Comcast moves on

After getting nowhere in its 11-week siege of the Magic Kingdom, Comcast Corp. yesterday abandoned its hostile $54 billion bid for the Walt Disney Co., but indicated bankrupt cable operator Adelphia Communications Corp. may be its next takeover target.

As it reported solid quarterly sales and profit growth, Comcast chief executive Brian L. Roberts declared that "we have never been more bullish about cable and its potential for growth in the future."

Adelphia, the fifth-largest US cable operator with 5.5 million subscribers, said this month it would consider putting itself up for sale as it prepares to emerge from 22 months operating under bankruptcy protection.

"We've always looked at cable systems, so I suspect we'll look at those" Adelphia franchises, Roberts said in a conference call. "A number of their systems fit our footprint," Roberts said, adding that Comcast would consider a range of strategies including a joint bid with another cable company for Adelphia or swapping Comcast franchises for Adelphia operations.

Adelphia operates cable franchises in 40 Massachusetts cities and towns that would fit hand-in-glove with Comcast's 215 Bay State systems, and it also has operations in Ohio, Florida, Greater Los Angeles, and the mid-Atlantic that could beef up Comcast clusters in those areas. Locally, Adelphia owns cable systems on Cape Ann, Martha's Vineyard, parts of Southeastern Massachusetts, and the northern and southern ends of Berkshire County.

But as the largest US cable operator with 22 million subscribers already, buying Adelphia outright could trigger antitrust concerns from federal regulators, who might push Comcast to divest substantial pieces of Adelphia. A Federal Communications Commission policy restricting cable companies from owning more than 30 percent of the market, however, was thrown out by a federal court in early 2001. Comcast controls about 33 percent of the US market, although that includes a stake in Time Warner Cable that Comcast is pursuing plans to divest.

Besides Adelphia, the only other widely speculated takeover candidate for Comcast is Hollywood film studio Metro-Goldwyn-Mayer Inc., which is reportedly being eyed by Time Warner Inc., Sony Corp., and other media conglomerates.

Given that paying for TV programming is by far Comcast's biggest expense, direct ownership of a prime source of movies and TV shows could be financially appealing, particularly the chance for Comcast to offer thousands of titles from MGM's library through video-on-demand cable services.

But media "convergence" plays have often failed to live up to expectations, and the Time Warner-America Online merger turned out to be a disaster producing over $100 billion in red ink. An MGM bid could rekindle the same angst many Wall Street investors had about Comcast's Disney bid and whether it makes sense for the cable company, which has only limited studio and broadcast channel operations, to try to expand in that direction. Before yesterday, Comcast's shares had fallen 12 percent after it revealed the Disney takeover bid Feb. 11.

A pure-play cable expansion could be an easier pitch to investors, some analysts said. "Comcast is on a roll right now, and I think they certainly could persuade their shareholders that they could manage more cable systems," said Josh Bernoff, an industry analyst with Forrester Research in Cambridge.

Bernoff said he sees little damage to Comcast from abandoning the Disney bid. "What is Comcast without Disney? It's just the largest and best-run cable operation in the country. They've got a pretty good bead on how to make money from consumers."

But Jeffrey Bray, a media and telecommunications stock analyst with the David L. Babson & Co. money management firm in Cambridge, said, "They do need to continue to find new businesses to invest in. More likely they need to do acquisitions to keep the growth rates up. But they're so big right now that there's only a limited number of things that would be interesting to them that wouldn't irritate their shareholders. I think everybody thinks 12 months from now, we're going to be talking about them and Disney again."

Roberts said "we're always going to look for new opportunities for growth," but added that "with almost 22 million customers, I think we're in the position where we don't have to make any acquisitions."

Comcast cable president Stephen B. Burke insisted that Comcast's interest in Disney is over. "We're moving on, and it really couldn't be further from our agenda right now," Burke said.

"Being disciplined means knowing when it is time to walk away. That time is now," Roberts said. "I think the only mistake is that we were assuming that the Disney board was going to talk to us. It seemed inconceivable to me that they would not want to have a dialogue with the world's premier distribution company."

Comcast's move on Disney, which owns the ABC television network, ESPN cable sports channels, and a host of studios and theme parks, had been read by some investors as an indication Comcast had doubts about its core cable TV operations. But Roberts and Burke said they were delighted by results for the first quarter, which included net income of 3 cents per share compared to a loss from continuing operations of 16 cents a share a year earlier.

Revenue rose to $4.91 billion from $4.47 billion as Comcast added 394,000 high-speed Internet subscribers, 35,000 basic cable subscribers, and 192,000 digital cable subscribers. Comcast also increased the number of its subscribers who can use video on demand services to 57 percent as of the end of March, compared to 50 percent in December. Comcast also reactivated a plan it suspended after the Disney bid to repurchase $1 billion worth of its shares.

Peter J. Howe can be reached at howe@globe.com.