Comcast-Disney Fight Simmers
Carriage beyond TV leads long list of issues
Carriage beyond TV leads long list of issues
Comcast's effort to buy Walt Disney Co.'s share of E! Entertainment is generating buzz but is really a sideshow to the broader talks about cable operators' carriage of programming on a variety of new platforms. The outcome could shape the future for all cable operators.
At the center of the long-running negotiations is Comcast's carriage of cable networks, most notably ESPN and Disney Channel. Each is among the most popular—and expensive— basic-cable networks. But the talks extend much further, including video-on-demand (VOD) rights to content from nearly every part of the Disney empire and limitations on how flexibly Disney's networks can funnel their programming through the Internet, cellphones or other distribution schemes.
Resolution of the broader issues is much more financially important to both companies than the disposition of their partnership in E!. Buying the 21% of E! that Comcast doesn't already own would require it to write Disney one check of about $1 billion. But the cable operator pays Disney about that for programming every year.
Additionally, the talks will likely set the pace for other players. Disney collects more license fees from cable and DBS operators than any other programmer, accounting for about a third of distributors' cost for basic-network programming. Comcast is the biggest operator in the U.S., serving 21.5 million subscribers. Disney is engaged in parallel talks with Time Warner Cable, and executives familiar with the discussions say the changing terms of one deal shape the other.
Analysts say they're particularly looking to see how terms are worked out for retransmission consent for Disney's ABC O&Os, as well as for VOD, online and high-definition TV. Disney CEO Robert Iger acknowledges frustration over the slow pace of the talks, which have been dragging on since 2004.
Last month, he told investors, “We're talking about long-term deals with many moving parts in a world that technology is making more and more complex. There are some pretty interesting issues on the table in terms of the role of the distributor versus the role of the programmer.”
Other broadcasters—particularly CBS —will closely examine the deal for clues about how Comcast values those retransmission rights, hoping for ammunition to use in their own negotiations with cable and DBS.
It's safe to say Comcast will continue refusing to pay a straight license fee for the right to retransmit those stations in markets where it has local cable systems. Instead, the company will compensate Disney in some other way, such as better terms for its cable channels.
Disney, Comcast and Time Warner would not discuss the talks on the record last week. All three companies want to avoid the kind of train wreck Disney's 50%-owned Lifetime Television experienced when EchoStar took the women's network dark in January.
The negotiations have been tense. Just two years ago, Comcast Chairman Brian Roberts launched an abortive hostile campaign to take over Disney. Comcast is also increasingly aggressive in TV sports, with its OLN channel challenging ESPN by bidding successfully for hockey rights and unsuccessfully for football.
The biggest financial item in the negotiations is ESPN. The $2.90-per- subscriber monthly license fee for ESPN alone should generate $3 billion for Disney this year. Sibling networks including ESPN2 (about 33¢ per subscriber) and ESPNews (4¢) contribute an additional $400 million.
ESPN's days of 20% rate hikes are over, and Comcast and Time Warner are likely to do better than the now standard 7% annual increase. A central question is how much additional distribution the operators might give to ESPN's smaller networks and one it might start up over the next decade.
The second-biggest financial item is Disney Channel. With license fees averaging 80¢ per subscriber monthly, the onetime pay network is among the most expensive basic channels. The channel is distributed on 99% of cable systems and needs to find growth through license fees and future startup networks.
A major goal for Disney is securing more carriage for six-year-old Toon Disney and sibling Soapnet. ABC Family has for years been looking for a substantial rate hike, trying to convince operators that it deserves to be paid to continue substantial improvements in original programming aimed at teens.
The area whose financial impact lies in the future is new media. Comcast is especially hungry to feed VOD and will almost certainly secure rights to offer top ABC series such as Lost and Desperate Housewives for a 99¢ fee. Disney cut a similar deal with Apple's iTunes, and Comcast has its own deal with NBC. The cable giant will also likely secure a better “window” for Disney theatrical releases.
How long will all this take? One senior exec familiar with the talks says they're “essentially done” and could be finalized within 30 days. “But if you had asked a month ago,” he says, “I would have told you the same thing.”