Analysts Wary of Comcast Interest in E!

Mar 27, 2006  •  Post A Comment

Call it Wall Street’s warning shot across the bow in case Comcast Corp. is considering any future content plays.

While many analysts agree that it makes sense for the multiple system operator to negotiate with The Walt Disney Co. to buy the 39.5 percent of E! Entertainment Television that it doesn’t already own, they aren’t particularly happy about the move and aren’t afraid to say so.

Some are grousing that the likely price tag of at least $1 billion will be one less check written to buy back stock or to invest in the core cable business. Others question the wisdom of a cable company being in the content business altogether.

“To me, the most important thing they can do with their capital is convert to all-digital or attack the competition,” said Richard Greenfield, an analyst with Pali Research. “I’d rather see Comcast devoted to converting its analog customers to digital faster than they are, before the competition gets going.”

Added Harold Vogel, CEO of Vogel Capital Management: “I think that all cable operators are nervous about not controlling their destiny with content, but cable operators are in the plumbing business. They have no particular expertise in content. There is a risk about content that they don’t really need to take on in any massive way.”

Comcast is said to be working with Disney to put together a deal that would give the cable operator full ownership of E!, whose assets include cable channels E! and Style. Some analysts estimate Comcast could pay around $1 billion to buy the stake, assuming E! is worth around $2.5 billion. Comcast has long had operating control over the channels, but a deal to buy Disney’s stake would satisfy Wall Street’s desire for a simpler balance sheet.

Some observers also speculate that the negotiations are tied to conversations between the two companies about Comcast’s carriage agreement with ESPN, which is up for renewal.

Spokespeople from both Comcast and Disney refused to comment.

If an agreement is reached, it would end years of speculation about which of the two companies would buy out the other. Comcast and Disney have jointly owned E! since 1997, when Comcast bought a controlling interest in the channel and then brought in Disney as a minority shareholder.

While the joint ownership has run smoothly for both companies, Wall Street has long preferred cable channels to be owned by single entities to simplify balance sheets. That was one of the reasons behind Viacom’s decision in 2003 to buy out the other half of its stake in Comedy Central, which it owned 50-50 with Time Warner. Media players predict similar motivations could come into play down the road for networks such as Court TV, which is owned 50-50 by Time Warner and Liberty Media.

Going With What It Knows

But in those cases, the companies involved were mainly content entities. In the case of Comcast, which has a presence in both distribution and content, some people worry any focus on programming could distract it from the stiffening competition on the distribution side.

Indeed, with satellite continuing to lure subscribers away from cable and the new threat of video services from telephone companies such as AT&T some observers think companies such as Comcast would do well to stick to their core business.

“Comcast is a complicated company,” said F. Jack Liebau, whose Liebau Asset Management in Pasadena, Calif., owns stakes in both Disney and Comcast. “It has aspirations on the distribution side and to get bigger in content. This proposed transaction is perfectly consistent with management’s world view. But I think investors are more comfortable with Comcast buying in the rest of an asset they know rather than some outside channel.”