Convergence strategy sets eyes rolling

Once again, convergence is on the lips of everyone in the cable and entertainment businesses. And once again a proposed megamerger -- this time, Comcast Corp.'s $54.1 billion bid to buy Walt Disney Co. -- is being justified as an effort to fill a growing pipeline with content in a way that will create economies of scale, stimulate cross-selling, and build a whole that is more than the sum of the parts.

But industry watchers cite few past cases where convergence of content and distribution has improved a business or product, and many examples where it's failed, most notably at Time Warner Inc.

"My bias is it's not necessary," said David J. Collis, senior lecturer on strategy at the Harvard Business School. "Providing there are competitive distribution outlets, if you have great content it will always find an outlet. Blockbusters like the `Lion King' will always do well."

While owning content companies can give distributors more clout in the marketplace -- enabling them to offer broader advertising packages, for instance -- it just as often can spark friction in negotiating licensing deals with independent content providers, Collis said. He cited the difficulty the cable operations of Time Warner, which owns Warner Brothers Television, have had in their dealings with the rival Disney brand.

"Convergence is bull," said Josh Bernoff, principal analyst at Forrester Research in Cambridge. "Just because you smash these companies together doesn't mean some enormous benefit happens."

Yet analysts say Comcast, the nation's largest cable operator with an installed base of 21.5 million homes, may prove more adept at the convergence game than other companies have been. They note its success in integrating AT&T Broadband, which Comcast acquired in 2002, along with the strong fit of Comcast with the Disney properties.

"It may turn out to be one of the first successful examples of convergence," suggested Patrick Mahoney, consumer technology analyst at the Yankee Group research firm in Boston. "In terms of the fit for Comcast, they have the number one distribution network in the US yet they have relatively little content of their own. Convergence is really a good idea, but the word has a bad connotation because of the failures."

Those failures litter the business landscape. Time Warner failed to deliver the promised synergies through its 2001 merger with America Online, a deal marred by squabbling executives, recalcitrant fiefdoms, and a bad fit between business models and corporate cultures. Microsoft Corp. never got traction with MSN Broadband, which resold digital subscriber lines, or with media start-ups such as its Sidewalk city guides. And, Disney itself fumbled with its ABC television network, which lags in the ratings and has meshed poorly with other Disney properties.

The largest exception to this dismal track record may be News Corp., the global media conglomerate led by Rupert Murdoch. While it will soon test the US convergence waters through its purchase of DirecTV, the company already has demonstrated it can boost profits through the distribution of its Fox content by its own British Sky Broadcasting satellite television company in the United Kingdom and similar affiliates in Italy and Australia. A combined Comcast and Disney would be second to News Corp. in market value worldwide and a strong US competitor.

While skeptical of many convergence deals, Forrester's Bernoff said a Comcast-Disney marriage could offer some attractive benefits. As Comcast moves forward with video on demand, it would look to capitalize on content from Disney properties ranging from movies to ABC news to ESPN sports programming, Bernoff said. Disney content, moreover, could enhance Comcast broadband operations.

And with Disney beaten down by the problems at ABC, management infighting, and the collapse of its contract talks with Pixar Animation Studios, analysts say the timing may be ripe for a deal that won't drag down Comcast financially, as convergence deals often do.

"We're at a moment where the power is shifting away from the television networks and toward the cable and satellite operators," Bernoff said. "Disney has enormous strength, long term, in the brands that it has -- Winnie the Pooh is not going to lose its appeal any time soon -- but ABC the network is going to decline in value."

The deal could help Comcast offset rising costs of content, as cable companies face stiffer competition from satellite distributors. And unlike the Time Warner-AOL deal, which sought to meld online with traditional media, Comcast and Disney would be a more natural fit.

"These are two businesses that are already working together, and need each other to exist," said Mahoney of the Yankee Group.

Robert Weisman can be reached at weisman@globe.com.