Hardly anyone—particularly unhappy Comcast shareholders—feels that buying Walt Disney Co. is essential to the No. 1 cable operator. Comcast launched its hostile $66 billion bid primarily to exploit a point in time when Disney seemed vulnerable.
But giving up on Disney last week does leave Comcast in the lurch in one way: video-on-demand. One of the biggest problems for all cable operators is shortage of compelling content for their VOD lineups.
Since making the offer in February, Comcast executives were often asked why the company wanted into the movie or theme-park business. They uniformly responded that, aside from the financial gains they saw from running Disney better, Comcast needs VOD product, particularly a way to get theatrical releases at the same time they hit video stores.
"Where do we get the good product?" one senior Comcast executive asked in the midst of the battle. One answer: You buy yourself in.
VOD is proving to be far less of the business than operators initially expected. They had envisioned a multibillion-dollar business that would take up the slack from slow growth in the basic-cable business. But now they talk about VOD primarily as "glue" to keep their customers from running over to DBS.
One analyst sees cable operators generating around $2.5 billion annually through VOD in five years, just a drop in what is now a $60 billion annual revenue bucket.
Comcast cable division President Steve Burke acknowledges that VOD would have been a major benefit of a Disney deal.
"The beauty of Disney was, in one fell swoop, you'd have kids programming, movies, and networks," Burke says. But he contends that Comcast and other operators will still be able to strengthen a VOD lineup that currently includes shows like The Sopranos and delayed runs of NBC's news programming.
"There's an almost limitless quantity of content out there," he says. "We don't need to get everybody."
The big score would have been theatrical movies. VOD was envisioned as a way to steal a big chunk of the $10 billion home-video business from Blockbuster and Wal-Mart. But studios are fearful of disrupting a sure-fire business—particularly, escalating DVD sales—in favor of cable. So they won't give titles to cable operators for either VOD or old-style pay-per-view viewing on the same day as they hit video-store aisles. Operators have to wait 6-10 weeks.
Burke sees that as a big missed opportunity with Disney. "If you really want to make day-and-date release happen, all it takes is one studio and the others will follow," he says, adding that "we still have a lot of lines in the water."
Losing Disney doesn't necessarily put Comcast on the prowl for other giant acquisitions, content or otherwise. Comcast CEO Brian Roberts argues that, when it came to Disney, "we said all along it would be nice to have a deal. AT&T Broadband was a must-have deal." That one dramatically increased Comcast's scale in the cable-system business. But Disney? "A unique and wonderful opportunity."
The company says now it will look over Adelphia's systems, a $20 billion deal coming onto the market, but won't say whether it will actually make a bid.