IS COMCAST’S BID FOR DISNEY A GOOD THING FOR COMCAST?
My first reaction to learning of Comcast’s bid for Disney was the obvious comparison to AOL “acquiring” Time Warner not many years ago. That was a disaster. Many thought the internet provider and the media company were a perfect fit, and many now think the cable/internet company combined with America’s media icon is the perfect marriage of content and distribution. The snafu for me is how Comcast is going to make money from Disney’s content? AOL was not able to execute on that same basic plan.

Of course, there are many things quite different about this potential combination, not the least being it would be lead by the competent and savvy Brian Roberts, Comcast’s CEO. Another great big difference is that the deal might not be approved. I’m not talking about Michael Eisner, who definitely does not approve and has provided the first obstacle. The Federal Communications Commission and the Justice Department will thoroughly scrutinize this consolidation with protection of competition in mind, which could lead to restrictions or just kill the deal.

But, if it goes down, will Comcast ultimately be a better company for its shareholders? I’ve made a list of the pros and cons:

Positives for the Deal			Negatives for Comcast
Brian Roberts would be in charge. Comcast has experience doing deals. Disney has a great library of movies. ESPN would be great addition for which Comcast no longer has to pay fee. Video-on-demand available to sell Disney movies, ESPN events. Comcast executive Steve Burke worked at Disney 12 years and knows where and how to improve margins and cash flow at Disney.			This combination is unlike previous deals Comcast has successfully navigated. Disney shareholders may demand more than the $26/share, $66B total offered. Lawmakers/FCC restrictions may ruin deal. Comcast stock will be in “deal limbo”, maybe as long as a year or more. How will they increase revenues at Disney? In the last five years Disney has increased revenues a total of 15.8%.

Key to make money: Video-on-demand must develop and sell Disney movies, ESPN events.

After Comcast completed the merger with AT&T Broadband in December 2002, the stock went from the $35 - $40 range to below $20 per share in six or seven months. Since July 2003 it had climbed back to $35 before today’s surprise announcement. Today investors sold on the news, and the stock closed down $2.70 to $31 and change. The fact that it didn’t sell off a lot more almost makes me optimistic.

Bottom line: I don’t think this proposed combination will turn out as disastrous as AOL Time Warner did, but Comcast stock may tread water for many months before proving (or not) that it can successfully combine content and distribution. If you’re a long-term investor in the company, you might as well wait and see how it plays out. While I do not recommend selling now, I recommend waiting to make new purchases until we have more information.

Linda Stewart for www.fizone.com

February 11, 2003