Comcast’s Bid for Disney

WSJ writes that technology is one of the strong driving forces behind Comcast’s audacious bid for Disney:

Behind Comcast Corp.’s audacious bid for Walt Disney Co. is the powerful force of technology reshaping one company after another in media and communications. It is disrupting basic business models, plunging companies into new markets, creating new competitors and blurring the boundaries between industries.

In response, companies are scrambling to protect themselves in two ways. Some are bulking up. Several telecom companies, for instance, are circling AT&T Wireless, the No. 3 U.S. cellphone player, as the dissolving boundaries between long-distance, local, wireless and the Internet ignite new competition and drive down prices. Music companies, confronting a surge of digital piracy, are in a wave of consolidation.

Others, seeing their old markets come under siege, are pushing into new ones. Eastman Kodak Co. recently began moving away from its traditional film business and into printers and other digital devices that have it competing with a new lineup of electronics rivals.

Comcast is doing both: A merger with Disney would turn it into one of the world’s biggest media companies and give Comcast a new reach into movies and theme parks.

It’s an intense response to the disruption Comcast faces from newly strengthened competition. The nation’s biggest cable company, long used to monopolies in its regions, faces the growing threat of satellite television as an alternative. That threat is particularly acute as Rupert Murdoch’s giant News Corp. completes its purchase of a controlling stake in DirecTV, the biggest U.S. satellite-TV player.

The central technological change driving all these shifts, under way for years and now accelerating, is the digitization of sounds, words and pictures — allowing companies to transmit and manipulate them in new ways. The latest wave of corporate moves is reviving the question of whether content companies should also own distribution channels, and presenting new challenges to regulators and Congress.

Mitch Rubin, a money manager at Baron Asset Management, said that people have been debating for years which was more important, media content or the means to distribute it. Now, that debate has been rendered moot. “What this deal says is, it would be great if you had both. You can debate which is better, but if you have both it doesn’t matter,” Mr. Rubin said.

Om Malik doesn’t think it’s smart move:

Why is it a dumb idea? Well for starters, Comcast is still digesting the ATT Broadband acquisition, has to spend gazillions on the fast growing demand for broadband and at the same time trying to figure out how to fight off the defectors to the dish land.

Why is the timing bad? Because Disney has just lost its premier earnings growth engine – Pixar. The company is going to lose out to rivals in the highly lucrative animation market. Secondly, its other studios like Miramax are losing some of their fizz. In other words, if Brian Roberts waits for another 12-months, he could have himself a bargain. (Yeah Rupert is lurking around somewhere, but he has his own set of issues!) Roberts move is equally logic defying because the whole content business cannot deal with one thing – the digitization of content. Like Music, Movies and everything else is being reduced to bits-and-bytes. And that is a situation where it is very hard to make money.

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Rajesh Jain

An Entrepreneur based in Mumbai, India.