Bid Signals Industry’s New Status

The industry began in the 1970s by showing little more than polka contests and tractor pulls.

But Comcast Corp. on Wednesday underscored just how far underdog cable operators have come, surprising Wall Street and entertainment executives alike with its $51-billion bid to gobble up Walt Disney Co.

The gambit represents the biggest step yet in the ascendancy of cable, which last year surpassed broadcast television for the first time in attracting prime-time eyeballs. Suddenly, Hollywood studios and major broadcast networks aren’t the only ones playing starring roles in the continuing consolidation of the entertainment industry.

“This says that Comcast is one of the biggest and most powerful companies in the world,” explained Josh Bernoff, an analyst at Forrester Research.

The Philadelphia-based company provides service to 21.5 million American households, making it the nation’s leading pay TV provider, with about a fourth of the market. Its stock market value, at $69.3 billion, exceeds Disney’s $58 billion.

Yet as formidable a financial force as it has become, Comcast has a gaping hole in its operations, industry observers say. The company is basically a pipeline for programming but creates very little content itself; its leading cable channel is E! Entertainment Television.

If it is to continue to grow and to fend off rivals -- especially News Corp., which controls the Fox studios and late last year snapped up satellite television leader DirecTV -- Comcast needs to own more programming itself. That’s a big reason Comcast Chief Executive Brian L. Roberts has set his sights on Disney.

“Brian is an 800-pound gorilla,” said Leo Hindery, who runs Yankee Entertainment and Sports Network. Nonetheless, “he needs to look more like News Corp.”

Comcast was founded in 1963 when Roberts’ father, Ralph, used the proceeds from the sale of his belt-and-suspenders business to take a risk on an emerging technology called community antenna television. He and his partners bought a single TV system in Tupelo, Miss.

The medium, which before long became known as cable TV, was in its infancy. In those days, ABC, CBS and NBC controlled 90% of television viewing. Cable operators wired America simply as a way to provide better reception to the three broadcast networks.

Cable channels weren’t very efficient until pioneers such as Ted Turner and Gerald Levin figured out that new satellite technology could be used to instantaneously send signals to cable systems across the country. Before that, cable systems received tapes of shows in the mail.

Time Inc. was an early player, launching HBO in 1972 with a Pennsylvania polka contest. Other early entrants were Turner’s WTBS, which was unveiled in 1976. Nickelodeon and ESPN premiered in 1979.

Cable distributors soon jumped into the programming game with channels of their own -- and still control CNN, the Cartoon Network and many others. It wasn’t long before media giants with Hollywood studios and broadcast divisions recognized that cable channels were becoming the profit centers of the media business and could provide an afterlife for their output.

Disney itself landed sports juggernaut ESPN in its 1996 acquisition of Capital Cities/ABC Inc. and later bought the Family Channel from News Corp.

Today, there are about 300 cable channels in all. They have become increasingly valuable properties -- shopping channel QVC alone has been valued at $14 billion -- while other parts of the entertainment industry, from music to theme parks, have struggled.

Yet after 30 years, the cable business finds itself maturing.

About 70% of American households subscribe to cable services, compared with 59% in 1990, making growth more difficult. What’s more, the cable industry is losing subscribers to satellite rivals such as DirecTV and EchoStar Communications Corp., which have amassed more than 20 million subscribers since bursting onto the scene in the mid-1990s.

In response, cable operators such as Comcast have branched into new services, spending more than $70 billion since 1996 to upgrade their networks with digital technologies. The aim is to deliver advanced features such as high-speed Web access, video on demand and phone service.

“This is all about how technology is deployed,” said Tom Dooley, a former senior Viacom Inc. executive and principal at D&D; Capital Partners, an investment firm in New York.

By gaining access to Disney’s vast array of entertainment programming, Comcast believes it could coax more people to try out its new technologies.

For example, Comcast executives said they envisioned including content from Disney’s ESPN and ABC as part of their video-on-demand service, allowing customers to watch shows at their convenience, with fast-forward, pause and rewind capabilities. New movies from Disney also could appear on Comcast’s video-on-demand service shortly after or even at the same time they hit theaters.

“The bottom line is to accelerate the digital future,” Roberts said Wednesday, after announcing the bid for Disney. “The way people use TV is going to change. Consumers want to control what they get, how they get it and when they get it.”