Comcast was apparently primarily interested in getting control of ESPN, which would have been a great deal for them.
B U S I N E S S / S P O R T S T E L E V I S I O N
Why ESPN Is the Crown Jewel
By SEAN GREGORY
Disney/Comcast: M-I-C ... See Ya Real Soon?
Tuesday, Feb. 17, 2004
Kids recite its anchorman quips on blacktops across the country (Booyah! En Fuego!). Athletes clamor for a space in its hilarious SportsCenter ads (in one spot, Mark McGwire, a famous recluse, smashed a computer with a bat at ESPN headquarters in Bristol, Conn.). President Bush is a SportsCenter fan. According to Beta Research, subscribers and cable-system operators rank ESPN as the most valuable network on cable TV.
ESPN is certainly an MVP at Disney. The company turned the sports network into a 300-lb. fullback that relentlessly pounded cable-system operators with price increases â€” some 20% annually over the past five years. Because the inclusion of ESPN in the basic package is essential to any self-respecting cable operator, cable companies have been furious over the beating they have been taking from Eisner & Co. but helpless against it. "Disney is trying to use the leverage they have with ESPN to make up for all the other businesses that may be troubled at this time," complained Pat Esser, COO of Cox Communications, the fourth largest U.S. operator (6.5 million subscribers), as its latest round of fee negotiations with ESPN began. The two sides are still talking, but Esser has argued that ESPN puts an unfair amount of pressure on consumers' cable fees. "They're trying to overcharge my customer, and that's just not right," he said. Cox pays $2.61 per subscriber monthly to carry the channel. That's more than it pays for the next seven top-rated basic-cable networks combined.
With estimated annual profits of $1 billion and a market value of $15 billion to $20 billion, ESPN, launched in 1979 with a lineup that included Australian Rules Football and gocart racing, became Disney's go-to asset as its theme parks and ABC faltered. Comcast Cable president Stephen Burke leaves no doubt that acquiring ESPN is a prime motivation for his bid. "Warren Buffett has said he likes businesses that are like a castle with a big moat around it," says Burke. "ESPN is a great castle with a very big moat." ESPN's Sunday Night Football is the top-rated show on ad-supported cable, and the network just completed its eighth straight quarter of ratings growth. The brand has also expanded into publishing, radio and even restaurants.
If Comcast wins ESPN, Burke and CEO Brian Roberts can not only sidestep the haggling over ESPN's high prices but also provide its cable brethren the more favorable rates that Comcast is seeking. "We might take a softer approach," says a Comcast official. Then again, they might not. Says S.P. Kothari, a merger expert at the Massachusetts Institute of Technology: "Comcast shareholders will not let the company give up this power. They will say, 'What the heck, are we running a charity shop?'" Plus, ESPN may need to maximize revenues to keep pace with its escalating cost of rights fees; the network is the first to air all four major professional sports simultaneously.
ESPN employees are counting on Comcast to be less synergy minded than the Mouse. They bristle at promoting Disney movies on their jock network, even though cross promotion is standard operating procedure at media conglomerates (and ESPN certainly isn't shy about endlessly pushing its programs, such as the X Games). But there is one part of Disney they want to retain, says an ESPN worker: "I just hope they keep our free theme-park passes."
From the Feb. 23, 2004 issue of TIME magazine
Copyright Â© 2004 Time Inc. All rights reserved.