[opendtv] News: Comcast And Time Warner Go Out And In

http://www.forbes.com/2004/09/28/cx_da_0928topnews.html?partner=technology_newsletter

Comcast And Time Warner Go Out And In
Dan Ackman, 09.28.04, 9:40 AM ET

NEW YORK - Comcast says it wants to divorce itself from Time Warner, 
and it may do so by getting in bed with Time Warner so together they 
can buy Adelphia. That's the upshot of an official announcement made 
by the two companies and off-the-record statements made by their 
executives.

The result--still well down the road--would be the two cable giants 
controlling more cable systems and perhaps more programming companies 
as well. How these transactions will play out between the companies 
and with regulators is still anyone's guess, but it's a tangled web 
right from the start.

  The official news is that Time Warner (nyse:  TWX -  news  -  people 
), which owns the second largest cable system in the U.S., and 
Comcast  (nasdaq:  CMCSA - news  -  people  ), which owns the 
largest, have agreed that Comcast will reduce its effective overall 
interest in Time Warner Cable from approximately 21% to 17% in 
exchange for stock of another that will hold cable systems and cash. 
Comcast wound up owning a piece of Time Warner's cable business when 
it bought AT&T Broadband. AT&T Broadband had owned 27.6% of Time 
Warner Entertainment, which then included cable systems as well as 
Warner Brothers, HBO, the WB Network and Comedy Central.

  The idea was that Comcast would gradually divest itself from the 
entertainment-producing companies. To that end, last year Comcast 
swapped its stake in Time Warner Entertainment for 21% of Time Warner 
Cable, plus cash and stock in Time Warner, the parent company. The 
agreement announced yesterday continues in that direction as Comcast 
will reduce its stake in Time Warner Cable. In return, Comcast will 
get shares in another company that also owns cable systems, plus $750 
million in cash. Apparently, there are tax advantages for Comcast.

  The unofficial news is that Comcast and Time Warner are exploring a 
joint bid for Adelphia Communications (otc:  ADELQ -  news  -  people 
), the bankrupt and scandal-plagued cable company that is fifth 
largest in the U.S. So while Comcast and Time Warner are moving apart 
on one hand, they are, on the other hand, moving back together. If 
they buy Adelphia, the cable industry would be consolidated among 
even fewer owners.

  All or nearly all cable systems have monopolies at the local 
level--despite the fact that there is some competition in theory from 
satellite TV providers. But the fear is that as cable companies grow, 
they will gain increased power over programming at the national or 
international level.

  Comcast itself has made several recent moves in that direction. It 
tried to buy Walt Disney Company (nyse:  DIS -  news  -  people  ). 
That deal looks abandoned, but with Disney's Michael Eisner on the 
way out, that company is in the throes of succession issues, and who 
is to say it will not revive. Meanwhile, Comcast joined a consortium 
led by Sony (nyse: SNE -  news  -  people  ), which owns Columbia 
Pictures and its library of programs, to buy Metro Goldwyn Mayer 
(nyse:  MGM -  news  -  people  ), a smaller movie studio that is 
barren of new ideas, but which also controls a massive library of old 
movies (see: "MGM, Sqeaking Lion").

  The second-place bidder in that deal was Time Warner, but apparently 
there are no hard feelings among media moguls.

  The scuttlebutt is that Time Warner and Comcast would each be 
interested in those Adelphia cable systems that are near systems that 
each one owns already. Comcast may, for instance, want to join the 
systems it owns in Los Angeles with systems now owned by Adelphia in 
other parts of town. But the result could be that the two giants own 
even more of the distribution systems, giving them more control over 
programmers, whose content they purchase. Time Warner, of course, 
already owns a lot of content. Comcast owns less, but with the 
Sony-MGM deal, it is beefing up on that end as well.

  The irony is that old media-ownership regulations were said, 
rightly, to be out of date partly because broadcast networks were 
already facing competition from cable networks. Those regulations 
have been thrown into disarray by court rulings and Congressional 
action (see: "Everybody Hates The FCC").

  But now, Comcast is in an apparent partnership with Sony, a major 
entertainment programmer, and with Time Warner, a programmer and 
cable operator. While one shouldn't overestimate the extent to which 
Comcast cares what people watch, so long as they watch it through 
Comcast, the situation should at least give pause.

  Announcing the Comcast partial divestiture deal, Time Warner CEO 
Richard Parsons issued a statement: "Today's announcement is another 
example of our working closely with Comcast to reach a mutually 
beneficial outcome to the business matters facing our companies." 
Well, isn't that special.


 
 
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