February 11, 2004 11:35 AM PST

Comcast: Growing a family empire

With his $66 billion unsolicited bid to purchase Walt Disney on Wednesday, Comcast Chief Executive Officer Brian Roberts joins a small list of media executives whose appetite has led to explosive growth and unprecedented consolidation in the media business.

If the deal should go through--a highly uncertain prospect given Disney management's refusal to open discussions--it would solidify Roberts and Comcast as one of the chief rivals to Rupert Murdoch's News Corp. and the Time Warner media empire. The CEO paints the deal as simply the next rational step in a steady thirty-year history of growth.

"This seems like the logical next step for a premier distribution company, to get into content," Roberts said on a conference call with analysts Wednesday morning. "This is a very serious offer."

From humble beginnings as a 1,200-person cable company in Tupelo, Miss., Comcast and its family owners have emerged today into the ranks of the most ambitious media companies in the world.

Just a half-decade ago, Comcast was a well-regarded but decidedly second-tier cable TV operator, in an industry that was just beginning to emerge from a history of family-owned, collegial companies into the world of modern multimedia conglomerates.

The company was founded in 1963, when Ralph Roberts, the current CEO's father, invested in a small cable operation in Mississippi. It was renamed Comcast and its headquarters moved to Philadelphia in 1969, and it went public in 1972 on the Nasdaq market.

But it wasn't until the mid-1980s that the Roberts family began showing the appetite for growth that has now become its hallmark. In 1986, Comcast doubled its size with its first major purchase of another cable TV company, and it became a founding investor in the QVC home shopping network.

Growth by acquisition
The next decade saw the Roberts family make steady growth in the business, largely through acquisitions. Brian Roberts was elected president of the company in 1990, and he and his father spoke jointly for the operation through much of the 1990s.

The company turned its eyes to the high-speed Net front in 1996, taking an early ownership stake, along with Tele-Communications and Cox Communications, in the @Home cable modem service, a move that ultimately helped cable broadband services jump ahead of the telephone companies' DSL (digital subscriber line).

The next year, Roberts was widely given credit for galvanizing Microsoft's interest in the cable industry. At a Redmond, Wash., dinner for cable executives hosted by Microsoft's Bill Gates in April of 1997, the two executives sat next to each other, and Roberts reportedly challenged Gates to invest in the business in order to speed cable's transformation to digital systems. A few months later, Microsoft announced it would invest $1 billion in Comcast itself, with Gates publicly giving credit to Roberts.

Like the proposed Disney deal, the acquisitions that catapulted Roberts and Comcast to the top of their industry faced considerable opposition.

In 1999 Comcast, by then the fourth-largest cable company in the United States, agreed to buy third-largest operator MediaOne in a $60 billion stock deal. But it was ultimately pushed aside by AT&T, which was itself amid a cable-buying spree, and Comcast instead got a $1.5 billion merger termination fee, and about 750,000 net new subscribers from AT&T.

Just two years later, after AT&T's strategy crumbled, Comcast made an unsolicited bid to buy all of AT&T's cable properties--more than twice the size of MediaOne alone--for nearly $60 billion in stock and debt assumption. AT&T rejected the bid , but finally capitulated months later for a $72 billion price tag.

Not long afterwards, the @Home cable broadband partnership collapsed, and Comcast inherited the largest broadband network in the United States at the end of 2001.

Ambitious yet well-grounded
This growth pattern has left the company with a reputation for ambitious, but well-grounded expansion efforts both technologically and in a corporate scope, analysts say.

"They are forward-looking," said Kaufman Bros. analyst Mark Kay. "This company was one of the first to roll out high-speed broadband service and to experiment with digital video...They also have a reputation of being very diligent in doing their due diligence with the price they pay and in the expectations they set for their transactions."

In the years since finishing the AT&T merger, Comcast has shored up the technological weak spots and troubled bottom line of the AT&T properties, but has clearly had its eyes on further expansions.

It has been a tough negotiator with Hollywood studios, trying to win rights to sell on-demand access to movies over the cable systems before films find their way into the rental market. It has started its own cable sports channel in Chicago, winning rights to show that city's professional basketball and baseball games from under the nose of Rupert Murdoch's Fox Sports Chicago, and has started its own G4 video game cable channel.

Analysts who follow the company say this history of successful mergers and roving vision could help Disney shareholders warm to the idea of a merger, despite the surprise.

"One thing that some Disney shareholders may look at is that (Comcast) has a pretty good track record in integrating deals," said Strategy Analytics analyst Jim Penhune, "For a company in the old-line business of cable TV--and cable historically has been a 'buddy-ocracy' of companies that were family held--(Comcast) seems very open to bringing in new people and smart people and seizing on new market opportunities."

News.com's Jim Hu contributed to this report.

 

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