Disney reported near deals with Comcast, Time Warner

No. 1 and No. 2 cable firms seek multiyear contracts for content

November 01, 2006|By Joseph Menn | Joseph Menn,Los Angeles Times

Walt Disney Co. is nearing multiyear deals to continue to supply billions of dollars in content to the two largest U.S. cable operators, Comcast Corp. and Time Warner Inc., according to people involved in the talks.

The negotiations have been going on for years and cover a wide range of issues, including the license fees Disney will charge for ESPN, the Disney Channel and its other networks.

The Comcast deal, which could be announced within weeks, also calls for the Philadelphia cable company to buy Disney's 39.5 percent stake in E! Entertainment Television for about $1.2 billion.

One indicator that the Comcast-Disney deal is close to being announced came in early October, when the cable operator promoted E! chief Ted Harbert by giving him added responsibilities for Comcast's G4 video game channel.

Comcast executives said Disney probably would not have agreed to allow Harbert to spend his time on a channel owned 100 percent by the No. 1 cable firm were a sale of its stake not imminent.

Comcast already pays Disney about $1 billion a year in fees for the basic-cable channels, said people familiar with terms who demanded anonymity because the negotiations are confidential.

Time Warner cable, about half the size of Comcast, which has 21 million subscribers, pays substantially less.

The deals are important because they increase Disney's financial predictability and set precedents for what it can expect to charge other cable firms around the country.

"Comcast will get the best deal in the industry" because of its size, said longtime industry analyst Laura Martin of Soleil/Media Metrics. "Time Warner will get the second-best deal. And everyone else will [negotiate] prices off those."

License fees from pay television accounted for about $2.3 billion of Disney's 2005 operating income - about half its overall profit.

New deals have seemed imminent before, only to be delayed by concerns about the impact of new technologies or practices, such as Disney's use of Web sites to stream programs that it also sells to cable carriers.

Other points in the talks include what content Comcast and Time Warner can offer through video-on-demand services and the rights to retransmit the broadcasts of ABC-owned stations in their local markets.

Both cable companies want to offer ABC television shows on their video-on-demand services for 99 cents, as Apple Computer's iTunes does. And both want to at least test the offering of movies on demand the same day they hit the rental market.

Blockbuster Inc. and others are opposed to that shift, but Disney believes that more and more of its movies will be delivered online or via cable.

Disney and Comcast officials declined to comment, while Time Warner said only that it is in "active negotiations" with Disney.

After the deals are concluded, Disney executives expect chief negotiator Peter E. Murphy to leave the company. Murphy was demoted from a post heading Disney's strategic planning division after chief executive Robert A. Iger was named to succeed Michael D. Eisner.

ESPN has been the biggest money-earner of Disney's cable properties, even though it owns only 80 percent of the sports powerhouse.

ESPN, when bundled with such sister networks as ESPN2 and ESPN Classic, collects from cable and satellite operators more than $3 in revenue per subscriber per month, sending more than $3 billion to Disney each year.

For a long time, Disney was able to raise its ESPN fees by 20 percent annually. But a nine-year deal struck with Cox Communications Inc. in 2004 limited those price increases to about 8 percent, on average.

That, along with ESPN's saturation of the cable marketplace and the soaring cost of pro sports rights, has led some analysts to conclude that the fast pace of ESPN's profit growth may be behind it.

Comcast won't be paying more for ESPN than Cox, one person involved in the discussions said.

"I would hope they could do a better deal, given the strength of their programming," said media analyst Richard Greenfield of Pali Research.

"They've had some of the best cable broadcasts ever in the past month," he said, referring to ESPN's popular but costly acquisition of the rights to Monday Night Football.

The sale of E!, which also owns the Style Network, continues Disney's moves to peel off businesses that Iger doesn't see as essential to the company's strategy.

Disney recently sold its 50 percent stake in Us Weekly to the firm of Rolling Stone founder Jann Wenner and is planning to sell its ABC Radio chain to Citadel Broadcasting.

Joseph Menn writes for the Los Angeles Times. Times reporter Sallie Hofmeister contributed to this article.

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