01 March 2004

Prime time TV is going the way of the dinosaur. Viewership is falling and it's not just because there's nothing on the box worth watching.

There are too many other distractions from the latest games for the Sony Playstation to internet chatting and dating According to recent US data from Nielsen Media Research prime time viewing of TV by 18-to-34-year-old men has fallen by 7% year on year. In a world where people can increasingly choose when and where and how they watch programmes primetime seems increasingly anachronistic.

US cable company Comcast's bid to buy the Walt Disney Company was about getting its hands on programming to put through its distribution pipes not about adding value to the Disney programming equation.

Comcast has little to no expertise in this domain so the only added value to Disney's beleaguered ABC Network and ABC Family cable network that Comcast identified in its unsolicited bid for the Mouse Kingdom was $800m to $1.2bn in "cash flow opportunities" including overhead slashing cost savings and some gains from integrating Disney's ESPN sports channels with Comcast's sport networks.

Disney has been criticised for its lack of foresight doggedly backing the beleaguered Michael Eisner with no succession plan. And it has persistently failed to identify new revenue drivers depending instead on wringing more out of its theme parks and the boom in DVD sales. For Disney the DVD receipts from Finding Nemo far outweighed the theatrical revenues causing the industry to talk about how the DVD tail now wags the studio dog.

The problem is that traditional revenue models for broadcasters and content creators are disappearing. Just as broadcasters have relied on primetime a studio has relied on a series of sales windows starting with the theatrical release of a movie through to video/DVD onto pay-TV and free TV.

But audiences are defecting to the internet and the video game at the same time that technologies such as PVRs and video-on-demand are making it easier for consumers to time-shift their viewing. Sales of PVRs have started to take off in the US and in the UK. Add to this growing piracy on the internet of everything from songs to episodes of The Simpsons to the latest movie releases and the old methods by which the creators of content like Disney controlled their destiny is eroded further. Films are increasingly released on a schedule around the world to beat piracy and it may be that the cinema release will soon be at the same time as the DVD sale the online download and VOD.

Enter Comcast and its distributor brethren.

For the cable company the real attraction of Disney is to use the TV and movie products to drive penetration and the usage of its digital products from digital cable to VOD to PVR to broadband internet access.

What Comcast sees is what News Corp with its recent purchase of DirecTV and Time Warner with its Warner Cable unit already have: content driving revenue-producing distribution products. If Comcast completes its deal with Disney the top three US distributors of content - Comcast Time Warner DirecTV - will be vertically integrated.

But in the end the power is still in the content. The best pipe system in the universe will not entice a viewer to tune into much less pay a one-time price for poor product.

Up to now the studios have been very hesitant to license a lot of their product to VOD systems because they are worried about it eating into their robust DVD sales. A Comcast deal with Disney could change that. With Comcast in the driver's seat post-merger the cable company could demand more content sooner for VOD. Several studios in the UK have already given BSkyB earlier pay windows for their movies after being pressured by the platform operator.

So is vertical integration the answer? There have been failures aplenty both big and small. Look at AOL buying Time Warner. Today AOL has been downgraded to a unit of the latter. Remember Spanish telco Telefonica's ambitious purchase of TV producer Endemol. Now the telco is widely believed to want to sell the Dutch programme maker.