Disney, Comcast to Buy Controlling Stake in E

Walt Disney Co. and Comcast Corp. are teaming up to pay $321 million to Time Warner Inc. for its majority stake in E Entertainment Television, the cable service that airs such programs as Howard Stern’s talk show and “Talk Soup.”

The partners, which have both aggressively pursued cable start-ups and acquisitions, plan to beef up E’s lineup of original programming and its prominence as a source for entertainment news.

“E lacks strong name recognition,” said Derek Baine, an analyst at Paul Kagan Associates, a market research firm in Carmel. “It is more valuable under Disney than it would have been under some other potential owners because of Disney’s ability to cross-promote the channel using its other franchises, just like it’s doing with ABC and ESPN.”

Sources said Comcast chose Disney as a partner over NBC, Fox and CBS because the entertainment giant was willing to allow Comcast’s programming unit, C3, to run the venture, even though Disney is putting up most of the investment. The two partners will own a 68.8% majority stake in the channel, and there are provisions for Comcast to pay Disney over time for its share. They said Lee Masters will remain president and chief executive of the network, which is based in Los Angeles.

C3 is headed by Rich Frank, the former head of Disney Television who worked with Disney Chairman Michael Eisner while at Paramount to create “Entertainment Tonight.”

In addition to the Disney Channel, Disney, through its purchase of ABC, owns ESPN and minority interests in Lifetime, A&E; and the History Channel. Comcast owns the QVC shopping channel and recently started a regional sports network in Philadelphia.

Comcast, which already owns 10.4% of E, put the channel into play in October when it triggered a buy-sell provision in the ownership partnership with Time Warner and three other minority cable owners, Continental Cablevision, Cox Communications and Liberty Media. The provision allowed the minority shareholders to buy Time Warner’s stake at a price set by the majority shareholder. If the price was deemed too high, the minority holders could have forced Time Warner to buy their stakes. Time Warner set the total value of E at $550 million.

While the other cable operators opted to retain their 10.4% stakes, Comcast began negotiating with partners interested in buying Time Warner’s share.

Comcast and Disney said they will put their joint ownership of E in a newly formed company that will be 49% owned by Disney and 51% owned by Comcast.

Analysts say they are paying a full price for the 11-year-old network, which reaches 43 million homes. The value of $550 million is about 15 times projected 1997 cash flow of $36 million, according to Paul Kagan Associates. Cable services are typically selling for multiples of 13 or 14, although Kagan analyst Derek Baine said networks like E that do not reach a majority of cable viewers are bringing higher prices because of their growth potential.