Election to raise
scrutiny of Disney deal

By Demetri Sevastopulo and Tim Burt

updated 7:05 p.m. ET Feb. 12, 2004

WASHINGTON - Comcast may have to navigate choppy political waters in Washington as it seeks regulatory approval for a takeover of Walt Disney during a presidential election year. 

The Federal Communications Commission and Department of Justice would have to approve any deal between Comcast and Disney. While such a deal is likely to be approved by both agencies, it could attract Congressional attention as the Democrats look for issues with which to attack the Republicans. 

Media companies last year came under intense scrutiny on Capitol Hill after the FCC loosened media ownership rules, which opened the door for consolidation. 

Michael Powell, FCC chairman, on Wednesday told Congress the agency would scrutinize any takeover by Comcast of Disney, saying it would have to pass through the "finest filter".

"There might be some political reaction to this because everybody is heated about TV standards in general," said Rebecca Arbogast, analyst at Legg Mason. "Rightly or wrongly some people are pointing to increased vertical integration and greater concentration in general as a problem in terms of the lowering of standards." 

Free video Eisner era ending? Feb. 12: CNBC's Jane Wells profiles Michael Eisner's high-profile — and often contentious — career as Disney's CEO. CNBC

Scott Cleland, chief executive of Precursor, an investment research firm, said that any Comcast/Disney deal would be similar to News Corporation's recent acquisition of DirecTV. Then, the FCC imposed conditions to appease concerns about the vertical integration of a content provider and a distributor, but approved the deal along with the Justice Department.  

Lawmakers on Wednesday were quick to announce they would keep a close eye on the bid. Mike DeWine, the Republican chairman of the Senate antitrust committee, said it would scrutinise the deal if it went ahead. 

"It is of great concern — we will be vigilant of this continued consolidation in the industry," added John McCain, chairman of the Senate commerce committee, and a fierce critic of rising U.S. cable-TV rates. 

While regulatory approval is likely, observers were skeptical of the bid's industrial logic, arguing that previous attempts at pan-sector integration in the media industry had largely come to nothing. 

Unlike vertically-integrated groups such as Viacom, which acquired CBS, or Time Warner with its cable and content businesses, a Comcast/Disney tie-up would pull together unrelated businesses. 

By revenue, Disney's largest business is in theme parks, where Comcast has no presence. The cable operator, moreover, will still have to negotiate with other studios and TV networks while trying to integrate Disney's cable channels and movie businesses. 

"This is more of a horizontal deal because you're adding operations like parks," said one New York media analyst. "The rationale for doing this deal seems to be that Comcast thinks it can manage this company better." 

The cable operator has also been driven by the need to secure channels for its distribution platform, aware that it faces competition from rivals such as Time Warner and DirecTV.

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