Key to Vaults Is Comcast’s Prize

Comcast Corp. tried to break into the entertainment business as a star. But it’s looking as if its best role for now may be a cameo.

After losing its $50-billion bid to take over Walt Disney Co. this year, the cable giant is in the thick of Sony Corp.’s proposed purchase of Metro-Goldwyn-Mayer Inc. -- without putting up a dime.

“This is all good for Comcast,” said analyst Craig Moffett of Sanford C. Bernstein & Co.

Under a proposed deal, the nation’s largest cable operator would obtain rights to Sony and MGM movies to pump up its video-on-demand service and create new channels. The goal: to stop consumers from switching to satellite providers -- a key reason behind Comcast’s run at Disney.

The Sony and MGM libraries account for half of all color movies produced since the 1950s, including such blockbuster franchises as Sony’s “Spider-Man” and MGM’s James Bond.

Under an alliance Comcast struck with Sony on Monday, it would get access to the Japanese company’s movies even if the MGM deal collapsed.

Comcast Chief Operating Officer Stephen B. Burke said that in the crucial arena of video on demand, “we’re farther ahead than we would have been with Disney. And with no upfront investment.”

The value Comcast would bring to the table is its ability to launch cable channels -- jointly owned by Sony -- that would have access to 22 million subscribers and could be worth billions of dollars in the future.

Burke predicted that Comcast’s programming alliance with Sony would be only the beginning.

“The resources that Sony brings to bear in home entertainment dovetail beautifully with our strategy,” he said. “Eventually the partnership will extend way beyond where it began.”

Burke would not elaborate, but he pointed to Sony’s position as the leading manufacturer of televisions, video game boxes and other entertainment devices.

Comcast’s relationship with Sony could help it overcome a hurdle that has threatened cable’s expensive video-on- demand gambit, according to analysts. Since 1996, Comcast and the nation’s other cable providers have spent more than $85 billion to upgrade their networks to deliver video on demand and other services in an effort to undercut their satellite rivals.

But Hollywood studios have been unwilling to give cable operators access to their newer films, fearing that consumers would be less likely to buy DVDs if those movies were on cable at the same time.

In the near future, most of the Sony and MGM titles would be available to Comcast for video on demand only after they have aired on premium cable channels such as HBO and Showtime, and long after their DVD release.

Still, the joint venture would give Comcast limited access to some titles at the time of their DVD release in an experiment that could become a template for all of Hollywood.

“If Comcast gets earlier releases for Sony titles, that would be great,” analyst Moffett said. “But if this becomes a tipping point for the entire movie industry, that’s a home run.”

Since becoming the nation’s largest cable operator in late 2002 through the acquisition of AT&T; Broadband, Comcast has sought to increase its reach and power by controlling more content.

After kicking the tires when Vivendi Universal put its entertainment assets up for sale last year, Comcast made its boldest bid yet for movie content: the unsolicited bid for Disney.

Smarting from the rejection, Comcast Chief Executive Brian L. Roberts was gun-shy when MGM came on the block. But he came to Sony’s rescue when Time Warner Inc. emerged as the lead bidder for MGM about two weeks ago.

Comcast passed on a deal during the Labor Day weekend in which it would have become an equity partner in Sony’s proposed MGM acquisition. But it did agree to the cable channel programming partnership, with an option to become an equity owner in MGM later.

Comcast’s entry into the deal gave Sony’s financial partners the confidence to raise their bid, effectively knocking out Time Warner.

Analysts said Time Warner might now be even more determined to buy Adelphia Communications Corp., the nation’s fifth-largest cable TV operator and Los Angeles’ leader.

Should that happen, Time Warner would want to unwind a partnership with Comcast, which owns 21% of Time Warner Cable. Rather than taking money, industry sources say, Time Warner would give Comcast about 2 million of the newly acquired Adelphia customers. And that would make Comcast even bigger.