Fellow Ops Warm To Comcast-ESPN

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Comcast Corp. officials weren't kidding when they repeatedly said they want to dramatically expand the MSO's portfolio of content.

The mega-cable operator's almost $60 billion bid to acquire The Walt Disney Co. is an extraordinarily bold move that, on the cable-network side alone, would nearly double the MSO's holdings to ownership in 28 networks.

If Comcast is successful in its run on Disney, the size of its cable stable would rival that of Viacom Inc.'s MTV Networks, and would include the crown-jewel ESPN dynasty of sports services.

Disney has a history of bad blood with cable operators, and tensions hit their climax several years ago, when the media giant's ABC television stations were dropped from Time Warner Cable systems, igniting a public furor.

Today, relations between Disney and cable operators are so strained over ESPN that it was no surprise last week when a number of MSO officials said they'd be more optimistic about contract negotiations if Comcast were ESPN's owner, and not Disney.

"The Robertses [Comcast chairman Ralph Roberts and president and CEO Brian Roberts] have always looked at the business from an operator's perspective," said Jerry McKenna, Cable One's Inc.'s vice president of strategic marketing. "They would be more flexible relative to the needs of a cable distributor than ABC or ESPN have been historically. Disney has used ESPN to make up some of the cash-flow shortages in other parts of the business."

COX COMMENT

Cox Communications Inc., whose contract with ESPN expires in March, issued a brief comment on Comcast's attempt to acquire Disney.

"If this combination would help distributors and content providers better understand one another and move new services to market faster, then that's a good thing for consumers and the industry," Cox spokesman Bobby Amirshahi said.

Even one of the most vocal critics of media consolidation — small-operator lobby group the American Cable Association — said that while it was too early to take a position on the Comcast-Disney deal, it hoped the potential merger would kick off an era of improved operator-programmer relationships.

Operators were guardedly supportive of Comcast's Disney bid, even though the top U.S. MSO would add enormous clout and leverage over both programmers and other distributors.

The sentiment from some MSOs was that if consolidation is inevitable, they'd prefer to see it led by one of their own.

"It's a bold move," Cequel III spokesman Peter Abel said. "And at the end of the day, we have a great deal of respect for Comcast. We'd rather have a cable-friendly organization making these kinds of moves than the other way around."

11 NETS ALREADY

Comcast currently owns or has stakes in 11 national and regional cable networks, a grab bag that represents opportunistic purchases over the years.

The Philadelphia-based MSO's networks range from E! Entertainment Television and Style — where Disney is already the MSO's partner — to The Golf Channel and Outdoor Life Network and four regional sports channels, including the not-yet-launched Comcast SportsNet Chicago.

That portfolio would jump to total ownership or pieces of 28 networks, including ESPN, Lifetime Television, A&E Network, Disney Channel and their respective families of spinoff services.

ESPN, for example, comprises ESPN2, ESPN HD, ESPN Classic, ESPNews and ESPN Deportes. The ABC Cable Networks Group includes Disney Channel, ABC Family, Toon Disney and SoapNet.

Disney has a stake in A&E Networks, which includes A&E Network, The History Channel, The Biography Channel and The History Channel International.

Added to that mix are the ABC Television Network and its 10 owned-and-operated TV stations in major markets such as New York, Los Angeles and Philadelphia. According to Comcast, there is plenty of Disney content to offer on video-on-demand and broadband platforms to create new revenue streams — content that can eventually be sold on a subscription basis, by Comcast and other cable operators. Comcast also mentioned opportunities to time-shift ABC News programming.

ESPN'S 20% FACTOR

With ESPN in Comcast's tent, other cable operators will learn if the MSO will continue the sports network's past history of seeking the biggest rate hikes its contracts allow, at 20% a year.

The perception in the cable industry is that ESPN has pursued the maximum license-fee increases it can get under the orders of Disney corporate headquarters and Michael Eisner.

That "is simply not the case," according to ESPN.

"ESPN's rate adjustments are governed by contract terms agreed upon with our affiliates," an ESPN spokeswoman said. "They reflect ESPN's substantial value in the marketplace and our ongoing cost of doing business."

At last week's press conference, Comcast Corp. president and CEO Brian Roberts said they could be a way to temper ESPN's rate increases.

"There's an opportunity to enhance the product," he said. "There's many ways to do things without just raising the rates. High-definition, interactivity, streaming — these are things that Disney is working on and that Comcast is working on."

Comcast's cable unit president, Steve Burke, also suggested that a subscription model, in which programmers and cable operators share revenue from content offered on VOD and broadband, can help offset the need to increase license fees for cable networks.

"The ability to marry these [Disney] brands with our broadband capacity and everyone else's broadband capacity: Wouldn't it be wonderful if you could have a subscription-on-demand package of Disney programming for your kids?" Burke said. "Would people pay $9.95 a month for that? I know I would.

"I have five kids, and the idea of being able to give them more Disney product would be very exciting for them. But I think the same thing could be true for ESPN or ABC."

A cable-network official said Burke would find creative ways to "reinvent" the economic model, rather than just escalate license fees for the networks Comcast acquires from Disney.

"Eisner's basically looking for the easy way out," the official said. "He's just saying, 'Let's jack ESPN up, because ABC is doing so poorly, the theme parks are doing so poorly.' But he's not doing what's smart."

If sports fans are so "passionate," the executive said, "rather than just jack up the rates for everybody, why not create great content that 20% of the market might pay extra for? And I think that is what Burke is saying."

Comcast has made a special effort to reach out and address the concerns of small cable operators ever since it inherited Headend In the Sky, a digital platform used by small systems, from AT&T Broadband, according to Mike Pandzik, president of the National Cable Television Cooperative.

Comcast officials called ACA president Matt Polka about their Disney bid the day it was announced. Polka said the ACA plans to raise every potential issue about the merger, but thinks the corporate attitude of a Comcast-run Disney would be better than the current "combative" management.

Pandzik tends to agree.

"I have a lot of respect for the Roberts family," he said. "They're certainly sort of the first family of the cable business now, and Comcast is certainly the flagship MSO, they're the largest cable company and they really have a great reputation."

While it's too early to know all the implications of Comcast's buying Disney, Pandzik said, "On balance, Rupert [Murdoch]'s acquisition of DirecTV [Inc.] and adding that to his Fox holdings is such a huge concentration of power from the satellite end of our business, it probably makes a certain kind of sense to have an equally huge concentration from the cable-operator side of the street."

Comcast's management is well aware of the friction between MSOs and programmers, but thinks it can overcome them in running Disney.

"Sure, there's a tension that has always occurred between cable operators and programmers," Roberts said. "But in the end, I think we can help those relationships with the industry to launch new products and help understand, from a cable operator's perspective, how is the best way to give access to that content."

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