernstein & Co. analyst Craig Moffett said Comcast’s participation in the MGM transaction reaffirms its commitment to content -- one it first established in its failed bid for The Walt Disney Co.

“This deal reaffirms two things: First, it reinforces the notion for investors that Comcast is going to pursue its content vision via a series of small deals, rather than a big acquisition, and that ought to be reassuring for Comcast investors,” Moffett said.

“The second thing it does is it reaffirms what Comcast was saying about its Disney bid all along -- that the primary motivation was the access to the Disney movie library to unlock the potential of VOD, and it wasn’t a vote of no-confidence in distribution, which was what a lot of people feared,” he added.

After Comcast launched its $56 billion bid for Disney in February, investors feared that it signaled that Comcast was disenchanted with the distribution business. Comcast dropped the bid in April, but Moffett said the Sony deal shows that Comcast is as enamored with the distribution business as ever.

“In every element of [the Sony deal], Comcast is sticking to its knitting of a distribution-first strategy,” he added.

MGM shares rose 14 cents to $11.69 apiece Tuesday, while Comcast shares fell 5 cents to $28.07 each.