Originally posted by DVCrookie DVC's commnts are in bold - Nataliesdaddy's comments are non-bold type.
This asks the question: Does Comcast want to be in the theme park business? Yes they do. It is only the theme parks and resorts that provide Disney the margins that they have, and it is the Parks and Resorts that provide the economics for the valuation Comcast derived for use in its offer. If they did not want the parks they would have made offers for individual components. If not, then the fact that the theme parks are the best performing operating segment of Disney may make it very attractive to another buyer. Comcast may be able to recoup a significant percentage of it's acquisition costs by selling off the theme parks. (As a side note, do you suppose NBC will retain the Universal parks after purchasing Vivendi?) That would leave Comcast holding the remaining underperforming assets (with the exception of ESPN which has stellar results). Regardless if they did a spinoff of the resorts and parks they would be left shouldring the burden of holding assets that would greatly reduce Comcast's ROE.
The main reason for Comcasts offer is to gain content as in the AOL Time Warner deal. AOL's stock was highly overinflated due to the internet hysteria of the 90's. They needed content as "internet distribution" was and is becoming commoditized (as is Comcast's business). SO they used extremely overvalued stock to get content (A close paralell to what comcast is trying to do. Their stock is highly overvalued). After the merger Time Warner woke up to the reality that the internet is just one distribution channel... and not necesarily the main distribution channel. AT the time everyone was prediciting the demise of traditional "brick and mortar" businesses, the demise of the retail store, the demise of the movie theatre... but that business model was extremely flawed. Quality content has an extremely long shelf life... technology does not.
Of the main distribution channels each had its heyday, and each watched competition erode their market share. The written word (the press) was the dominant distributor of content for a long time, then the radio came along took away market share and opened other markets that written words could not serve while radio technology flourished, then TV came along and took away even more market share from the Press and began to impact radio. Then satellite and cable came along taking more market share away from the press, the radio and the major networks. And each one of these advances happened in shorter and shorter increments of time. Today technologies are displaced at a frightening speed. A communications technology today can be all but obsolete in a matter of a few years.
So, we got to the point that the newspaper industry was so matured that to remain profitable you needed to start merging your operations with others to gain economies (efficiencies) of scale. Each individual newspapr had lost so much advertising revenue or seen their market share erode so fully that they could not make money as stand alones... but they could make money if a group of them banded together and then got rid of all the duplication of overhead expense. Same happened in the Radio space. Tons of merger and acquisition activity has consolidated that sector so that when you turn on the dial in any given market chances are that of the multitude of channels you are listening to... only two or three companies own almost very station on your dial... with a handful of independent niche players left.
In the TV medium, there was somwhat of the reverse. You had the major three, then each succesive new technology allowed for a broader range of services taking share away from the big three. And programming of the competition became more fragmented and niche to the point that today you have, "the food network", "the home improvement channel", "the fashion channel", "the Disney channel" etc. And then true to form, consolidation hit that sector also so that now the majority of "channels" are owned by a handful of players.
Point being is technology is changing rapidly and new distribution methods come along very frequently today. Distribution companies need to acquire content as a defensive measure to stave off loss of market share, threats to their technology, and their competitors libraries of other content. Comcast needs quality content but not at the expense of their bottom line. ABC's content is a liability. Disney's movie studios provide quality profitable content but it is far more volatile then the Parks and Resorts. Also, the movie and production division is less profitable then the Parks and Resorts. Lastly, the synergy between the Parks/resorts, and the Movie/production division have driven one another. You seperate the two and the Movie/production division losses its core driving influence.... and vice versa. To say nothing of seperating an acquirer like Comcast from Disney's main cash cow to pay down acquisition costs. What you do to pay down acquisition costs is monetize your marginally performing assets, not your best performing assets. In a sense The Parks and Resorts division subsidizes a great deal of Disney's other operating divisions. Of course, this is sheer speculation. I'm no business man. Just trying to understand the situation.
So I've seen two different reasons why people are worried about the Comcast/Disney merger. First, it may be a less than stellar financial result for Disney stockholders. Second, I can only infer that there are many with just a general unease about a company that prides itself on its creativity being purchased by a company with a less creative background. Another reason is the reason outlined above about the rapid change in technology. Disney would in essence be tied to a technology that will be either displaced or thy will suffer loss of market share. It is wiser for a content company to be able to have extreme flexibility in choice of distribution technology and not be tied to one provider who may or may not be able to keep up with the changes. For example, there are the still relativly new 802.11 communications protocols whereby content can be delivered wirelessly. Why would a content company want to be stradled to a Hardwire cable company when there is technology coming down the pike allowing two way communications interactivity complete with streaming video over a wireless device. Essentially it is cable TV and internet access on on device delivered over the air just like the old school television channel. It is highly likely that the cable between my wall and the computer I am on will not exist in under ten years.
I'd like to see benefit for both companies. I certainly see a benefit for Comcast. They obtain the Disney television stations, including ABC and ESPN. However, I don't really see much of an upside for Disney. What do they gain that they don't have today? Better management?
