Media Spotlight Swings Away From Content

Content may be king, but distribution is the ace in the hole.

In the never-ending debate in the media business over whether ultimate power resides in the companies that create entertainment or the companies that distribute it, three top sell-side analysts have recently dared to make a decision.

And though each analyst puts a different spin on his or her conclusions, the vote is unanimous: For now, at least, distribution is the winner.

That means good news for owners of direct broadcast satellite systems and cable operators -- in particular, Comcast CMCSA, the Philadelphia-based cable operator that, following its acquisition of AT&T Broadband, boasts 21 million cable subscribers, or about 30% of American households.

But it's bad news for content companies that don't own such assets -- for example, Disney DIS, which, though it owns the ABC network and ABC stations, may lose some of its ability to raise rates for its powerhouse sports channel. Disney, due to report quarterly earnings Thursday, rose a dime Tuesday, to $16.85.

Concentrating

The latest analyst to venture an opinion in the content-distribution debate is Banc of America Securities analyst Doug Shapiro, who issued a report Tuesday. Joining an argument as perpetual as the debate over chickens and eggs, Shapiro says consolidation and technology are bolstering the power of distributors.

That consolidation, giving larger distributors more power in rate negotiations since they control access to larger audiences, won't end with the Comcast-AT&T merger, says Shapiro. Noting that the Federal Communications Commission may soon raise the current ownership cap in the cable industry, Shapiro writes of the possibility that in two years "the vast majority of multichannel distribution will reside in the hands of just two DBS companies and three, or even two, enormous cable operators."

New technology such as the Internet, writes Shapiro, opens up new distribution platforms, fragmenting audiences and the advertising sales pie further. Personal video recorders make it easier for users to skip ads, avoid lower-rated broadcast programming and erode the brand value of individual networks. Not only that, but distributors will likely control these new technologies, giving them another gate with which to control content.