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The Line King

THE BALTIMORE SUN

Charlie Irwin was in over his head.

He and his three partners had done all the right things to break into the then-fledgling cable television business -- securing a license from Harford County, buying space on the telephone poles, hard-wiring the high-density areas of Aberdeen, Havre de Grace and Bel Air. But they soon realized that managing Multiview Cable Co. and its 9,000 customers in 1978 was beyond the abilities of a novice.

"You've got to remember, cable television was really in its infancy and not a lot of people knew much about it -- including us," said Irwin, now 86 and living in Bel Air. "It was just too much for us to handle."

The four Multiview executives decided to sell to two bright and smooth-talking gentlemen from Philadelphia, the bow-tied Ralph Roberts Sr. and his cautious partner, Daniel Aaron. As payment they accepted stock in the pair's company, a burgeoning cable enterprise that they had scarcely heard of: Comcast Corp.

Today, the company that inched into Baltimore's outer suburbs 26 years ago is by far the largest cable-TV provider in the nation and soon could dominate the media universe, too.

If its blindside offer valued at $66 billion to take over the Walt Disney Co. succeeds in coming months, Comcast will become the heir to such entertainment heavyweights as ABC, ESPN and the Disney studios, and will surpass Time Warner Inc. as the largest media conglomerate in the world.

The ascent might seem especially surprising to Baltimore-area television viewers, who were introduced to Comcast back when remote controls had cords, basic cable cost $8 a month and the band Dexy's Midnight Runners was rocketing to fame on MTV.

But the people who have negotiated with or studied the Philadelphia-based cable giant -- some of whom admire it, some of whom despise it, all of whom respect it -- say that spectacular growth was always the company's plan. And Comcast, run today by Roberts' 44-year-old son, Brian, might be among the few entertainment companies that is experienced enough and flexible enough to make it work.

"The people who were running it back then are still running it today," said Irwin, still a Comcast stockholder. "And I'll tell you, they're some real smart cookies."

Ralph Roberts often tells a story about the 1,700-subscriber cable system that he bought in Tupelo, Miss., in 1963, his first. He purchased the small system at Aaron's urging, using the proceeds from Pioneer Belt & Suspender, which he sold in 1961. He says people often ask whether he imagined his American Cable Systems -- the name was changed to Comcast in 1969 -- growing into the 21-million- subscriber behemoth it has become. He tells them: "Of course I did."

Even if the claim was bluster, Comcast's subsequent four decades suggest a company all but obsessed with growing larger and wider, and reaching into ever more living rooms. Partly by attracting subscribers, mostly by acquiring them from competitors -- and always with an almost ruthless political shrewdness, analysts say -- Comcast is regarded as a driving influence in the industry.

Baltimore offers a microcosm of the corporate history. After creeping into the outer suburbs in 1978, Comcast barreled toward the city in 1984 by taking over Caltec Cable in Baltimore County. In 1988 it bought Storer Cable in Howard County, and a decade later it acquired a stake in Jones Intercable Inc in Anne Arundel County. It conquered Baltimore, its last battle in the region, in 2001 when Comcast bought TCI Communications for $500 million. Carroll County, served by Adelphia Communications, is the region's last holdout.

Sensed potential

Comcast's first cable system existed solely to feed broadcast channels to far-flung households that couldn't receive them with antennas, but Comcast was also among the early companies to sense cable's potential to offer a multitudinous array of channels. As its system grew, so did its menu of channels.

The company was also among the first cable operators to acquire its own content, investing in networks such as the QVC shopping channel, Home Team Sports, the Golf Channel and E! Entertainment Television.

Company executives say they strive to introduce major new services or products to their customers at least once a year. They consider the company's Video-On-Demand, which allows viewers to select from a menu of programming at times of their choosing, to be the model of an interactive television that will change the industry.

Before last week, none of Comcast's moves prompted as much brow-raising as its $29 billion acquisition in 2002 of AT&T; Broadband, a move that tripled the company's size and gave it claim to nearly a third of the nation's cable television wiring.

That deal -- which, like the Disney proposal, was pursued over the objections of the target company's management -- was considered risky because of its enormous cost and scale. Yet analysts say today that it is barely a memory, having been absorbed and smoothed over, and its consequent debt paid down a year or more earlier than Wall Street imagined.

"That acquisition really showed how capable Comcast is when it comes to mergers, even if they're taking over companies that are quite a bit larger than they are," said Todd T. Mitchell, a cable industry analyst for Blaylock & Partners in New York. "They have met or exceeded all of the targets they set."

The AT&T; deal seems paltry, however, compared with the proposal to take over Disney. That move would launch Comcast not only into a new frontier on the balance sheet but also into foreign operational territory at the opposite end of the entertainment pipeline. But this time, analysts are largely devoid of skepticism.

Television programming is far and away the highest cost that cable operators face, so marrying a delivery company such as Comcast with a content company such as Disney should save money.

One of Disney's products in particular -- the sports network ESPN -- is one of the most expensive television channels in the industry, charging companies such as Comcast about $2 per subscriber per month. The deal would be the envy of cable operators nationwide if Comcast could sneak ESPN's fees inside the corporate envelope.

"Just controlling ESPN alone will immunize them from price increase, to some extent," said John D. Linehan, manager of the $2 billion T. Rowe Price Value Fund, which holds large positions in Comcast and Disney.

"I like this deal. I might be in the minority, but I think Comcast is in a good position here. When you think about what it takes to create a new cable network these days, that doesn't mean anything unless you can get that content to the viewers."

The merger plan has its critics. Among them is Disney Chairman and Chief Executive Officer Michael Eisner, who rejected the offer privately before Comcast sent it around him to Disney's board of directors.

One concern is the price, about $26.50 for each Disney share, as initially proposed. But industry observers say Comcast's offer will almost certainly improve if the deal is to succeed.

Another concern is how a creative machine such as Disney could survive within the corporate confines of a cable company, whose business is more about raw numbers and technology than the kind of artistry that made Disney a world-famous entertainment enterprise. But Disney's creative fortunes have lagged in recent years, and Wall Street seems little concerned with such ethereal matters.

"I think the Disney people are out there saying, 'Hey, these guys are just cable operators, they don't know anything about content,' " Mitchell said. "But that kind of thinking ignores the way the business is changing, and how today it's really the [operators] who know the customers, and know how content from a company like Disney needs to be applied.

'Driving the industry'

"In many ways, Comcast is driving the industry right now," he said. "They know how to make that content profitable."

The company has other forces working for it. Steve Burke, president of Comcast Cable, was a Disney executive for 12 years and once thought of as a successor to Eisner. More formidable, industry watchers say, could be a sophisticated and well-schooled arsenal of lobbyists produced by four decades of franchising and expansion negotiations.

Nowhere is Comcast's political influence as stone-cast as in its home market, where it owns the NBA's Philadelphia 76ers, the NHL's Philadelphia Flyers and two sports arenas. The one-time chief of staff to former Philadelphia Mayor Edward G. Rendell is a Comcast executive. And Rendell, now governor of Pennsylvania, is a regular commentator on the NFL Philadelphia Eagles postgame show that Comcast presents.

But the company is regarded as similarly well-oiled in most other city halls and state capitals in areas where it does business. Late last year, it hired a new senior adviser on government affairs: former Pentagon spokeswoman Victoria Clarke, who managed the U.S. military's communications effort during the first months of the war in Iraq.

The Comcast arm-twisters have fanned out in search of Disney shareholders, planning to pitch their case in advance of whatever boardroom battle might be afoot.

"When I was in the state Senate you could trip over Comcast lobbyists in the hallways," said Habern W. Freeman Jr., a former legislator and county executive from Harford who often fought with Comcast over its local franchise rights. "They managed to get a grip on the government and the political process, and they ended up with an almost exclusive situation in Maryland and all over the country now, I guess."

Freeman, a customer of satellite television, says he is no fan of Comcast, having lost too many political fights with the company. But he has learned not to doubt its resources, skill or resolve.

"Honestly, I don't think you could print in the paper what I really think about them," he said. "I guess the price of getting into Disney World is going to go up," Freeman said. "Then, pretty soon, they'll probably buy the planes to get you there."

What they own

Disney

Television: ABC broadcast television, ESPN, Disney Channel and 10 television stations

Movies: Walt Disney Pictures and Mirimax Studios

Theme parks: 10 parks including Disneyland and Walt Disney World

Comcast

Cable company: More than 21 million subscribers

Television: Comcast SportsNet, E! Entertainment Television, Style Network, Gold Channel, Outdoor Life Network and G4 Media

Sports teams: Philadelphia Flyers and 76ers, Frederick Keys, Bowie Baysox and Delmarva Shorebirds

Comcast through the years

Here are some key events that played pivotal roles in shaping Comcast, the nation's largest cable operator:

1963: Ralph Roberts (from right with his son Brian, the president and CEO of Comcast Corp., and Stephen Burke, the executive VP and president of Comcast Cable), former marketer of Muzak and owner of a belt and suspenders company, starts Comcast with a 1,200 subscribe rcommunity antenna television system in Tupelo, Miss.

1969: American Cable Systems is renamed Comcast and incorporated in Pennsylvania.

1972: Roberts takes Comcast public.

1990: Son Brian Robrerts, after working his way up through various posts, becomes president and a director and pursues vigorous expansion.

1996: Comcast completes $1.49 billion acquisition of E.W. Scripps Co.'s cable television operations, raising its total subscribers to 4.3 million.

1996: Comcast announces $520 million deal to buy majority ownership of Camcast-Spectacor, owner of the Philadelphia Flyers and 76ers and the Spectrum and Corestates Center, the city's two indoor sports arenas.

2001: After acquiring rival cable systems including Jones Intercable Inc. and Lenfest Communications Inc., Comcast grows to nation's third-largest cable operator, with more than 8 million subscribers.

2002: Comcast completes its acquisition of AT&T;'s cable division forabout $29 bilion in stock to become the nation's largest cable operator, with 21.5 million subscribers, nearly twice as many as second-place Time Warner Inc.

February 11, 2004: Comcast proposed to buy Walt Disney Co., owner of ABC and ESPN television networks, movie studios and theme parks, for about $66 billion in stock and assumed debt.

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