PREDICTION: COMCAST COULD DO AN ABOUT-FACE ON MUST-CARRY
A group of Wall St. analysts is predicting a dramatic change of strategy at the FCC if Comcast were to succeed in taking over Disney. Analyst Katherine Styponias and her team at Prudential Equity Group recently told investors that they have a “Machiavellian” theory about the value of Disney/ABC TV stations, namely that Comcast would like to wield the power of retransmission consent, rather than be hammered by it. “We also believe that as an owner of TV stations, Comcast would do a 180-degree turn and become a major advocate of digital must-carry, lobbying for a 6 MHz spectrum allocation as opposed to the requirement to send just a primary signal,” Styponias wrote.
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A Comcast spokesman said the company’s long-held position on must-carry, which it categorically opposes, remains unchanged. Meanwhile, some industry sources called the Prudential report “highly speculative” and unlikely. Another said it’s possible that Comcast could suddenly stop lobbying against must-carry and cease to spend money on the industry’s campaign against it. That would follow a path laid out by Disney in the recent fight over the national media ownership rules. Disney, which isn’t anywhere near the cap, simply stopped fighting the fight, unlike the other major network owners, Viacom/CBS, General Electric/NBC, and News Corp./Fox. NCTA declined to comment.
Styponias said must-carry would give Comcast more channel shelf space, and if the other major networks were to follow suit, taking up most of the basic tier, many popular networks subsequently would be pushed to the digital tier and many subscribers would be pushed there as well. Styponias said the FCC wouldn’t necessarily cry foul because it would help speed the DTV transition.
As far as the Disney-owned cable networks go, Styponias said a Disney/Comcast combination would make ESPN’s business model look “bullet-proof.” Although several analysts said it appeared ESPN had lost leverage in its recent negotiations with Cox and Charter (CD Feb 23 p3), Styponias said securing coverage of 1/3 of U.S. cable homes through Comcast would leave all the other cable operators “with little leverage with respect to ESPN’s pricing.” She said Comcast’s interest in ESPN stems from the fact that it would be tough to replicate, that ESPN’s market share should grow and sports could become an even bigger value to advertisers since sports are generally shown live, as opposed to something viewers could put on digital video recorders and watch later, skipping the commercials. All of this “value” translates into a higher bid from Comcast, Styponias said, probably some weeks down the road.
Asked about Styponias’ theory, Schwab Capital Markets analyst Paul Gallant, who recently was a top aide to FCC Chmn. Powell and an architect of the ownership rules, said a lot would depend on whether Comcast asked for a voluntary policy of carriage for all broadcast streams. “I would not be surprised to see Comcast propose something outside the box like this as a bold move to enhance their prospects at the FCC,” Gallant said: “Of course, there are still very serious constitutional issues with full must-carry.”
Merrill Lynch analyst Jessica Cohen, meanwhile, was telling investors that she didn’t see another bidder emerging and called Comcast a “disciplined buyer and is unlikely to bid against itself.” Nevertheless, if discussions begin, the price could go higher, she predicted. Cohen said any regulatory hurdles “appear limited for Comcast and approval should be easier than prior transactions in the industry,” such as Time Warner and AOL and News Corp./DirecTV.