Can the elephant learn to fly?

Disney's $19bn takeover of ABC may have created the ultimate media giant, but uncertainties remain. David Usborne reports

MICKEY MOUSE, that chirpy rodent with the over-sized ears, is beginning to look like a world potentate.

Last week, he scoffed ABC television as if the TV network was a piece of cheddar. In Washington, meanwhile, the US Congress rushed to pass a com- munications deregulation bill that will open his way to still greater prizes. But as Wall Street celebrates, consumers may have cause to tremble.

Common wisdom holds that the acquisition of Capital Cities-ABC by the Disney Company last Monday for $19bn (pounds 11.9bn) - the second biggest takeover ever - has forged an entertainment powerhouse that will prove unbeatable. Time Warner, previously considered the number one, Rupert Murdoch's News Corporation, arguably the world's most integrated media empire, and other industry players are on notice that there is a new bully on the block.

In the markets, the reaction to the deal, orchestrated by Disney's chairman, Michael Eisner, was - to put it mildly - euphoric. And to be sure, the corporate mantra of satisfying the shareholders has been more than honoured. Shares in Capital Cities-ABC soared 20 per cent on Monday alone. And, defying the tradition that dictates the predator's share price will always dip, Disney shares - already sky-high - picked up new steam.

Investors liked the deal for several reasons. First there is that matter of size and clout. Disney and ABC expect combined gross prfoits revenues of $5bn. That eclipses Time Warner, with $3.5bn, Viacom, with $2.5bn, and News Corporation, with $2bn. What Disney wants - say coverage of the baseball league - it will probably be able to get.

"Disney will be able to indulge in a certain amount of muscle-flexing," says Smith Barney analyst John Reidy, a vocal sup- porter of the transaction. He predicts, for instance, that any fond hope that Mr Murdoch may have had of securing the 2000 Olympic Games, in his native Australia, for his Fox network in America are probably now dashed, as are his grander ambitions for growth. "Rupert Murdoch cannot get to $5bn in [gross] earnings, and I think he realises that," Mr Reidy says.

Then there is the alleged fit between ABC and Disney. In a widely applauded magic trick of vertical integration, Mr Eisner now possesses a prime distribution network for his programmes, while ABC has a potential lock on that material. The network also gives Mr Eisner a new vehicle to promote all his theme paraphernalia, such as Mickey Mouse toothbrushes. And if that sounds exciting in the domestic market, there are global pros- pects as well.

Disney hopes, for instance, to use the ESPN sports cable channel, 80 per cent-owned by ABC, to spread its influence in Europe and South-east Asia.

This is not, however, a one-strike earthquake. It was only a day before the industrial conglomerate Westinghouse sealed weeks of negotiations to purchase the CBS television network for $5.4bn. That deal did not trigger quite the same rapture, but the message was the same: consolidation and concentration in the American media business is gathering pace. Other news may follow soon. General Electric has said it is seeking new alliances in its ownership of NBC and may sell outright. And other suitors may try to outbid Westinghouse for CBS.

Many things explain the rush. The networks, until recently written off as dinosaurs in the new cyberspace, are suddenly back in fashion as the prime conveyors of content and earners of advertising income. The industry suddenly sees a logic in linking distribution with production in single companies and is anxious to do it fast. What is making the revolution possible, however, is the current stampede towards deregulation in Washington.

Some of the shackles have already been loosened. The Federal Communications Com- mission, for instance, has gradually dismantled the fire-wall that used to exist between the broadcast distributors and the studios that made their programmes. That cleared the way for Mr Eisner. Late on Friday, moreover, the House of Representatives voted through a communications bill that will take deregulation several miles further. It will, for instance, allow a single company - who might it be? - to own television stations serving 35 per cent or even 50 per cent of the US viewing population. The current limit is 25 per cent. It will also end restrictions on cable, telephone and broadcast companies competing in each other's territories.

Concerns that these changes will transform the communications landscape and allow the creation of anti-competitive monopolies are dismissed by Mr Reidy at Smith Barney as "bald- erdash". Companies such as News Corporation, he insists, will continue to operate much as before. And he rubbishes the notion that programme content is at risk, with ABC, for instance, gradually becoming a glorified Disney channel. "What you want to do is maximise the number of people you are targeting, but you don't screw around with the programming."

Consumer groups are less confident. To Jeffrey Chester at the Center for Media Education in Washington, the risk of Disneyfication is real. "We are not just talking about delivery of electronic media, we're talking about a system that will be able to set the national agenda and create the basis for a our political discussion and our cultural identity," he says. The danger is multi- plied because of the scope companies such as Disney will have to also own telephone and cable companies.

To illustrate his point, Mr Chester hypothesises about the future of a medium-sized city such as Dayton, Ohio. With a population of 180,000, it currently has four commercial TV stations, several radio stations and one newspaper. Its regional telephone company, Ameri- tech, is already allied with Disney. It is conceivable that under the new rules, Disney could take control of two of those TV stations, multiple radio outlets, the newspaper and the telephone and cable networks. "If your point of view in Dayton is not shared by Mr Eisner, you had better not want a theme park in your backyard," quips Mr Chester.

It may not be a foregone conclusion, however. While the telecommunications bill has been fuelled by an estimated $20m in lobbying money from the industry over recent months - most of it filling Republican pockets - opposition to it is stirring. Last week, President Clinton said he would try to veto it because it is not in the public interest. "Instead of promoting open access and diversity of content and viewpoints, it would allow fewer people to control greater numbers of television, radio and newspaper outlets in every community," the President complained. The passage of the bill through Congress is not quite over and some moderating amendments may yet be added to it.

It is always possible, meanwhile, that all the gilded forecasts for Disney- ABC will not be borne out. Several factors ought to argue caution. ABC can currently boast good health, for instance, because of recent prod- igious advertising revenue. Advertising income on broadcast networks and TV stations around America rose by 9.8 per cent last year. Another economic recession would quickly prick that bubble. Nor is Disney, with its 400 theme stores worldwide and holiday parks, immune from an economic downturn.

It should not be forgotten that Disney is taking on $10bn of debt to finance its purchase of ABC. And is vertical integration really so magical? Because of their alliance, it is possible that ABC and Disney will be tempted into programming and distribution decisions that actually make little economic sense.

Some sobering lessons can be drawn from the recent experience of Time Warner, which also attempted to create the synergy of production and distribution by investing heavily in cable systems. It is a strategy that Time Warner, with debts of about pounds 14bn, is starting to regret. Its shareholders certainly are. When Viacom - which had a huge cable operation - bought Paramount two years ago, there was similar talk of a vertically integrated giant: it has since sold its cable business and is now concentrating on providing content.

We could take Mr Eisner at his word that he has no intention of dressing ABC in a pair of those Mickey Mouse ears. "I want the network to be number one and put the best shows on," he told the Wall Street Journal last week. "We don't have to own everything. If there's a young guy in Columbus, Ohio, who has a good idea for a TV show, we'll find a way to do business with him".

Maybe he means it. But Disney is already aiming to fill ABC's Saturday morning schedule. It seems Disneyfication, not diversification, is the new force in American communications.

Voices
A Russian hunter at the Medved bear-hunting lodge in Siberia
Save the tigerWildlife charities turn to those who kill animals to help save them
News
Davis says: 'My career has been about filling a niche - there were fewer short actors and fewer roles – but now I'm being offered all kinds of things'
PeopleWarwick Davis on Ricky Gervais, Harry Potter and his perfect role
News
i100
Sport
Frank Lampard will pass Billy Wright and equal Bobby Charton’s caps tally of 106 caps against
sportFormer Chelsea midfielder in Etihad stopgap before New York contract
PROMOTED VIDEO
Arts and Entertainment
The first film introduced Daniel Radcliffe to our screens, pictured here as he prepares to board the train to Hogwarts for the first time.
booksHow reading Harry Potter helps children grow up to be gay-friendly
Arts and Entertainment
A scene from Aladdin is performed at the Tony Awards in New York in June
theatreBrit producer Lythgoe makes kids' musical comedy a Los Angeles hit
Sport
Usain Bolt of Jamaica smiles and shakes hands with a competitor after Jamaica won their first heat in the men's 4x100m relay
sport
News
Chancellor George Osborne, along with the Prime Minister, have been 'complacently claiming the economy is now fixed', according to shadow Chancellor Ed Balls
i100... which is awkward, because he is their boss, after all
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Financial Analyst - Forecasting - Yorkshire

£300 - £350 per day: Orgtel: Financial Analyst, Forecasting, Halifax, Banking,...

Business Architect - Bristol - £500 per day

£500 per day: Orgtel: Business Architect - Banking - Bristol - £500 per day A...

Regulatory Reporting-MI-Bank-Cardiff-£300/day

£200 - £500 per day + competitive: Orgtel: I am currently working on a large p...

Trainee Recruitment Consultant - Birmingham - Real Staffing

£18000 - £23000 per annum + Commission: SThree: Real Staffing are currently lo...

Day In a Page

Save the Tiger: Meet the hunters tasked with protecting Russia's rare Amur tiger

Hunters protect Russia's rare Amur tiger

In an unusual move, wildlife charities have enlisted those who kill animals to help save them. Oliver Poole travels to Siberia to investigate
Transfers: How has your club fared in summer sales?

How has your club fared in summer sales?

Who have bagged the bargain buys and who have landed the giant turkeys
Warwick Davis: The British actor on Ricky Gervais, how the Harry Potter set became his office, and why he'd like to play a spy

'I'm a realist; I know how hard this business is'

Warwick Davis on Ricky Gervais, Harry Potter and his perfect role
The best swim shorts for men: Bag yourself the perfect pair and make a splash this summer

The best swim shorts for men

Bag yourself the perfect pair and make a splash this summer
Has Ukip’s Glastonbury branch really been possessed by the devil?

Has Ukip’s Glastonbury branch really been possessed by the devil?

Meet the couple blamed for bringing Lucifer into local politics
Dress the Gaza situation up all you like, but the truth hurts

Robert Fisk on Gaza conflict

Dress the situation up all you like, but the truth hurts
Save the tiger: Tiger, tiger burning less brightly as numbers plummet

Tiger, tiger burning less brightly

When William Blake wrote his famous poem there were probably more than 100,000 tigers in the wild. These days they probably number around 3,200
5 News's Andy Bell retraces his grandfather's steps on the First World War battlefields

In grandfather's footsteps

5 News's political editor Andy Bell only knows his grandfather from the compelling diary he kept during WWI. But when he returned to the killing fields where Edwin Vaughan suffered so much, his ancestor came to life
Lifestyle guru Martha Stewart reveals she has flying robot ... to take photos of her farm

Martha Stewart has flying robot

The lifestyle guru used the drone to get a bird's eye view her 153-acre farm in Bedford, New York
Former Labour minister Meg Hillier has demanded 'pootling lanes' for women cyclists

Do women cyclists need 'pootling lanes'?

Simon Usborne (who's more of a hurtler) explains why winning the space race is key to happy riding
A tale of two presidents: George W Bush downs his paintbrush to pen father’s life story

A tale of two presidents

George W Bush downs his paintbrush to pen father’s life story
Restaurateur Mitch Tonks has given the Great Western Pullman dining car a makeover

The dining car makes a comeback

Restaurateur Mitch Tonks has given the Great Western Pullman dining car a makeover
Gallery rage: How are institutions tackling the discomfort of overcrowding this summer?

Gallery rage

How are institutions tackling the discomfort of overcrowding this summer?
Louis van Gaal has £500,000 video surveillance system installed to monitor Manchester United players

Eye on the prize

Louis van Gaal has £500,000 video surveillance system installed to monitor Manchester United players
Women's rugby: Tamara Taylor adds fuel to the ire in quest to land World Cup

Women's rugby

Tamara Taylor adds fuel to the ire in quest to land World Cup