This Much and No More

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Time Warner Inc. lived up to its reputation as a disciplined bidder last week when it passed on Metro-Goldwyn-Mayer Inc., allowing the Hollywood studio to go to a consortium headed by Sony Corp. for about $4.9 billion.

The final price was close to what Time Warner had offered — between $4.6 billion and $4.7 billion, according to published reports — before pulling out of the bidding on Sept. 14.

“Although MGM is a valuable asset, we have decided to withdraw our bid,” Time Warner chairman and CEO Dick Parsons said in a statement. “As we pledged to our shareholders, we approach every potential acquisition with strict financial discipline. Unfortunately, Time Warner could not reach agreement with MGM at a price that would have represented a prudent use of our growing financial capacity. We are confident that there are other capital allocation choices that will enable us to continue to build shareholder value.”

Some analysts believe that means Time Warner will devote more resources to the upcoming Adelphia Communications Corp. auction, which kicked off last week.

According to an Associated Press report last week, Sony president Kunitake Ando told reporters in Tokyo he was relieved Time Warner decided to back off.

“We had decided on a limit, and we were definitely not going to push beyond that if it went above that,” Ando told a group of reporters last Thursday on the sidelines of a Tokyo marketing convention, according to AP. “To be honest, we were relieved Time Warner withdrew first.”

Most analysts agreed Time Warner backed off at the right time.

“You could make the argument that this is a more meaningful deal for Sony,” said Janco Partners cable analyst Matt Harrigan. “Sony wanted more content. They wanted to do a better job co-branding and co-marketing the content side with the consumer-electronics side.”

Aside from the obvious content benefits, there are potential tie-ins to Sony consumer electronics products. “Next time you see a [James] Bond movie I’m sure you’ll see Bond working on a Vaio laptop,” Harrigan said. “I’m sure the product placement and even some of the direct-branding relationships will be there.”

Deal participant Comcast could also benefit from Sony’s consumer-electronics strength. “Don’t forget Sony is a major computer manufacturer, and to the extent you could get relationships going there and factor in the high-speed modem side, there’s a lot Sony can do to help Comcast,” Harrigan said. “On the high-definition side, Sony’s CE results have been weak lately, but they still have a huge consumer electronics business. There are some very, very important potential strategic and tactical marketing linkages between Sony and Comcast.”

Also key to Sony: it’s backing of a different standard for the next generation of DVDs than Time Warner — Sony is part of the Blu-Ray Disc Association, while Time Warner is backing the rival HD-DVD standard. Allowing that much content — 4,000 movie titles and 10,000 television episodes — to come under the influence of the competing standard could have been a serious blow to Sony’s efforts.

And Sony knows this from experience: its Betamax videocassette standard was obliterated by the VHS format, which became the norm.

“Sony was never going to let them [Time Warner] get it anyway, because of their participation in Blu-Ray,” said one source in the financial community.

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