Comcast Craves Content

Comcast Corp.'s support of Sony Corp.'s $5 billion offer for MGM confirms the cable giant's desire for content to supply its video-on-demand (VOD) service, which it sees as the strongest weapon to stave off attacks from satellite rivals.

For the nation's largest cable operator, the deal allows unprecedented access to a trove of screen hits, such as the James Bond series, which Comcast plans to offer on its VOD service at no additional fee. For Sony, a deal with the 21-million-subscriber Comcast gives the Japanese company's executives confidence to top the bid by Time Warner, whose executives thought they had the auction locked up.

Sony has been wary of the MGM deal since the beginning, teaming with a group or financial players rather than bidding on its own. (Comcast has the option to acquire 20% of the venture's equity for $300 million, if Comcast CEO Brian Roberts decides later that he wants in.)

During Comcast's campaign to take over The Walt Disney Co. last spring, skeptics expressed confusion over why the cable operator wanted it. In the middle of the battle, a senior Comcast executive confided that a major motive was feeding cable's nascent VOD operations. Roberts is convinced that VOD is cable's most potent weapon against satellite companies. Without controlling a major programmer, the executive asks, "Where are we going to get content for VOD?"

The deal is Comcast's latest move to bolster its programming portfolio in recent months, including the takeover of Tech TV, taking control of the International Channel and increasing its stake in E! Entertainment Television. Assuming that Comcast actually buys into the Sony MGM venture, the tab for all these ventures would run just $750 million. "For not a huge amount of money, it's a nice laundry list," Alchin says.

For Sony and its financial group, TV is a small part of the deal. The group is far more interested in the $1.1 billion a year MGM has been generating by selling its movies on DVD. (TV revenues are much smaller.) The Comcast deal won't bring in big bucks, with one Wall Street executive saying Sony will get just $20 million per year. But Comcast has also agreed to partner with Sony on something the studio has long desired, but never been willing to pay up for: a general entertainment cable network anchored by its movie library.

The famed library of Metro-Goldwyn-Mayer would certainly upgrade Comcast's current free-VOD slate, which is dominated by programs off basic-cable networks plus Japanese anime and replays of broadcast-network news shows (in a couple of markets). Comcast will get up to 400 movies per year to cycle through its VOD menu. The free VOD movies will generally be at least five years old.

Comcast executives believe that, if they can addict their high-end subscribers to VOD, they'll never defect to DBS. DirecTV and EchoStar don't have anything close to the capacity to offer the hundreds of programs on-demand that cable operators can.

What Comcast didn't get was better access to fresh product. For years, cable operators had sought to sell a movie on pay-per-view on the same "day-and-date" that the title hits the shelves of Blockbuster Video or Wal-Mart. But studios are too skittish about cannibalizing the home-video gold mine and delayed the PPV and VOD window by 45-60 days.

Under the Sony deal, Comcast will get five newer titles in the primary home-video window as a "test". But generally, the most recent theatrical products such as Sony's Spiderman 2 will still be sold for $4-$5 per viewing.

Comcast isn't worried that Sony won't move faster. "To me, the broader VOD deal is more important than day-and-date," says one Comcast executive. "If we get day-and-date, satellite will get day-and-date. But this way, satellite can't offer what we can offer."