Nothing upsets shareholders more these days than the spectacle of the imperial boss, and no one conducts himself with quite such regal pomp as Michael Eisner, the chief executive of Walt Disney. Yet those who conclude that hugely-inflated “fat-cat” salaries, obsequious boards and docile shareholders must be endured forever as unfortunate by-products of capitalism have not been paying much attention to the news. Even before this week, Mr Eisner found himself besieged on all sides: from the courts, from former directors (including Walt’s nephew, Roy Disney) and even from supposedly sleepy shareholders. With the news on February 11th that America’s biggest cable-TV company, Comcast, had launched a hostile bid for Disney valuing it initially at about $66 billion, an all-out hunt for Disney has begun. Whether or not Comcast’s bid succeeds, and that is by no means certain, the company is now “in play”. Rival bids can be expected. Mr Eisner’s days as its boss look numbered.
First, though, let it be noted that Comcast, the offspring of a consensual mating between a big cable and part of a big telephone company, is itself no model of good governance. When Comcast merged with AT&T’s cable business in 2001, its controlling shareholders, the Roberts family (son Brian is now the firm’s boss) managed to retain effective control through one-third of its voting shares, even though the family owns a much smaller share of the firm’s overall equity. Michael Armstrong, then AT&T’s boss, landed himself the chairmanship.
Such incestuous arrangements only underline the importance of the hostile nature of Comcast’s bid for Disney this week. As corporate raiders faded into the mythology of the 1980s, the 1990s came to be defined as an era of arranged marriages. Some of these mergers worked; others failed. But one consequence of all of them has been an undesirable entrenchment of America’s managerial class. Hostile takeovers disciplined poor managers with the boot. In their absence, pay has soared and a panoply of devices has arisen to protect bosses: poison pills, staggered boards, generous golden handshakes, gentle golden parachutes, and the like. As both Americans and Europeans have learned, from these poor — and even perverse — incentives spring reckless management and fraud.
So if Comcast’s bid for Disney heralds, at last, the return of hostile takeovers, that is to be welcomed. This coincides with what looks like a more demanding mood among American regulators, after a decade of quietude. The Securities and Exchange Commission has its own projects to redistribute power between bosses and their boards. State attorneys-general such as Eliot Spitzer, New York’s prosecutor, campaign skilfully against excessive pay. Politicians have expressed their displeasure by passing the Sarbanes-Oxley act, which has loaded boards with new obligations. Even in Delaware, with its business-friendly courts, a judge ruled that a shareholder suit could proceed alleging Disney’s board members were negligent over a monstrous pay-off that Mr Eisner dished out to his friend, Michael Ovitz, following his abject failure as the company’s president. America changes when there is consensus for a change, and that time may now be nigh.
The Comcast-Disney battle also highlights another important, though seemingly contradictory, fact. While America’s corporate bosses need to be held more strictly to account, by a combination of better rules, better governance and more demanding shareholders, the media business in which these two firms operate actually needs the opposite — less, not more, regulation. When the Federal Communications Commission (FCC) announced last June that it would ease modestly the rules governing which sorts of media company can merge with each other, liberal and conservative Americans alike noisily professed their horror at the prospect of Big Media becoming even bigger. Congress has rolled back some of the FCC’s new rules, and the courts have put them all on hold.
Opponents of Bigger Media make two main arguments. First, they say, the concentration of ownership reduces media voices, restricts diversity and thus weakens democracy. Second, the marriage of media content (news, films, TV shows) with media distribution (TV or radio networks, internet services and the like) further increases the power of media barons over viewers, readers and listeners, as the media giants use their sales power to batter their way into living rooms. Comcast’s proposed merger with Disney falls mainly into this second category.
Never mind that there is little systematic evidence to support the crude equation of media baron with a single political “view”, and that the internet, with its anarchic bloggers and wealth of information, renders all efforts to control minds — at least in America — somewhat moot. Big Media — like Big Telecoms, Big Cable and Big Satellite, not to mention Big Music and Big Film — is not overweening and almighty, but threatened and vulnerable. The obstacle to dominance in any of these industries is the onward march of digital technology which, as it combines with the spread of broadband internet connections, is undermining most firms’ business models. Already, cable companies carry data and telephone calls; telephone carriers transport television, films and music. For the couch potato, the range of choice is growing, not shrinking. So from a public-policy point of view, there is little to fear from a Comcast takeover of Disney, or most other big media mergers that may follow it.
Whether a Comcast-Disney merger is a good idea for shareholders, however, is another matter entirely. Comcast may be able to unlock value from Disney in the short term because Mr Eisner has not, in recent years, managed his company well. But longer term, with digitisation rapidly increasing both the number of suppliers of entertainment content and the distribution channels for it, it is at least worth questioning the industry’s current conventional wisdom that combining content and distribution in one company makes sense.