ANALYSTS SAY POLITICAL ROLE IS IMPORTANT IN COMCAST-DISNEY DEAL

Between the outcries over Janet Jackson’s revealing Super Bowl performance and complaints about the FCC’s media ownership rules, media industry analysts say the current highly charged atmosphere in Washington may play a major role in any Comcast-Disney deal. Even as Wall St. analysts were trying to understand the financial metrics of the deal, the political calculus remained obscure, some said. Within hours of Comcast’s announcement of its $66 billion bid for Disney, several lawmakers and FCC Chmn. Powell said they would heavily scrutinize the deal, in addition to traditional reviews by the FCC and Justice Dept. (CD Feb 12 p1). Financial analysts, unaccustomed to factoring inscrutable items such as public opinion, said they believed that, ultimately, such a deal would pass regulatory muster, although a lot of political noise might come with it.

However, some industry sources said that, politically speaking, Comcast had a lot going against it. “This will be a very, very difficult merger for them to get through,” said an industry source, saying the political climate in Washington had changed dramatically in the last 6 months. The source cited several factors, including the Presidential election, criticism of the FCC’s media ownership rules and major concerns in the public about indecency on TV: “That puts them [Comcast] on bad footing from the get-go.”

UBS Warburg analyst Aryeh Bourkoff told investors he expected the deal would “receive a high level of scrutiny from the regulatory bodies, but ultimately be approved based on the precedent of the recently approved News Corp./Fox- Hughes transaction.” That deal gave Rupert Murdoch both content and distribution, leaving a distribution giant such as Comcast seeking to own more content for its pipes. Although Comcast immediately said it would abide by program access regulations, which allow competitors to have access to its content, many said the FCC probably would include that as a written condition on the deal.

UBS Warburg analysts also said the size and scope of News Corp./DirecTV and Comcast/Disney naturally would leave other companies vulnerable and seeking partners. They mentioned Adelphia, Cablevision and EchoStar as possible takeover targets. Other analysts were talking about additional suitors for Disney, including possibly Time Warner or Liberty Media.

Former FCC Cable Bureau Chief Deborah Lathen said any merger that went before the FCC would be fact-specific and thus would be judged on its individual merits. Lathen said it was not really fair to equate Comcast/Disney with News Corp./DirecTV or AOL/Time Warner because each company had different assets. Comcast/Disney would involve cable, broadband Internet, broadcast and telephony, all in one package. “It’s just different, and the FCC is going to look at this from the public interest perspective,” she said: “They're going to be looking at all the consolidation in the marketplace to determine how this would affect content providers, programmers, and diversity in programming.” Lathen said she thought very few people had expected the tremendous fight over the media ownership rules. “At the heart of that was the fear of the American people. The question is, how do they [Comcast] get the public comfortable with the size of this. There is going to have to be an effort on their part,” she said. Lathen also said the FCC could hold hearings on the deal to take the pulse of the public.

An industry source questioned whether the deal would serve the public interest, which is part and parcel of what the FCC must decide in making its decision. “This might be a good business deal, it might be good for Comcast, but what does this merger offer consumers?” the source asked. The source said it all could become a question of timing, and the merger dance with Disney, whether it be Comcast or some other suitor, could play out over months and months: “This isn’t over by a long shot.”

Another wrinkle was a statement by the American Cable Assn. (ACA), whose small and rural cable operator members have long battled Disney over the terms of carriage for its ABC-owned stations and cable networks. ACA Pres. Matthew Polka said he hoped such a merger could be the an arbiter of positive change: “Comcast has been a responsible operator that has sought to work with independent cable and recognize independent cable’s issues and the issues of all cable operators. With Comcast at the helm of Disney, I think there can be an opportunity once again for a programmer-operator business partnership to exist.”

It didn’t take long for the proposed merger to get the attention of Capitol Hill. Comcast made its announcement the morning of a busy day in Congress for broadcasters and cable companies, as there were 2 hearings on broadcast indecency and another in the Senate Judiciary Antitrust Subcommittee on cable prices.

The Comcast-Disney merger is the first large-scale proposed deal since last year’s intensive debate on media ownership. And as Congress examined indecency, proponents of stricter media ownership rules used the Comcast announcement as a springboard to again express concern about the growing size of media companies. Senate Commerce Committee Chmn. McCain (R-Ariz.) expressed concern, as did Senate Judiciary Antitrust Subcommittee Chmn. DeWine (R-O.) and ranking Democrat Kohl (Wis.).

House Telecom Subcommittee ranking Democrat Markey (Mass.), a staunch opponent of looser ownership rules, articulated some of the arguments likely to emerge as the Hill mulls the merger. “While no formal merger agreement has yet been achieved between Comcast Corp. and Disney, I believe that any such merger would deserve the utmost scrutiny and a full review from regulators. Such review should include an examination of the relevant markets that would be impacted as a result of the merger, as well as the effect this merger may have on competition, diversity, and cable consumers,” Markey said.

One of the strongest proponents of stricter media ownership rules, Sen. Dorgan (D-N.D.), said he hoped the merger announcement would help shore up the remaining 10 votes needed to move a resolution that would undo the FCC’s controversial media ownership rules. The bill, S.J. Res.-17, passed the Senate last year with 65 votes. However, House leaders (who have been supportive of Powell and the FCC’s ruling) have refused to move the bill to the House floor. A letter circulated by Rep. Hinchey (D-N.Y.) that asked House Speaker Hastert (R-Ill.) to move the bill to the floor had 208 signatures, 10 shy of a majority. Nearly all the co- signers were Democrats. Adding signatures would show stronger support for the measure but wouldn’t force floor action.

Rep. Wilson (R-N.M.) reflected on indecency in a letter to Comcast CEO Brian Roberts. Wilson asked Roberts to lead the cable industry into providing more help for parents. She said Comcast should make parental controls easier to use. Also, she said, Comcast should create a “family-oriented cable subscription for families that want to provide quality entertainment and education for their children without worrying about the violence, profanity and sexual innuendo on many of the channels that are currently available.”