Wednesday, February 11, 2004

Comcast announced today that they want to buy Disney. I think this is foolish.

What does Comcast get out of this deal? What does Disney get out of this deal? What do consumers get out of this deal?

Comcast thinks that by having access to content, they can deliver Disney contant (movies, sports, etc.) through their delivery system (cable TV, internet). My question is, are they thinking that only they will deliver Disney content? Let's say they decide to restrict Disney content to only Comcast customers. Viewers are not going to subscribe to multiple cable TV or multiple internet services to get Disney channels. Most consumers thus lose access to Disney content. This is bad. Disney loses access to consumers. Advertising revenues go way down. This is bad. So I don't think Comcast can really pull off restricting Disney content to their own network. Comcast may get a few additional customers, but Disney loses a lot more than Comcast gains.

So if Comcast can't practically restrict Disney to their own network, what can they do with it? What is the advantage of having Disney content, if it still has to be distributed to their competitors? Well, maybe it can be used in negotiations with others (Time-Warner Cable, DirectTV) who also own content. Or maybe they're going to use the resources of one company (like cash) to benefit the other. But I think the real reason this merger came up is the reward structure in public companies. CEOs can claim "success" when they do something. One thing to put on your resume is "led $66 billlion merger". It looks good, even if the merger didn't make sense. We're bored. We have lots of money. Let's buy someone.

I think delivery networks that own content are in a worse position to negotiate the delivery of more content. As a delivery network, they're a partner of a content provider. As a delivery network that owns content, they're a competitor.

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