On Feb. 17, Comcast launched a surprise bid to buy Walt Disney & Co., Magic Kingdom and all, for $54 billion. If successful, Comcast would become the largest media company, surpassing Rupert Murdoch's Newscorp (FoxTV, DirecTV) and General Electric's media conglomerate (NBC, Universal). Comcast is already the nation's largest cable provider. Comcast plus Disney equals ABC, ESPN, Disney's film studios combined with Comcast's Philadelphia 76ers, E! Entertainment, Golf Channel and Comcast's recent $29 billion purchase of AT&T's cable services. It would be a monumental deal -- monumentally wrong.
Comcast, the king of cable distribution covets Disney's content. The theory goes that Disney's studios could create the stuff to air and Comcast would distribute and air it. Comcast CEO Brian Roberts wrote to Disney's CEO Michael Eisner: "We have a wonderful opportunity to create a company that combines distribution and content in a way that is far stronger and more valuable than either Disney or Comcast can be standing alone." Working together. Synergy. Blah, blah, blah. You can predict the talking-points playbook.
So that's the theory: Content plus distribution means synergy. The combined numbers of both companies are tubby -- total revenue of $125 billion, 179,000 employees and 21.5 million cable subscribers. Two companies "working together." Another lard-merger, who cares?
Comcast-Disney shouldn't merge because content-distribution mergers just don't work. Look at two of the biggest media mergers in years past: AOL- Time Warner and Vivendi-Universal. AOL-Time Warner wanted to combine content with distribution. Three years later, the over $100 billion merger went bust, and Time Warner voted to remove "AOL" from its name. Wharton Marketing professor Peter Fader told CNET: "Synergies can't be manufactured synergies are more a myth than a reality. To the extent they exist, it is serendipity." Furthermore, Time Warner is rethinking its content-distribution strategy. Consumer and employee confidence has been "shaken."
Maybe AOL was an anomaly. Vivendi joined with Universal to compete with AOL, Newscorp, Viacom and Disney. Universal Studios produced lucrative movies such as "The Mummy," and Vivendi broadcasted its glorious content over many a satellite. But debt piled up, company integration imploded and Vivendi's king Jean-Marie Messier was dramatically ousted. Late last year, NBC bought Universal. No anomalies.
Some argue that reasoning-by-analogy isn't sound. Disney-Comcast could be the exception that proves the content-distribution marriage true. Say Disney-Comcast does merge. And to say that the Disney-Comcast merger will be approved isn't a stretch. FCC Chairman Michael Powell, as New York Times columnist William Safire describes, "never met a merger he didn't like." We will end up with the question Sen. John McCain asked Powell in a Commerce Committee hearing: "Where will it all end?" Do you really think Rupert Murdoch of Newscorp will be satisfied with No. 2? We have five big media companies, soon to be 4 3 2
Marrying content with distribution is like wedding Amazon.com with FedEx. It makes more sense to license FedEx to be the exclusive distributor of Amazon. Comcast-Disney could frame its partnership with licensing agreements, letting each company focus on what it does best. You won't have to integrate two different companies with two distinctive cultures. One of Disney's core values: "Preservation and control of the Disney magic." Another: "Nurturing and promulgation of 'wholesome American values.'" These values cut to the heart of Disney. Comcast's values are "feel good" one words: ethics, quality, flexibility, diversity, employee focus, enthusiasm. These cultures are worlds apart. License Mickey so you can test the waters. If things don't work out, you won't have to divorce.
Yet the most pressing problem isn't the merger. Sure, big media is getting bigger but it fails to recognize a shifting business model. As digital technology is enhanced, you will see more pirated mp3s being distributed and television-advertising revenue decline. It won't be too long before everyone is using the internet to make free long distance calls, like we have here at Dartmouth. In combining two large companies, you force the resulting company to integrate thousands of processes, less time to innovate and find a more compelling business model that takes into account digitalization. Don't merge, Disney. Keep your magic.
