Commentary: Disney deal to reshape on-demand media

By Forrester Research
Special to CNET News.com
February 11, 2004, 10:30AM PT

By Josh Bernoff, Principal Analyst

Comcast launched a $66 billion takeover bid for Walt Disney on Wednesday. Without favoring Disney content, Comcast could use this move to jump-start video on demand and to shape of the future of on-demand media.

Embattled Disney has rejected this takeover offer. We think this is a mistake. Even more than weak ratings at ABC and pressure to cut fees at ESPN, Disney faces a long-term problem: As digital video recorders and video on demand take off, the power of networks will fade. Here's what Comcast--and networks--will do:



		Related story Comcast offers $66 billion for Disney The cable TV giant's surprise bid would create one of the largest media and distribution companies in the world.

• Comcast will not favor Disney content. Just as with News Corp.'s takeover of DirecTV, this merger won't pass regulatory muster unless Comcast promises not to favor its own content. For networks like ABC, ESPN and the Disney Channel, Comcast/Disney must offer the same content deals to its satellite competitors that it does to its cable brethren like Cox Communications. Comcast will argue that this deal is required in the era of News Corp./DirecTV and an America Online-fortified Time Warner and that it doesn't increase its TV distribution share.

• But it will use Disney to jump-start video on demand and broadband. Despite its aggressive moves in video on demand, Comcast has failed to get mainstream networks to offer popular content in video-on-demand tiers. This would change. By including Disney content, ESPN sports events and ABC network shows--with advertising--in its free video-on-demand offering, Comcast could do two things: first, make video on demand a popular destination, rivaling broadcast television, and second, develop an advertising model that benefits both Comcast and its network content partners. Similarly, we expect Comcast's high-speed Internet offering to feature Disney content.

• Other networks will eye distribution. With Comcast owning Disney, Viacom looks vulnerable, despite its strong media properties. With cash generated from the planned Blockbuster sale, it could make a move for financially troubled operators Charter Communications and Adelphia Communications and their 12 million households. NBC, digesting Universal Studios, is more likely to cozy up to Comcast than plan a cable operator acquisition.