Posted on Wed, Feb. 25, 2004
Microsoft role in Comcast-Disney: Partner?
SOFTWARE GIANT HAS THE CASH TO SWEETEN THE POT
By Akweli Parker
Philadelphia Inquirer
Since Comcast Corp. launched its surprise bid to take over Walt Disney Co., Microsoft Corp. has been the proverbial elephant in the room: quiet, but impossible to ignore.
Might the giant software-maker step in and make its own bid for Disney? Or is it more likely to reprise the role it played in 2001, when it helped Comcast acquire AT&T Corp.'s cable division by letting Comcast convert $5 billion in AT&T debt into 115 million Comcast shares.
Today, Microsoft is Comcast's largest shareholder, with a 7.4 percent stake in the company.
Few if any analysts and observers expect Microsoft to go after Disney directly. Rather, Microsoft is interested in cementing relationships in the cable and entertainment field as it works toward putting its software inside the digital cable boxes, television sets, and other entertainment gadgets of the future.
"Microsoft wants to invest in stuff where it can put its software," said Rich Hanley, a professor and director of graduate programs at Quinnipiac University's communications school in Hamden, Conn. "As far as active ownership [of Disney], it would be foolish to go down that path. I just don't see Microsoft getting into content."
But it is conceivable that Microsoft could add a few billion dollars to sweeten Comcast's offer, given its involvement in past deals. The company believes in "spreading the love around" among various companies and industries to hedge its bets, Hanley said.
Disney's board last week unanimously rejected Comcast's Feb. 11 bid, which was initially valued at $66 billion in stock and assumed debt.
The value of the bid has since fallen to $59.5 billion as Comcast's stock price has slid; at that level, Comcast - perhaps with a partner - would need to add $14 billion to reach the $30-per-share range that some Disney investors have indicated might persuade them to sell.
The Disney board rejection left Comcast with several options. It could:
Increase its offering with stock or cash; Comcast has said it has about $8 billion in cash, credit and securities that it could tap.
Resort to hardball takeover tactics, such as adopting a long-term strategy to replace Disney's board with directors more favorable to a takeover.
Walk away.
Bring in a partner such as Microsoft that can offer considerable financial muscle.
Asked if Comcast was working with Microsoft to fashion a more compelling bid, a Comcast official said that there was "nothing new" in Comcast's strategy, and that the company was sticking by its original offer.
A spokeswoman for Microsoft declined to comment on whether the company might make a run at Disney.
The financial community has all but dismissed Microsoft as a stand-alone bidder for Disney.
One reason is a matter of perception: Many people still associate Microsoft with the government's antitrust suit against the company in the 1990s.
UBS AG analyst Tim Wallace said in a conference call last week that he did not see Microsoft getting involved, because of outside "fears that it wants to take over the world."
Wallace's UBS colleague, Aryeh Bourkoff, said that, if Microsoft became involved, it would want a partner.
"I don't think Microsoft would bid for Disney without Comcast," he said, adding that Comcast did not need help from Microsoft since it had plenty of assets it could turn to cash to bolster its offer.
Microsoft and Comcast have had a close relationship for years. At a 1997 dinner, Comcast president Brian L. Roberts famously asked Microsoft chairman Bill Gates to help rejuvenate the then-slumping cable industry with some cash. Gates responded with a $1 billion investment in Comcast.
"I'm sure there are teams within Microsoft saying: 'What can we do about this whole thing?' " Fariborz Ghadar, director of the Center for Global Business Studies at Pennsylvania State University, said of the Disney situation.
"The time we spend watching broadcast television has gone down dramatically," Ghadar said. "What has increased is the amount of hours spent on the Internet... . There's a big battle: How do we access the Internet, and video on demand, and other media?"
Gates wants Microsoft to be the gatekeeper for that access, the creator of the operating system for TVs and cable set-top boxes in the way that Windows is for PCs now, Ghadar said.
Roberts' and Gates' companies already have assorted pacts with each other to let Microsoft's software and services exploit cable's fat data pipe into customer homes.
Last year, Microsoft announced an alliance with Comcast and other cable providers to test cable-box software that contains an on-screen program guide and that attempts to boost subscribers' purchases of video-on-demand movies.
"For Comcast, it better helps them merchandise to consumers," said Ed Graczyk, director of marketing for the Microsoft TV division. "It gives the [cable operator] an opportunity to promote and cross-sell the product."
The Microsoft software runs on existing digital cable boxes, and dresses up their on-screen guides and video-on-demand service.
There is also some built-in intelligence with the software. For instance, on Valentine's Day, the display might steer customers to romantic and weepy "chick flicks."
With the customer's permission, the software can guess and suggest other movies the user might like, similar to the book-recommending feature on Amazon.com. The software is undergoing lab testing in Seattle, with small-scale testing in homes due soon.
"We've been very pleased with the relationship with Comcast," Graczyk said.
It is worth noting, however, that in the diverse realm of entertainment and the technology companies that distribute it to consumers, alliances can be loose and varied.
For instance, Microsoft is also a business partner with Disney. This month, the two companies signed a long-term contract for Disney to use Microsoft's security software to protect Disney movies from digital piracy and to allow them to be played on a variety of gadgets, including PCs, TVs, and portable media players.
"Microsoft has so much cash, it could act as a sugar daddy to a lot of different companies and not hurt the bottom line," Hanley, the Quinnipiac professor, said. "It's just money; it's not getting into the DNA of the companies."
Microsoft role in Comcast-Disney: Partner?
SOFTWARE GIANT HAS THE CASH TO SWEETEN THE POT
By Akweli Parker
Philadelphia Inquirer
Since Comcast Corp. launched its surprise bid to take over Walt Disney Co., Microsoft Corp. has been the proverbial elephant in the room: quiet, but impossible to ignore.
Might the giant software-maker step in and make its own bid for Disney? Or is it more likely to reprise the role it played in 2001, when it helped Comcast acquire AT&T Corp.'s cable division by letting Comcast convert $5 billion in AT&T debt into 115 million Comcast shares.
Today, Microsoft is Comcast's largest shareholder, with a 7.4 percent stake in the company.
Few if any analysts and observers expect Microsoft to go after Disney directly. Rather, Microsoft is interested in cementing relationships in the cable and entertainment field as it works toward putting its software inside the digital cable boxes, television sets, and other entertainment gadgets of the future.
"Microsoft wants to invest in stuff where it can put its software," said Rich Hanley, a professor and director of graduate programs at Quinnipiac University's communications school in Hamden, Conn. "As far as active ownership [of Disney], it would be foolish to go down that path. I just don't see Microsoft getting into content."
But it is conceivable that Microsoft could add a few billion dollars to sweeten Comcast's offer, given its involvement in past deals. The company believes in "spreading the love around" among various companies and industries to hedge its bets, Hanley said.
Disney's board last week unanimously rejected Comcast's Feb. 11 bid, which was initially valued at $66 billion in stock and assumed debt.
The value of the bid has since fallen to $59.5 billion as Comcast's stock price has slid; at that level, Comcast - perhaps with a partner - would need to add $14 billion to reach the $30-per-share range that some Disney investors have indicated might persuade them to sell.
The Disney board rejection left Comcast with several options. It could:
Increase its offering with stock or cash; Comcast has said it has about $8 billion in cash, credit and securities that it could tap.
Resort to hardball takeover tactics, such as adopting a long-term strategy to replace Disney's board with directors more favorable to a takeover.
Walk away.
Bring in a partner such as Microsoft that can offer considerable financial muscle.
Asked if Comcast was working with Microsoft to fashion a more compelling bid, a Comcast official said that there was "nothing new" in Comcast's strategy, and that the company was sticking by its original offer.
A spokeswoman for Microsoft declined to comment on whether the company might make a run at Disney.
The financial community has all but dismissed Microsoft as a stand-alone bidder for Disney.
One reason is a matter of perception: Many people still associate Microsoft with the government's antitrust suit against the company in the 1990s.
UBS AG analyst Tim Wallace said in a conference call last week that he did not see Microsoft getting involved, because of outside "fears that it wants to take over the world."
Wallace's UBS colleague, Aryeh Bourkoff, said that, if Microsoft became involved, it would want a partner.
"I don't think Microsoft would bid for Disney without Comcast," he said, adding that Comcast did not need help from Microsoft since it had plenty of assets it could turn to cash to bolster its offer.
Microsoft and Comcast have had a close relationship for years. At a 1997 dinner, Comcast president Brian L. Roberts famously asked Microsoft chairman Bill Gates to help rejuvenate the then-slumping cable industry with some cash. Gates responded with a $1 billion investment in Comcast.
"I'm sure there are teams within Microsoft saying: 'What can we do about this whole thing?' " Fariborz Ghadar, director of the Center for Global Business Studies at Pennsylvania State University, said of the Disney situation.
"The time we spend watching broadcast television has gone down dramatically," Ghadar said. "What has increased is the amount of hours spent on the Internet... . There's a big battle: How do we access the Internet, and video on demand, and other media?"
Gates wants Microsoft to be the gatekeeper for that access, the creator of the operating system for TVs and cable set-top boxes in the way that Windows is for PCs now, Ghadar said.
Roberts' and Gates' companies already have assorted pacts with each other to let Microsoft's software and services exploit cable's fat data pipe into customer homes.
Last year, Microsoft announced an alliance with Comcast and other cable providers to test cable-box software that contains an on-screen program guide and that attempts to boost subscribers' purchases of video-on-demand movies.
"For Comcast, it better helps them merchandise to consumers," said Ed Graczyk, director of marketing for the Microsoft TV division. "It gives the [cable operator] an opportunity to promote and cross-sell the product."
The Microsoft software runs on existing digital cable boxes, and dresses up their on-screen guides and video-on-demand service.
There is also some built-in intelligence with the software. For instance, on Valentine's Day, the display might steer customers to romantic and weepy "chick flicks."
With the customer's permission, the software can guess and suggest other movies the user might like, similar to the book-recommending feature on Amazon.com. The software is undergoing lab testing in Seattle, with small-scale testing in homes due soon.
"We've been very pleased with the relationship with Comcast," Graczyk said.
It is worth noting, however, that in the diverse realm of entertainment and the technology companies that distribute it to consumers, alliances can be loose and varied.
For instance, Microsoft is also a business partner with Disney. This month, the two companies signed a long-term contract for Disney to use Microsoft's security software to protect Disney movies from digital piracy and to allow them to be played on a variety of gadgets, including PCs, TVs, and portable media players.
"Microsoft has so much cash, it could act as a sugar daddy to a lot of different companies and not hurt the bottom line," Hanley, the Quinnipiac professor, said. "It's just money; it's not getting into the DNA of the companies."
