Forget delivery. The fight to survive as a major media company is all about content. At least that's the spin Walt Disney Chairman Michael D. Eisner is putting on his company's $5.3 billion purchase of Fox Family Worldwide from News Corp. and Israeli TV producer Haim Saban.
Among other assets, the deal gives the Walt Disney Co. the Fox Family Channel, seen in more than 81 million homes in the U.S., a rich library of 6,500 episodes of animated shows like Digimon, Spider-Man, and the Mighty Morphin Power Rangers, and majority stakes in children's cable channels seen in 34 million homes in Europe and Latin America. More important, owning additional channels and controlling more content also gives Disney greater firepower to compete against the growing number of satellite and cable companies, what Eisner calls "the gatekeepers."
For months now, Wall Street and others have openly worried that Disney (DIS), which doesn't own cable or satellite assets, would fall behind media giants like News Corp., which are busily buying up various kinds of distribution to insure their programs will reach consumers. Disney and CBS parent Viacom have been the leading contrarians in the pipe-is-king philosophy. "There has been a lot of pressure to own pipe [or delivery systems]," Eisner said at a July 23 press conference announcing the Fox deal. "We think the best way is to go with content."
In acquiring the Fox Family Channel, Disney has added to its already impressive stable of cable channels one of the few available on just about every system in the U.S. Disney plans to rename the Fox Family Channel ABC Family and to air original programming, as well as entertainment, sports, and news that appear first on ABC. Eisner's thinking is that owning a wealth of cable channels, including ESPN, the Disney Channel, SoapNet, and now the ubiquitous Fox Family, will make it difficult for gatekeepers to keep Disney-owned channels off their systems.
"CONTENT-OBSESSIVE." Not only does this channel give Disney enormous leverage with the cable companies, it makes it more likely that consumers would kick up a large fuss if a Disney-owned channel were dropped. That's what customers of Time Warner's cable system did in 2000, when the cable behemoth tried to keep ABC off some of its systems during a contract dispute. ABC eventually went back up, and Disney won other concessions from Time Warner to help it roll out Toon Disney and SoapNet.
"We're content-obsessive, and this acquisition goes to our sweet spot," Eisner said. The Disney chairman has so far resisted temptation to buy cable or satellite systems, despite having been approached by other content producers to make a bid for AT&T's underperforming cable systems. "There was a time when owning a theater was important, and a time when owning a network was important, and a time that owning satellite was important," he said. "But it has always been important to own content."
Disney has been quietly trying to buy the Fox Family Channel for several months, according to Eisner. The deal came together at Herbert Allen's fabled retreat for media moguls in Sun Valley earlier in July. It was there that Eisner says he and Disney President Robert Iger sat down with News Corp. Chairman Rupert Murdoch, News Corp. President Peter Chernin, and Saban. Murdoch, on the hunt for cash to swing a pending deal to buy the DirecTV satellite service from General Motors, had decided to sell the channel rather than buy the 50% he didn't own from Saban. Previous potential bidders for the Fox Channel included MGM, USA Networks, and Viacom.
SOAP SCENARIO. The deal is expected to close in three or four months, at which time Disney will probably give the channel a complete overhaul. Under an agreement the company's ABC network has with its affiliated TV stations, Disney can use as much as 25% of the prime-time programming it airs on its broadcast network to seed its cable channels. It can also use all of its ABC and ESPN programming for the new cable channel, says Iger. For example, Eisner says Disney has been talking to Ted Koppel about using shows from Koppel's 25 years of Nightline interviews on one of its cable outlets.
Eisner, who says frustration forced him to abandon attempts to program his own TiVo personal recorder, believes cable channels should offer folks network programming at more convenient times. For instance, he says that Disney's SoapNet channel has a growing following among working women who can't watch soap operas during the day. If Eisner has his way, you may never have to worry about missing your favorite show again -- as long as it's a Disney or ABC program. By Ron Grover in Pasadena, Calif.