Another Nail in the DVD Coffin???

A new Video on Demand deal between Comcast and Disney gives Comcast the ability to use some ABC shows for its massive VOD effort as well as broadband. But more importantly, the far-reaching agreement may become the model on which the new media world soon operates.

According to BusinessWeek, 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. But that’s just the start of the relationship…

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.

Both companies have been aggressively trying to improve their image. Disney wants to be seen as more agile and an adopter of new technologies. Comcast needs to update its offerings to remain competitive with Telcos and new media outlets like MySpace. This deal accomplishes both objectives by giving Comcast access to Disney programming for its On Demand service. Disney gets access to more than 24 million Comcast TV subscribers and another 11 million high-speed Internet customers. Disney intends to sell ads for most of its shows. Where will the partnership go from here?  The BusinesWeek article says:

Disney has told Comcast it is willing to participate in a test in two markets, in which it would offer movies on demand three or four months after the movies show up in movie theaters—the same time DVDs are shipped to retailers such as Wal-Mart. Disney has already ruffled feathers among retailers like Wal-Mart and Target (TGT) by offering its movies on Apple’s iTunes site at prices that the large retailers believe are below their wholesale price (see BusinessWeek, 9/11/06, “The Empire Strikes Back”). But this could send folks to Comcast instead of Wal-Mart to buy the DVDs. For Iger, who has said he wants to experiment with narrowing the “windows,” it is a toe in the water.

For Comcast, Disney presents a formidable ally in taking on telcos and others in the battle to deliver movies and TV shows over the Internet. C-TV, the new TV portal due in the coming weeks, is expected to help consumers organize their videos—be they consumer-generated or shows that they have streamed or downloaded from other sites. But down the road, Comcast wants to make episodes of TV shows available online, giving it the ability to offer custom-made channels for shows like Lost or Desperate Housewives. ABC hasn’t agreed to that, but the lines of communication are open since both companies are eager to experiment in the broadband world, according to sources with knowledge of the deal.

Given the extremely tense relationship these two have had in recent years, the new spirit of cooperation is remarkable but also very good for both companies.  In the end it may mean profound changes in how media is bought and consumed and that will be disruptive to retailers who rely on DVD content as a traffic driver.

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