More Mooning Over Rainbow

BY MAVIS SCANLON

and MIKE REYNOLDS

Put AOL Time Warner and newly flush Comcast near the top of the list of media companies lining up for Rainbow Media Group’s cable networks.

As more MSOs move into the digital realm, their need for programming grows.

Rainbow’s networks are already well-distributed, with room to grow. Those don’t come on the market very often. That’s why there is no shortage of buyers, even with a price tag that could go as high as $4 billion.

For AOL Time Warner, buying the unit from Cablevision Systems could be the first big move after the mega-merger closes in a few weeks, following last week’s Federal Trade Commission approval.

With Rainbow the company would own a veritable multiplex with the combination of AMC, IFC, Bravo and Turner Movie Classics. Presumably, their content could be splintered into additional movie channels that would grab more shelf space in the digital cable universe.

On its own, IFC is considered a valuable driver for digital, while Bravo has only begun to scratch the surface on the advertising front. Bravo has become a cash cow. During the third quarter, its subscriber base grew 28% to 57.5 million. Advertising revenue, which accounted for about one third of Bravo’s total net revenue of $24.4 million, grew 24% to $8.2 million.

"Those are very high-quality programming assets," says David Lee Smith, an analyst who follows Cablevision at Dain Rauscher Wessels.

"How much they buy and whether they do it single-handedly is open for question," he adds, noting the possibility of a joint venture buying the assets.

Comcast, after raising $1 billion in a convertible bond offering last week, has also moved up the list of contenders.

As the third-largest cable operator with stakes in QVC, E! and the Golf Channel, Comcast "understands the value of owning distribution and content," says John Martin, director-equity research at ABN Amro.

With Comcast’s vertically integrated strategy, he adds, "they have an appetite for content."

Spokesmen for Time Warner or Comcast would not comment.

USA Networks chief Barry Diller, also known for his appetite for content, is still viewed by some as the lead contender for the assets, but a new twist in the plan may come in the form of a joint venture or a consortium of companies joining together in a bid for the assets.

"Diller is first and foremost a programmer," says Mike Goodman, a senior analyst at The Yankee Group. "He just got out of the station business with the Univision deal. He’s always wanted more cable holdings. I’m sure he could deploy Rainbow to his advantage."

In addition to USA Networks, the list of potential Rainbow suitors includes Liberty Media Group, NBC, which already owns about one fourth of Rainbow Media Holdings, Viacom and News Corp.

Dark horse candidates may include Walt Disney or a studio.