Disney-Fox deal back on, should be no-brainer for regulators

Disney has reignited its interest in buying a large bulk of 21st Century Fox, with reports again surfacing that Disney is targeting Fox’s studio assets to power its OTT plans – but the two media giants both own a top 6 US movie studio meaning any studio deal surely could not swerve antitrust laws.

With AT&T poised to swallow the world’s largest movie studio with Warner Brothers Pictures, the Department of Justice will have its hands full if Disney pursues a bid for the studio side of Fox, as reported by sources close to Rupert Murdoch’s own Wall Street Journal. Comcast and Verizon are also reported to be circling around 21st Century Fox, so with a deal looking increasingly likely, it begs the question of whether it would be more damaging to competition for a major movie studio to fall to a US operator, or to another US media company?

In terms of experience in juggling the movie industry, Disney would probably be a better home for 20th Century Fox, the studio arm of 21st Century Fox, compared to the likes of Comcast, but if the AT&T and Time Warner mega-merger completes then there is little merit for regulators to stop any kind of similar deal going through in the future – leaving the door wide open for further media consolidation. That said, Comcast already owns a mass media firm and major studio with NBCUniversal, leaving Verizon as the only name in the hat without major media assets.

Comic fans believe that a Disney-Fox deal would be beneficial for the Marvel universe, allowing characters from Fox’s X-Men and Fantastic Four properties to co-exist with Disney’s Avengers, meaning more movies and TV shows in the future. Although, it is unlikely anything will transpire from the rumored sale of 21st Century Fox assets until the fate of Time Warner is determined.

The other side of the coin, which is even less likely to be approved, is a deal for Fox’s broadcast TV business, which includes the valuable sports channels under the Fox Sports Media Group, plus the FX Networks channels under Fox Networks Group and National Geographic Channels. With Disney owning sports network ESPN alongside its entertainment channels, while Comcast owns NBC Sports Group, NBCUniversal News Group and a host of cable channels, we are struggling to see how any agreement could be reached without dumping something significant along the way.

In the same way that a declining cinema industry forced Disney to rethink its entire business model, the same is true for the networks owned by Disney and Fox, which will ultimately end up going OTT, and will certainly not be allowed to fall to Comcast’s NBC.

Sources familiar with the discussions cite Disney as the front runner in striking a deal for Fox’s studio assets which would fuel Disney’s ambitions for a Netflix-rivaling standalone streaming service. These same sources claim a deal could be agreed upon as soon as by the end of this year and could include Fox’s stake in Sky and some cable assets, valued at around $50 billion, after talks collapsed a few weeks ago. Disney is in a strong position to reap the rewards of a successful streaming business, but it’s worth noting that the company has made a hash of previous streaming ventures and cutting ties with Netflix has put it on unstable ground.

If regulators intervene and block the deal, then Disney may consider dropping certain assets to create what would be a media monolith dwarfing even its closest rivals. While for 21st Century Fox, the deal would help finance its acquisition of the remaining shares in Sky in the UK, which is currently halted under investigation by the Competition and Markets Authority for allegedly breaching impartiality rules in broadcasting law, coupled with the failure of 21st Century Fox to promise that Sky News coverage will not be changed dramatically.

Meanwhile, 21st Century Fox has come under investigation by law firm KSF this week, accused of paying bribes to three former FIFA executives to obtain soccer broadcasting rights. Former Attorney General of Louisiana, Charles Foti, a partner at KSF, announced that following a witness testimony from a former executive at sports marketing firm Torneos y Competencias, Fox Sports engaged in bribery to secure tournament coverage to expand its TV rights “from Argentina to the USA.”