Lion Will Roar

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By joining the Sony-led party buying Metro-Goldwyn-Mayer Inc., Comcast will move up in the ranks of content players, gaining access to a huge pipeline of movie and TV shows that could spawn new cable channels.

Sony Corp. last week topped Time Warner Inc. in the auction for MGM, agreeing to pay $2.9 billion in cash and assume $2 billion in the studio’s debt.

Backing Sony were Providence Equity Partners, Texas Pacific Group and DLJ Merchant Banking Partners. Analysts expect the deal to close early next year.

Comcast Corp. could invest about $300 million for a 20% stake in Sony-MGM after the deal closes. Separately, the Philadelphia-based MSO struck a deal with Sony to use its film content for video-on-demand offerings and will manage a joint venture with the electronics and entertainment giant to develop new cable channels.

Sony sought both the potential cash and connections to Comcast’s 21 million customers to help put its bid over the top, sources familiar with the cable operator said.

Those channels will likely be fed by Sony’s 35,000-episode television library and could be augmented by the more than 10,000 television programs owned by MGM. Sony’s 3,000-film library and MGM’s 4,000-plus movie titles will also help augment Comcast’s video-on-demand menus.

The VOD aspect would seem to have the most immediate impact on Comcast — it could expand its VOD library from the current 1,500 hours to more than 10,000 hours over the next two years with the additional content, according to Merrill Lynch & Co. analyst Jessica Reif Cohen. Comcast has been on the hunt for additional VOD content for months.

'BERSERK OVER VOD’

“They’re berserk over VOD licensing,” said one cable-industry veteran. “They’re really beating the bushes for product.”

But the programming joint venture also could satisfy the top U.S. cable company’s longtime desire to launch more of its own cable channels.

“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 statement. “This represents our first major studio deal for VOD content and will enhance the attractiveness of our VOD platform. The agreement also provides us with some very interesting channel-creation opportunities.”

Comcast spokeswoman D’Arcy Rudnay said details of the joint programming venture have not been worked out yet. “It’s way too early,” she said.

There are many kinds of cable networks Comcast and Sony could develop together, apart from the most obvious option of 24-hour movie channels.

An “action” channel and soap-opera network would be natural possibilities. Like Comcast, Sony has been trying to increase its domestic cable-network holdings.

“Sony has always wanted to create more channels,” one cable-industry veteran said. “NBC is trying to do linear channels with Universal stuff, and now Sony.”

Several of Sony’s prior attempts to get more U.S. cable networks have failed. Sony would have a big edge now with Comcast as a partner and the addition of MGM material.

CLOUT WITH SUBS

“The Comcast/Sony content joint venture [managed by Comcast] will be focused on developing new cable networks by leveraging Sony and MGM’s extensive film libraries,” Citigroup Smith Barney analyst Niraj Gupta wrote in a report last week. “Although the market is crowded with movie networks and general-entertainment channels, Comcast’s distribution platform of 21 million subs suggests it has enough clout to create successful programming services. Comcast is planning on investing 'tens of millions of dollars’ to develop and launch these new channels.”

Sony now owns half of GSN, the former Game Show Network, which counts 56.3 million subscribers. Liberty Media Corp. owns the other half.

Earlier this year, Sony was in negotiations to acquire TechTV from Paul Allen’s Vulcan Inc. Sony wanted to reformat the technology channel into more of an entertainment service by using movies and TV shows from its library, according to one source.

“They [Sony] actually felt they had the deal [for TechTV],” the source said.

Ultimately, Comcast surged ahead and won out, acquiring TechTV this spring for a reported $300 million and merging it with its video game-centric G4 channel.

SOAPCITY REDUX?

Sony’s Columbia TriStar TV Group wanted to launch SoapCity, a cable channel airing soap-opera reruns such as its own The Young and the Restless, in January 2000. But Sony had competition from The Walt Disney Co.’s SoapNet. Both networks were set to debut at the same time.

Sony ultimately blinked, transforming SoapCity into a broadband play — a Web site offering soap episodes via download — not a cable channel. SoapNet launched and now is in close to 40 million homes.

With access to Comcast’s huge customer base, Sony might be able to resurrect those soap opera-network plans as part of the new joint venture.

An “action” cable network is another option, using movies and TV shows from Sony, and potentially, the MGM vaults. Sony already has an action-genre TV network, AXN, that is carried internationally.

Like Sony, MGM also owns international cable networks.

Sony produces shows like The Shield for FX, and its library includes Walker: Texas Ranger.

Using content that MGM produces — like Stargate SG-1, Stargate: Atlantis and Showtime’s Dead Like Me — down the road the Comcast-Sony joint venture could conceivably even create a science-fiction or fantasy channel.

MGM has also made forays into the U.S. cable-content arena, paying $825 million for a 20% stake in Cablevision Systems Corp.’s Bravo, AMC, Independent Film Channel and WE: Women’s Entertainment channels in 2001.

Cablevision bought back MGM’s stake in AMC, IFC and WE for $500 million in 2002. MGM sold its 20% stake in Bravo to NBC in 2003 for $250 million. NBC bought the rest of Bravo from Cablevision in that same deal for $1.25 billion.

NO JV HEAD YET

Comcast will manage the new joint venture with Sony, but said it’s too soon to say who will be in charge of it. Currently Amy Banse, Comcast’s executive vice president of programming, is responsible for the MSO’s content portfolio.

Comcast’s stable includes its holdings in E! Entertainment Television, Style, Outdoor Life Channel, G4techTV, Golf Channel, CN8: The Comcast Network and several regional sports networks. Comcast is also a partner in the newly launched TV One, and is planning to launch a 24-hour preschool network, with a formal announcement expected soon.

GSN officials declined to comment on what impact the Comcast-Sony partnership might have on their network. MGM and Sony officials also declined to comment.

The Sony agreement is the first major content deal for Comcast since its failed $56 billion bid for The Walt Disney Co., which it dropped in April after it was rejected by the Disney board.

While Comcast here is buying much less than Disney — which owns movie studios and production, plus the ABC Television Network and several popular, established cable channels — it’s clearly serious about moving deeper into content.

“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,” Sanford Bernstein & Co. cable analyst Craig Moffett said. “The second thing it does is it reaffirms what Comcast was saying about its Disney bid all along, that there 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, what was what a lot of people feared.”

HOW THE BIDS WENT

This also marks the end of a months-long contest for MGM, which had seemed destined to go to Time Warner Inc.

Sony and its private-equity partners Providence Equity Partners and Texas Pacific Group — had offered more, about $4.8 billion initially, but that offer was considered more complicated because of the private-equity component. Time Warner originally made an all-stock offer.

When MGM’s largest shareholder, Kirk Kerkorian, made it known he would accept cash for his 74% stake in the studio, Time Warner modified its $4.6 billion bid to an offer of $2.6 billion in cash and $2 billion in assumed MGM debt. Time Warner withdrew the offer early last week after Sony upped its bid, adding another private equity partner, DLJ Merchant Banking Partners. MGM said its management is expected to recommend the Sony proposal to its board of directors by Sept. 27. From there, the deal would need approval from U.S. and European regulators.

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