Comcast's C-TV: Channeling Disney

A new video-on-demand deal is only the beginning of a new era of cooperation between the cable giant and the Magic Kingdom

by Ronald Grover

It was the Walt Disney Co.'s (DIS) annual meeting, known for its bouncy music and armies of costumed characters running through the aisles. For Robert Iger, Disney's new CEO, the Mar. 10 gathering was also time to shake up the digital media world. After clicking off the company's successes, Disney's new top guy unveiled a plan to stream shows from Disney's ABC network such as Desperate Housewives and Lost on the ABC Web site. The Disney faithful, assembled at the Arrowhead Pond in Anaheim, Calif., cheered. Mickey and Minnie loved it, too.

But across the country, at the Philadelphia headquarters of Comcast (CMCSA), executives of the cable giant saw new opportunities dancing in their heads. Comcast's cable customers already had access to Disney and ABC programming, but Comcast execs wanted a way to make the shows and movies available to broadband and video-on-demand (VOD) customers, too. "When we heard that Disney was going to put Desperate Housewives online for free, we wanted it for online and VOD as well," says Steve Burke, Comcast Cable president and the parent company's chief operating officer.

Iger's announcement—and Comcast's efforts to get the shows for itself—were just the latest wrinkle in what had become the media world's longest-running story: when Disney and Comcast would finally nail down an agreement that would extend the cable giant's right to carry Disney's ESPN sports channel. The negotiations had spanned four years, two Disney CEOs, and a nasty hostile takeover battle in which Comcast bid $66 billion in 2004 to buy Disney.

Online TV Allies

The two sides ultimately reached an agreement, announced on Nov. 21, that covers a broad range of rights, including Comcast's ability to use some ABC shows for its massive VOD effort as well as broadband. But that's just part of a far-reaching agreement that may become the model on which the new media world soon operates.

Indeed, BusinessWeek.com has learned that within weeks Comcast is expected to announce a new TV portal, code-named C-TV, that Disney will help promote through the use of film and TV clips that Comcast would use online. Down the road, the two companies may work more closely together to provide ABC, Disney Channel, and other kinds of programs for the portal as well, according to sources at both companies.

What's more, Disney is expected to help Comcast test the notion of showing movies on demand at the same time the movies are available in DVD stores—effectively shortening the lag time before cable gets access to those films. It's a development certain to drive major DVD retailers like Wal-Mart (WMT) nuts. "The deal is all about Comcast wedging itself into an online content company and using Disney as a partner to get there," says UBS analyst Aryeh Bourkoff, who follows both companies.

The notion of the two companies working together would have seemed far-fetched not that long ago, when venomous barbs flew in the wake of the 2004 takeover bid. That bid helped seal the fate of then-Disney CEO Michael Eisner, who resigned a year later and was replaced by his second-in-command, Iger. But the just-announced deal that Comcast and Disney struck shows how far the two companies have come. It represents the change in the media landscape that content at the click of a button has wrought.

Comcast Gains VOD Muscle

Under pressure in the broadband era from the likes of News Corp.'s (NWS) MySpace, which already streams TV shows on its site, and the TV-over-Internet ambitions of telephone companies such as AT&T (T), Comcast needs to beef up its own broadband offerings in a jiffy. And Disney, eager to shed its Eisner-era image of a slow-moving company, has hurried to be the first to embrace new technologies under Iger, who cut the industry's first deals to make Disney-produced movies and TV shows available from Apple's (AAPL) iTunes store.