Some concerns about Comcast-Disney deal

COMCAST Corp.'s attempt to swallow Walt Disney Co. evokes previous, disastrous Hollywood-telecom couplings, but Comcast's Brian L. Roberts begins with a relative advantage: At least the product fits his pipeline.

Time Warner's Gerald Levin apparently thought he could ship feature-length movies through a 56-kilobit, America Online dial-up connection, which is like delivering a battleship on a bicycle.


Vivendi SA's Jean-Marie Messier had an even goofier idea: selling music over cell phones.

As the country's biggest cable TV company, as well as the largest cable provider of broadband Internet access, Comcast can actually distribute what Hollywood makes.


So Roberts gets a gold star from the teacher. He bothered to consult a physics textbook before launching his deal. But if the buyout happens he must master a darker art: the care and feeding of shareholders in Fantasyland.

Hollywood has a long history of making flint-eyed executives go goo-goo and vaporizing the net worth of outsiders drawn to its flame. Big business finally seems to be learning some lessons, but the curve has been long and gradual, even for our highly trained CEOs.

Coca-Cola Co., maker of sugary beverages, bought Columbia Pictures. The marriage produced Ishtar, the flop by which other flops are gauged.

Matsushita Electric Industrial Co., founded as a manufacturer of electric rice cookers, bought MCA Co. and its Universal Studios unit. Seagram Co., maker of alcoholic beverages, bought Universal from Matsushita. Vivendi, once a water utility, bought Seagram and Universal.

None of these deals worked out really well, and some were catastrophes.

But never let it be said that management science is stuck in a rut. The early phase of industry-Hollywood mergers produced a stunning take-home message that business leaders framed on their walls: Maybe there isn't synergy in combining Absolut vodka and The Flintstones in Viva Rock Vegas in one company.

Lesson in hand, Vivendi Universal and AOL Time Warner endeavored to merge companies that had more customers and business lines in common. Vertical integration was the idea - transporting Universal's and Time Warner's content over Vivendi's and AOL's wires and frequencies - but they hit the camel-in-the-needle's-eye bandwidth problem.

In buying Disney, Comcast would avoid mixing apples and artichokes as Matsushita and the others did. And its broadband capability is perhaps unrivaled. But those are only the most obvious booby traps.


It is far from clear that a vertically integrated, production-and-distribution combo is the right model for the entertainment business.

If Comcast buys Disney, the melded company would end up competing against its own distributors. Disney would still need Time Warner and other cable outfits, for example, to deliver its products to some households. That creates the kind of double vision and confused objectives that are dicey in any business.

This is the age of outsourcing, folks. Remember? General Motors doesn't make its own steel, and Home Depot doesn't make its own lawnmowers.

Should Comcast make its own movies? Lunching at Spago is not Comcast's core competency despite the fact that Disney veteran Stephen B. Burke is on Comcast's team.

Comcast owns few entertainment operations. It is highly focused on the technology and finance of delivering megabytes to homes and businesses. And it is essentially an unregulated monopoly in many markets, relatively untouched by price competition and the other bumps and bruises of American business.

Comcast's Roberts did a great job of integrating AT&T;'s cable operations, bought in 2001, into his company. But that was combining like with like. Even though Hollywood and Comcast occupy different ends of the same industry, Disney is another planet.


Roberts hates publicity and cameras, which seems a good thing for his shareholders. He's not a star-struck hobbyist, which is how Seagram's Edgar Bronfman Jr. came off when he bought Universal.

But others before him have walked into the valley of Sunset Boulevard with eyes open and wallet secured and still come to grief.

Of course, if it all goes bad he can just raise cable prices again.

For the record

Correction: Sunday's column said Comcast bought AT&T's cable unit in 2001. The deal was announced in 2001 but closed in 2002.