How to Maintain Growth
This is nothing new. Media distribution companies, such as Viacom and Liberty Media, learned years ago that the way to maintain profit growth in a competitive distribution market is to buy media and entertainment properties. But Comcast is playing impudent upstart to Disneys imperious aristocrat of the entertainment world. Disney generates one-third more revenue than Comcast and Disneys staff is 40 percent larger than Comcasts.Comcast claims there will be great natural synergies between its cable audiences and Disneys media and content assets. Furthermore, it contends that it has the management experience on board to wring greater efficiencies out of Disney operations that are no longer the stellar profit generators they were in the previous decade.But Disneys management may justifiably feel that it can afford to buy new distribution channels at advantageous prices any time it chooses and will likely scoff at Comcasts claim that it holds the cure for any management ills. Its not likely to accept a deal that makes Comcast management senior partners in a merger agreement. Look for Disney to dismiss this initial hostile bid out of hand. But that wont be the end of it. Comcast just wants to pull off the same kind of negotiations coup that it achieved in the merger with AT&T Broadband. AT&T rejected Comcasts initial unsolicited $58 billion buyout offer. But it resulted in lengthy hard-nosed bargaining that enabled Comcast to acquire AT&T broadband for $72 billion. Disney is under the same kind of stress as AT&T three years ago when the telecommunication giants stock price was flagging and investors were demanding greater return on their equity. Dissident Disney shareholders led by former board members Roy E. Disney, nephew of founder Walt Disney, and Stanley Gold are making the same demands and are criticizing the effectiveness of CEO Michael Eisners administration. Disneys recent animation releases have not fared well. Profits from Disneys theme parks have been stunted by recession and post 9/11/01 terrorism fears. Pixar Animation Studios, whose digitally animated movie features have brought Disney the most success in recent years, recently broke off talks about extending their production agreement. Since then Pixar CEO Steve Jobs and Disney have traded verbal barbs, with Jobs suggesting that in the latter years of Eisners leadership Disney had lost its marketing touch. As a result, Eisners tenure as chief executive is as much in play in this buyout bid as the company he heads. Comcast is using dissatisfaction with Eisners performance as a lever to get major shareholders and the Disney board to seriously consider its offer. Next page: Playing one side against the other.