Economics involves in all facets of our life. Manifestly, all activities people engage are affected by the economics decision taken by human being. The study of economics, therefore, is very interesting but complicated, indeed. This paper is written to motivate the economy theory by a real case of today’s business. It explains the relationship between a part of the book Economics by John Sloman and a recent article concerning microeconomic issue. The article is taken from “The Economists”. It looks at one of the hottest issue in the media industry.
It discusses about the bid from Comcast, a cable TV company, for Walt Disney Company. The paper is designed as follows. Firstly, I am going to summarize the article to give an overview about what is going on between Comcast and Walt Disney. Secondly, since the article is selected to clarify one of the microeconomics theories, I would also like to summarize a short part of Sloman’s book. That part is about alternative maximizing theories and I would like to focus on the theory of merger. Thirdly, the linkage between the article and theory is discussed in the next part.
Lastly, I would like to give a conclusion as well as my own comments about the situation in the article. A copy of the article in attached at the end of this paper. As introduced above, the article is about a $66 billion bid from Comcast to one of the most venerable entertainment firm- the Walt Disney Company. Comcast was taking advantage of a particular weak point in Disney history to launch its proposal. Disney was very successful in the past under the management of Michael Eisner. In his first 13 years in charge, he has raised revenue from $1.
65 billions to $22 billions and market value from $2 billions to $67 billions. However, he lost his way some year ago. At this moment, Disney current profits are a third lower than they were in 1998 and its share price is at the level it was in 1997. There are three factors contributing to this failure. The first one is the bad luck of Disney parks. Those parks are seriously suffered in the wake of the 11 September event. The other intractable problem is from ABC network. ABC has kept on losing money from 1995.
Importantly, the biggest problem is from Mr Eisner. He seems to have difficulty getting on with people and thereby retaining their senior talent. A long list of executives and board members has left Disney such as Paul Presler, Steven Bornstein, Roy Disney, Stanley Gold…. Besides, Pixar, an animation studio, one of the most important business partners has divorced Disney as conflicts between Eisner and Steve Jobs, Pixar’ CEO, can not be solved. At this very moment, Comcast decided to launch a hostile takeover after Mr Eisner refused its friendly merger talks.
Comcast has been proving its power by taking over AT;T Broadband 15 months ago and well controlling it up till now. If this takeover proposal to Walt Disney works out, Comcast will create by far the biggest vertical-integrated entertainment giant in the media industry with a market capitalization of over $120 billion. The article also mentions that the Comcast’s bid provide both support and challenge for two of Disney’s critics, Roy Disney and Stanley Gold, who resigned their positions in December in order to mount a public campaign against Mr Eisner.
Disney and Gold will try to persuade shareholders to oppose the election of Mr Eisner. Perhaps, they would prefer Mr Eisner simply to go so that the firm can remain independent or a “White Knight” to acquire Disney. Indeed, Comcast’s offer may trigger either of those outcomes. The burden is now put on Mr Eisner shoulder. He is fighting to the survival of Walt Disney. However, in economists’ eyes, if Disney board really want to keep the company independent, its best strategy may be to replace Mr Eisner immediately. Otherwise, Comcast will soon be doing it instead.