Disney and 21st Century Fox have been holding talks about a possible asset deal, and the details of those talks have given us a glimpse into what Disney’s planning for its upcoming OTT offering, and may signal a new roadmap for Fox that’ll see the Murdoch family consolidate assets into a new global media empire.
According to reports, Fox is considering selling off most of its entertainment assets to Disney, which would include its film studio and TV assets such as National Geographic, FX and FXX.
The talks are the latest in a stream of media acquisitions and mergers over the past two years that have drastically re-shaped the US’s telecom market. Discovery announced it’ll acquire Scripps Networks for $11.9 billion; and wireless and wireline service provider AT&T is currently working to convince US regulators to approve its acquisition of media giant Time Warner, just two years after acquiring satco DirecTV; last year, Charter completed its acquisition of service providers Time Warner Cable and Bright House Networks, Altice acquired Cablevision, and Verizon acquired AOL and Yahoo.
The talks are indicative of the strange reality for media firms, where competition is so fierce between online entities and the traditional TV and film firms that unusual bedfellows are appearing under the covers.
Consolidation is now a survival strategy, and the Disney-Fox deal would pair the largest movie studio with the third largest movie studio, leaving only Warner Bros, NBCUniversal, Sony, and Paramount as the last surviving Hollywood competitors. But more importantly, the resulting mega-Disney would leave those competitors in the dust, in terms of scale and revenue.
For Disney, the benefits are immediate and obvious: as the company prepares to launch an SVoD OTT service for its film properties, including Marvel and Star Wars, access to Fox’s film studio and TV production business would drastically help Disney flesh out its OTT offering.
And this is where we get a sneak peek into Disney’s OTT strategy. Fox owns licensing for the likes of X-Men, Deadpool and Fantastic Four; while Disney-owned Marvel Studios owns licenses for the monster hits Thor, Iron Man, Captain America, and all together, The Avengers, and Doctor Strange. So at first glance, the Fox deal would allow Disney to round out its superhero offerings – the red meat of an OTT service geared at the younger demos.
But perhaps more importantly, Fox’s film assets extend to older demographics, with hits such as The Revenant, The Martian, Avatar, Planet of the Apes, and others. With the Fox film assets, along with its cable networks FX, National Geographic, and Disney’s own Star Wars, Marvel and Pixar assets, Disney would easily be able to create a very powerful OTT service that would certainly give Netflix something to think about late at night. Couple those more adult Fox franchises with Disney’ vast library of children’s movies, including big hits like Pirates of the Caribbean, and Disney might even be able to steal away a not-insignificant portion of Netflix’s business.
The details of the talks – which are tabled at this point – have thrown the spotlight on Fox’s future. If such a deal were to go through, the resulting media firm would be more narrowly focused on sports and news assets, which Fox executives claim would be better able to compete for eyeballs in the marketplace.
It should be noted that a complete merger isn’t even possible. Disney is not legally able to acquire Fox broadcast network or its owned and operated local stations, because it operates its own broadcast network and local stations under the ABC brand. According to reports, Disney isn’t interested in acquiring Fox’s sports properties, which currently compete with Disney’s ESPN, because of anti-trust concerns; and Disney wouldn’t acquire Fox Business networks, either.
Fox executives seem to believe that the company’s entertainment division doesn’t have the scale necessary to be able compete against the growing horde of new global entertainment entrants that are now providing content across screens and platforms. Instead, they’re hoping to fare better with news and sports offerings. Doing so would mean that Fox no longer competes with the larger entertainment media firms – including Disney, CBS and Netflix.
Disney’s benefits in the proposed deal seem to far outweigh those of Fox. The combined entertainment company would give Disney greater scale and more money for original content to compete against Netflix and Amazon. But it’s unclear how the resultant Fox company would be better positioned to succeed in a marketplace where sports ratings are falling, and news is increasingly consumed online. That asymmetry could be the very reason the talks have halted. It doesn’t mean they are entirely failed and may be revisited later.
News of the talks has also thrust Fox’s own acquisition bid for UK media firm Sky into further uncertainty. Late last year, 21st Century Fox, which currently owns a 39% stake in Sky UK, offered to acquire the remaining 61% for $15 billion. But the bid has been fraught with obstacles, including an investigation being conducted by the UK’s Competition and Markets Authority (CMA) over competition and broadcast standards worries, and vocal opposition from some politicians and Sky investors. Revelations of a history of sexual misconduct at Fox hasn’t helped anything, but the news of the Disney talks, which reportedly included Fox’s 39% stake in Sky, might have served to make things decidedly worse.
After reports surfaced that the Disney talks included selling Fox’s stake in Sky, speculation arose that Fox had lost interest in the Sky bid. But if we imagine that Fox still has every intention of acquiring Sky – if regulators allow it – then the asymmetry of the Disney talks begin to make more sense.
If Fox is able to acquire the remaining stake in Sky, and dump its entertainment assets on Disney or some other entertainment firm, the company could be completely transformed into a global media empire of news and sports across the US, UK and Australia, just by shuffling the pieces on the board. On the other hand Sky is currently seen as both a distribution arm and a production arm, and it may sell just the content production side to Disney and keep the satcaster, which is transitioning into an IP delivered MSO service.
Fox executives refused to comment on the Disney talks during the company’s quarterly earnings call this week, but Fox executive co-chairman Lachlan Murdoch said he is “confident we are going to get the (Sky) deal done in the first half of next year.”