-- Cable players will consolidate in the wake of the Comcast-AT&T merger
-- Satellite companies will up their subscriber base by 3 million--at cable companies' expense
For many aspiring media moguls, 2002 turned out like an episode of the CBS hit show Survivor, with one player after another cast off the island. Scandals and over-aggressive dealmaking banished the likes of AOL Time Warner Inc. (AOL) Chief Operating Officer Robert Pittman and Vivendi Universal (V) CEO Jean-Marie Messier. The media survivors face a year of brightening if still uncertain prospects, thanks to the anticipated return of spending on advertising and booming DVD sales. In the cable industry, execs are hoping the rollout of video on demand and other digital services will help reverse the loss of subscribers to satellite-TV services.
For the hardy band of media heavies who made it through last year's tribal councils, 2003 will be a year for regrouping and, for some, building new alliances. Following a relatively quiet 2002, deal activity may begin to stir again. Comcast Corp.'s (CMCSK) $54 billion acquisition of AT&T's cable systems will force big content owners to react by acquiring distribution companies, says Morgan Stanley analyst Richard Bilotti. Rupert Murdoch's News Corp. (NWS) will likely make another bid to buy satellite broadcaster DirecTV Inc. (GMH) That deal would give Murdoch the missing link--a U.S. satellite service--in a worldwide distribution network to deliver his Fox Entertainment Group Inc. (FOX) news, sports, and entertainment. It may also force other media companies to ally themselves with EchoStar Communications Corp. (DISH), the other major satellite company, says Bilotti.
Billionaire cable magnate John C. Malone is likely to return to center stage. And his Liberty Media Corp. (L) could well end up joining forces with Murdoch, says Liberty CEO and President Robert R. Bennett. Bennett also hints that Liberty could ally with USA Interactive Inc. (USAI) Chairman Barry Diller to buy a controlling stake in debt-hobbled Vivendi Universal's U.S. entertainment assets, which include the Universal studio and music units. A surprise entry into the Diller-Malone camp may be General Electric Co.'s NBC network, which is seen as likely to buy into Hollywood under new General Electric (GE) Chairman Jeffrey R. Immelt. "This year will be really big. We'll see all the deals that didn't happen last year," says Metro-Goldwyn-Mayer Inc. (MGM) Chairman Alex Yemenidjian, whose company is contemplating a bid to buy the American Movie Classics cable channel from Cablevision.
While the titans continue to plot, cable and satellite will keep going at each other. The cable camp spent more than $60 billion upgrading their networks over the past five years. Now they're rolling out services such as video on demand, hoping that will stop satellite's advances. In 2002, cable's subscriber base grew little if at all from 70 million, and this year the prospects are hardly better. Satellite-dish owners, meanwhile, are forecast to grow to 22 million, from 19 million, says PricewaterhouseCoopers.
Meanwhile, TV networks, cable TV, and newspapers will enjoy a rebound in ad sales in 2003. Universal McCann forecaster Robert Coen predicts media-wide ad sales will pass 2000's record by growing 5%, to $249.3 billion. The TV network ratings race will intensify between CBS and NBC.
Still, events off the island could skewer some of these plans. A long war in Iraq would dampen consumer confidence, sap ad spending, and likely harm companies such as the Walt Disney Co. (DIS), which counts on lots of visitors to its theme parks.
On the other hand, Hollywood could benefit even if folks stick closer to home. The studios are already collecting an estimated $8 billion a year in DVD rentals and sales, giving new life to their older movies. In 2003, that market will likely grow 25%, to $10 billion, according to Adams Media Research. To fuel future DVD sales, Hollywood will release such potential blockbusters as The Matrix Reloaded, Terminator 3, and The Hulk.
And Tinseltown's lawyers are busy trying to keep its TV shows, movies, and music safe from unauthorized copying. Sometime in 2003, a federal court is likely to rule on the studios' efforts to block SONICblue's (SBLU) ReplayTV, the personal video recorder, from allowing consumers to e-mail TV shows and movies to friends.
If the media giants are worried about the outcome, they don't show it. "We're too big to fall over and die on the side of the road," says AOL Time Warner CEO Richard D. Parsons. Still, there's plenty to worry about. Parsons needs to cut AOL's debt and get its Internet service growing again. At Disney, Chairman Michael D. Eisner has pledged to turn around ABC's limp ratings. These media executives know there could be a new round of tribal councils if they slip up. By Ronald Grover and Tom Lowry in New York