My two cents.

A recent article in Variety made me come up with the following observations.

If a division sells a product outside its group for more money than the internal division is willing to pay, does the group benefit?

For example, when Warner Bros. sold the television rights for Harry Potter and the Sorcerer's Stone to Disney's ABC for about $140 million, instead of selling to AOL Time Warner's TBS, TNT or the WB, who benefited the most?

For its money, Disney got the TV rights to Potter I and II (The Chamber of Secrets) for 10 years starting in the fall of 2004 for ABC, the Disney Channel and ABC Family.

The AOL Time Warner TV outlet trio (TBS, TNT and the WB) would have to offer the same amount or more in order to avoid getting tangled in lawsuits by profit participant partners. Indeed, the trio did offer some $160 million for New Line's The Lord of the Rings I, II and III, which was more than the Fox Network's bid. New Line is part of AOL Time Warner.

Now, assuming that Disney values the Potter deal at $200 million in revenues (based upon a combination of ad revenue and a share of per sub income), its profit could be $60 million. Not a bad deal, after all, for the Mouse.

If, on the other hand, Potter was acquired by the AOL Time Warner trioutlet (for the same amount), the net profit to the group would have been some $60 million (the cost would be an internal transaction of no real value), instead of the $140 million it got from Disney. This is assuming that, on the low-end, the AOL Time Warner trioutlet would deliver a combined six million homes for telecast on average, which, at $10 CPM (air-time ad cost-per-thousand viewers), generates $5.8 million in ad revenue. Of course, AOL Time Warner could sell broadcast and cable time separately, thus getting some $14 CPM for the former and $8 for the latter, which could bring the total to $6.6 million per combined run, or $60 million for the duration of the deal. On the high-end (delivering a combined average of 12 million primetime homes), AOL Time Warner could get $120 million, still less than what it got from Disney. Plus, Disney would be paying it off in three years, while, if AOL Time Warner were to borrow against future revenu es, interest costs could cut into its profit.

Now let's take a look at Disney's TV strategy. According to some analysts, Disney's ABC needs to replace more than 30 percent of its primetime schedule for the upcoming season. Considering that up to 80 percent of new TV shows fail, would it be better to buy these programs from studios other than Disney and let them get hit with the high costs of failure while taking advantage of the successes?

All this proves that synergy and vertical integration is just like communism: it's good on paper but it doesn't work!

It is a proven fact that, in Canada, for example, farming out distribution can be more profitable. With its 18 percent of domestic box office, Alliance Atlantis' motion picture distribution group has performed better than Warner Bros. (16 percent) and Walt Disney (14 percent). In addition, a good domestic box office brings with it more home-video revenues (last year, the U.S. home-video market generated $17 billion -- almost double Hollywood's theatrical box-office receipts).

In conclusion, my friends, it is better not to sell anything to yourself.