Amid Sony-MGM deal, Comcast scores with VOD, movie channel plans
Copyright 2004 Gannett Company, Inc.
September 14, 2004, Tuesday, FIRST EDITION
Comcast emerged as a surprise winner Monday in the swirl of activity around a Sony-led consortium's successful bid for MGM.
Comcast CEO Brian Roberts and Sony Corp. of America CEO Howard Stringer have struck two deals that could weaken Hollywood's antipathy toward cable, and possibly persuade subscribers to buy additional programming services, the companies said late Monday.
In the first deal, Comcast will pay Sony license fees to offer an array of movies, such as its blockbuster Spider-Man films, from its Columbia library — and potentially other hits from MGM — on video-on-demand channels.
This is the first major VOD deal between a cable operator and a Hollywood studio and could be an icebreaker. Hollywood has been protective of lucrative DVD sales, offering relatively few big films to VOD — and usually only after giving retailers and rental stores such as Blockbuster a 45-day head start.
That has frustrated cable operators. VOD is one of the few services they can offer that rival satellite companies such as DirecTV and EchoStar cannot.
Operators also believe that if major movies were part of the VOD mix, lots of customers would pay the additional $10 or so a month to subscribe to the digital cable needed to watch VOD. Comcast cited this as a potential benefit from its $54 billion offer for Disney, which it abandoned in April.
About 38 percent of Comcast's 21.5 million customers now pay for digital services.
In a second deal, the cable giant will lead a new joint venture with Sony that will use its films to create several movie-based channels, possibly similar to TCM and American Movie Classics.
These agreements are not contingent on the Sony-led consortium's eventual success in closing the deal to buy MGM.
But they might lead to Comcast lending a hand in cementing that deal. The cable giant is considering investing as much as $300 million in return for equity in the company that would be created to own and manage the MGM acquisition.
Those talks are said to be in early stages, according to a person close to the talks. Late Monday, Comcast confirmed it is considering a minority stake in the proposed MGM acquisition.
While the VOD and movie channel deals advance Comcast's strategy, and might provide cash for Sony, they might not be enough to change industry economics.
"On paper, they sound like deals that make a lot of sense," says Sanford C. Bernstein's Craig Moffett. "But it's not clear whether it's enough to break the VOD logjam. And movie channels are starting to look like anachronistic parts of the cable business. They're insurance policies against being bored.
"But that value proposition doesn't make sense in a VOD and digital video recorder-enabled world. What makes HBO work today isn't movies. It's The Sopranos."