If there is a limit to Americans' tolerance for media industry consolidation, we'll soon find out.Wall Street applauded Comcast's ( CMCSA)
Since then, Vivendi Universal has made its way toward merging its U.S. entertainment subsidiary, including the Universal film studio and theme parks, with General Electric's ( GE) NBC. That transaction would bring NBC into line with the other three major TV networks -- News Corporation's ( NWS) Fox, Viacom's ( VIAB) CBS and Disney's ABC -- as being among film-studio-owning media giants. But Comcast's proposed deal more resembles News Corp.'s recent takeover, via its Fox ( FOX) subsidiary, of Hughes Electronics ( HS).
Cleland and other analysts looking at the deal agree on the benefits of putting distribution and content under the same roof. "We regard Comcast and Disney as perfect merger partners," wrote Merrill Lynch's Jessica Reif Cohen in a note Thursday morning. "The rationale behind the merger is identical to the News Corp.-DirecTV combination, which is a combination of content and technology. In this case, Comcast's broadband technology is superior to satellite, creating even more opportunities." Indeed, much of what makes Comcast-Disney more attractive than DirecTV-Fox to analysts -- and more bothersome to critics such as Chester -- is that Comcast's distribution system is simply bigger and more powerful than DirecTV's. DirecTV's 12.2 million subscriber count is less than three-fifths that of Comcast's. Comcast has 5.3 million high-speed Internet subscribers, giving it about one-fourth of the broadband market and making it the largest broadband subscriber. For DirecTV, offering widespread broadband Internet connections is off in the future, if it ever arrives. "Comcast is in a much more dominant position" in the cable programming market than News Corp., Chester says.
"The antitrust precedent set by the approval of the News Corp.-Hughes/DirecTV deal suggests that Comcast-Disney would pass antitrust muster," wrote Legg Mason's Blair Levin and David Kaut Thursday. "There will, however, likely be a huge political reaction," the analysts added. "We would not be surprised to see bills introduced in Congress that seek to block or condition such a deal. The fact that it would be reviewed in a presidential election year, in what could be a close race, adds to the volatile nature of the deal, though final consideration would likely not come until after the election. "So there is a political risk that actions in Washington could affect the value of the deal," the Legg Mason analysts concluded.