Comcast’s DreamWorks bid turns up heat on Disney

April 27, 2016

The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

Comcast Chief Executive Brian Roberts is not one to sit idly by. His company is in talks to acquire DreamWorks Animation for $3 billion, according to the Wall Street Journal. Adding animated-movie franchises like “Shrek” and “Kung Fu Panda” to its existing mix will only strengthen Comcast in its competition with Walt Disney, which it tried to buy in 2004. The transaction could also ease the pain of losing out on Time Warner Cable.

That failed $45 billion bid may have spurred Roberts to get back in the dealmaking game. The possible offer for DreamWorks is small in comparison but represents a significant step in Comcast’s efforts to boost its family-friendly offerings.

Since the company’s $54 billion hostile offer for Disney fell short more than a decade ago, Comcast has essentially tried to copy the Magic Kingdom’s strategy. It snapped up NBC Universal, a direct competitor to Walt Disney’s ABC Networks. It also expanded its theme-park business, including a park based on the Harry Potter books, which is in the backyard of Disney World in Orlando, Florida.

DreamWorks is no Pixar, the studio behind the movie “Cars,” which Disney bought for $7.4 billion in 2006. DreamWorks Animation, a spinoff from DreamWorks SKG, the high-profile entertainment company founded by Jeffrey Katzenberg, Steven Spielberg and David Geffen, has been in search of a buyer for some time. Katzenberg cut about 19 percent of the studio’s staff last year.

Meanwhile, Comcast on Wednesday reported that it added 53,000 pay-TV subscribers in the first quarter, defying the trend of consumers ditching their cable subscriptions. That cord cutting is hurting Disney and its lucrative sports network ESPN.

Roberts’ strategy of doubling down on content and distribution seems to be working. Comcast is currently trading at about 17 times forward earnings, a bit behind Disney’s 18 times, according to Thomson Reuters data.

There are significant differences between the companies, of course. Disney doesn’t have a cable division, for example, a business that accounted for 65 percent of Comcast’s $18 billion in first-quarter revenue and for three-quarters of its $6.4 billion in quarterly operating cash flow. Still, the performance suggests Roberts is beginning to benefit from a little Magic Kingdom-style wizardry.

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