Commentary: For Media Giants, How Big Is Big Enough?

To ensure that their content makes it into homes, programmers think they must own cable or satellite assets, too

By Ronald Grover and Tom Lowry

It's likely to be a long season next year for Philadelphia sports fans who get their TV from satellite systems like DirecTV or the DISH network. That's because Comcast Corp. (CMCSK ), whose Sports Net Channel broadcasts games by the 76ers basketball team and hockey's Flyers, won't license to satellite carriers. But Philly sports nuts aren't the only folks who are disturbed. As part of Comcast's $54.9 billion bid to buy AT&T's cable assets, it intends to slash what it pays for programming by up to $500 million, sending shivers through just about every media company that owns cable channels--or wants to.

Not that AT&T (T ) is in the bag for Comcast, by any stretch. On July 18, AT&T rejected Comcast's offer; one source close to the board says it would like nearer to $75 billion. Still, Comcast's bid is a deafening wake-up call for media companies. It has forced even such behemoths as AOL Time Warner Inc. (AOL ) and Walt Disney Co. (DIS ) to wonder whether they are large enough to effectively compete in a fast-consolidating world in which one or two gargantuan media conglomerates may control access to up to half America's TV homes.

BLOCKED PIPELINE? Indeed, the question reverberating around media boardrooms is: How big is big enough? Disney President Robert A. Iger says he and Chairman Michael Eisner spend "20 of our 24 hours" a day worrying about whether a rival can block their programs. Until now, it had been an industry given that Disney programming is a must-carry on cable systems. But now, Disney and other media giants worry that the balance of power could shift in favor of huge cable operators. "We're not cowed," Iger says. "But we're always monitoring and can change our approach accordingly."

Even AOL Time Warner, with its massive reach, is looking worried. A year ago, when the cable and Internet companies merged, AOL Time Warner was the one that had other media operations worried. But now, AOL Time Warner is studying its own bid for AT&T's cable assets to ensure that the huge system will carry AOL's Net and TV offerings.

Meanwhile, Rupert Murdoch's News Corp. (NWS ) is solving its distribution worries by snatching up an alternative: It will soon close a deal to buy DirecTV from General Motors Corp. (GM ). That will give Fox a fast-growing satellite service to beam programs to homes. And still other programmers have asked Disney to take the lead in making a joint bid for AT&T, which it has so far resisted. "Ultimately, this is a game that will be won by the biggest player, and access to the consumer is the most important part of all," says McKinsey & Co. media consultant Michael J. Wolf.

So how big do media companies need to be? No one seems to know, but all figure they're not there yet. Already, there are signs of friction between those who own the pipes into homes and those who want to fill them. Last year, Disney fought off Time Warner Cable, which took ABC off some of its cable systems in a contract dispute. A public clamor got ABC back on the air, and Disney won new deals for its Toon Disney and SoapNet channels. Yet in June, Disney had to take its new ESPN (DIS ) News channel off a handful of systems owned by Charter Communications (CHTR ) in another contract dispute.

Since new channels and services are the lifeblood of media companies, more dustups of this sort are likely. Even with federal rules intended to keep programs from being blocked, smart media companies will find a way to favor their own programs at the expense of rivals'. You can bet that Murdoch, should he get DirecTV, will offer sports programs to his subscribers that won't be available to Comcast. And when AOL rolls out its all-Sopranos cable channel, others will have to pay dearly to show it.

The irony is that Comcast--even if it is able to win control of AT&T's cable assets--may not be large enough to thrive without more original programming. DirecTV now tries to nab Comcast viewers using exclusive pro-football games. "If DirecTV is interested in giving us access to its exclusive football package, we would be happy to give them Comcast Sports Net," says President Stephen B. Burke. Fair enough. But there could always be a bigger player to stiff the deal.

Grover and Lowry cover the media and entertainment industry.

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