Microsoft’s gain in Disney’s acquisition

Reed Stevenson

SEATTLE: One of the biggest winners in Comcast Corp.'s surprise $47.6 billion bid to buy Walt Disney Co., analysts said, may be the silent partner looming in the wings, Microsoft Corp.

Since Microsoft already owns 7.4 per cent of Comcast, it would end up controlling about 4 per cent of the world's largest media company if Comcast's bid succeeds.

That stake could give Microsoft leverage over the course of the deal and afterward as it looks to push its software beyond the maturing market for personal computers and into the still-developing boom in digital entertainment, analysts said.

Microsoft has long sought to forge links in the telecommunications and entertainment industries in order to sell its software, leading some observers to question whether the world's largest software maker could emerge as a rival bidder for Disney.

With nearly $53 billion in cash, analysts said Microsoft could easily pay for a large media franchise, such as Disney, with cash or stock.

"The missing link in all of Microsoft's plans is content," said Rob Helm, research director at Directions on Microsoft, a Kirkland, Washington-based independent researcher.

With the next version of Microsoft's market-dominant Windows operating software not expected for another two years or so, Helm said that "Microsoft is counting on digital audio and video to keep PC sales intact."

A spokeswoman for the world's largest software maker declined to comment on any acquisition rumors.

But analysts said that even a minority ownership in a media giant rivaling Time Warner Inc. could be enough to create stronger links between Microsoft's software, Comcast's distribution and Disney's prized entertainment assets.

Just this week Disney agreed to license digital media technology from Microsoft for distributing movies over the Internet that would prevent illegal distribution and copying of digital movies.

"At one time Microsoft seemed very intent on expanding its media role, particularly when looking at the perceived threat of then AOL and Time Warner," said Joe Wilcox, analyst at Jupiter Media, "But right now, the company is now focusing on getting back to basics."

PARTY LIKE IT'S 1999?

Much of this week's merger hype echoed events seen five years ago, when AOL was constructing its merger with Time Warner Inc. and Microsoft invested billions in cable providers, only to write much of that off in subsequent years.

Microsoft also proved to be a key player when Comcast acquired AT&T Corp.'s cable business, exercising its influence both through its stake in Comcast and a $5 billion investment it made in AT&T.

Analysts said that a competing Microsoft bid for Disney was unlikely, given that the software maker has backed away from investing heavily in content after launching MSNBC and online magazine Slate, which remain relatively small operations. MSNBC is a joint venture between Microsoft and General Electric Co.'s NBC network

Moreover, the Federal Communications Commission has promised to go through Comcast's proposed merger with a fine-toothed comb, the kind of anti-trust attention that Microsoft has worked hard to put behind it in recent years.

"They've never done an acquisition of more than a couple of billion dollars," said Jamie Friedman, analyst at Fulcrum Global Partners. "They're not content creators and their content dissemination is a relatively small part of their business."

Helm added that Microsoft tends to have "arm's-length" cooperation with content providers, a model it prefers.

"Microsoft has said repeatedly it's not a content company," Helm said.

(C) Reuters