Disney Cements Global Entertainment Powerhouse Status With Fox Deal

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Disney and 21st Century Fox merger

Shaking up the worlds of entertainment and media, the Mouse and the Fox are rewriting the playbook on deal-making as Disney is set to acquire the majority of 21st Century Fox. Acquiring the majority of 21st Century Fox gives Disney unparalleled clout as a programmer, distributor and media powerhouse, while creating the opportunity for a “New Fox” to emerge.

The proposed transaction, announced Thursday morning, is worth more than $52 billion in stock. The overall deal has a total value of approximately $66.1 billion, with Disney assuming $13.7 billion of Fox’s net debt.

The Walt Disney Company, whose CEO Bob Iger has agreed to stay on through the end of 2021 as part of the deal, will assume Fox’s movie studios, cable networks owned by National Geographic and FX, its Asian pay TV operator Star TV, as well as stakes in satellite broadcaster Sky, production company Endemol Shine Group and the Hulu streaming programmer, in addition to its 22 regional sports networks, which could enhance the struggling ESPN.

The pieces of 21st Century Fox not being sold to Disney will give Executive Chairman Rupert Murdoch & Co. the opportunity to create what a press release describes as “The New Fox” from a portfolio that’s being slimmed down to Fox News, Fox Business, Fox Sports, Fox Broadcasting Company, Fox Television Stations Group, FS1 and FS2, Fox Deportes and Big Ten Network.

“The new Fox will draw upon the powerful live news and sports businesses of Fox, as well as the strength of our Broadcast Network,” Murdoch stated. “It is born out of an important lesson I’ve learned in my long career in media: namely, content and news relevant to viewers will always be valuable. We are excited by the possibilities of the new Fox, which is already a leader many times over.”

Disney and 21st Century Fox merger - Bob Iger and Rupert Murdoch 14 December 2017

As for the newly pumped up Disney, its goal is to expand its portfolio of valuable brands, content libraries and clout as a global and local entertainment powerhouse. As it gets ready to launch new streaming services of its own to compete with Netflix and Amazon Prime, the expanded programming library will prove invaluable as it shifts away from traditional cable and broadcast TV to streaming services.

With once-mighty TV properties such as ESPN (which formerly ruled the roost in terms of fees from cable operators) in decline, Disney is looking to new standalone OTT (over the top) subscription broadband streaming services for growth: ESPN+ will launch in the first half of next year with more than 10,000 sporting events on offer, while a yet-to-be-named subscription entertainment service drawing from its Disney, Marvel, Lucasfilm and Pixar brands will roll out in 2019.

“The more desirable content they have, the better they will be able to compete in terms of trying to sell a subscription offering at a time there’s so much competition for subscription-based services,” eMarketer analyst Paul Verna told CNBC. “Both companies are so deep in terms of what they have. The decision to subscribe to a streaming service often comes down to: ‘Does the content match what I, as a consumer, am interested in?'”

Iger will be working with Fox CEO James Murdoch, son of Rupert, to will help with the transition and integration. “James and I will be talking over the next number of months. He’s going to be integral to the integration process, and he and I will be discussing whether there is a role for him or not at our company,” Iger told ABC’s Good Morning America (where wife Willow Bay, the Dean of USC Annenberg, once worked as a correspondent).

In a week where another Australian billionaire, Frank Lowy, sold his Westfield shopping center empire, Rupert Murdoch, executive chairman of 21st Century Fox, stated that he was pleased to have Disney take the reins of the company he built over many decades:

“We are extremely proud of all that we have built at 21st Century Fox, and I firmly believe that this combination with Disney will unlock even more value for shareholders as the new Disney continues to set the pace in what is an exciting and dynamic industry. Furthermore, I’m convinced that this combination, under Bob Iger’s leadership, will be one of the greatest companies in the world. I’m grateful and encouraged that Bob has agreed to stay on, and is committed to succeeding with a combined team that is second to none.” 

As it shifts its resources into providing content and new brands for streaming video, games and live sports and entertainment, Disney will start playing hardball (as it famously does with distributors) by pulling its movies from Netflix in 2019 as it launches standalone streaming services. Iger told analysts that the new company won’t reach Netflix scale ‘quickly’ but is on track to be a major rival.

The deal will also augment Disney’s business in terms of new intellectual properties for movies, licensing, merchandise and branded attractions at its theme parks by adding X-Men, the Alien franchise, Predator, The X-Files, Avatar, Planet of the Apes, Ice Age, Family Guy, Firefly, Buffy the Vampire Slayer, Futurama, and The Simpsons to a family that already includes Star Wars, Pixar and Marvel properties—all rich with possibilities from an IP and creative perspective.

As Disney noted in its press release, the acquisition creates a content “opportunity to reunite the X-Men, Fantastic Four and Deadpool with the Marvel family under one roof and create richer, more complex worlds of inter-related characters and stories that audiences have shown they love. The addition of Avatar to its family of films also promises expanded opportunities for consumers to watch and experience storytelling within these extraordinary fantasy worlds.”

“Already, guests at Disney’s Animal Kingdom Park at Walt Disney World Resort can experience the magic of Pandora—The World of Avatar, a new land inspired by the Fox film franchise that opened earlier this year. And through the incredible storytelling of National Geographic—whose mission is to explore and protect our planet and inspire new generations through education initiatives and resources—Disney will be able to offer more ways than ever before to bring kids and families the world and all that is in it.”

Merging the Fox and Disney TV studio operations brings in-house some of the most valuable TV series on television today: This Is Us, American Horror Story, Empire, Modern Family, The Simpsons and Family Guy, and from Disney’s ABC Studios TGIT (Thank God It’s Thursday shows by Shonda Rhimes’ Shondaland) dramas, comedy Black-ish, Netflix’s Marvel series and Showtime’s breakout SMILF.

As for next steps, Disney may try to buy out Hulu co-owner Comcast (which once tried to acquire it) and minority stakeholder Time Warner to assume full control. Disney is acquiring Fox’s 30% stake in Hulu, which gives it more than 50% of the service to assume controlling ownership.

And while Disney is already a global behemoth with major holdings in Europe and Asia (including the recently opened Shanghai Disney Resort), ingesting these pieces of 21st Century Fox will leverage a rich stable of international businesses set-up by Murdoch.

“That kind of reach is all the more important as international revenue increasingly becomes a sine qua non for Hollywood,” opined Variety. “Across the Atlantic, the marriage will create an entertainment giant that owns a raft of channels and premium content, plus a partial – and potentially full – stake in pan-European pay-TV service Sky. Across the Pacific, the new entity will no doubt seek to exploit the two companies’ complementary strengths – Disney in film and Fox in TV – and minimize the areas where they currently compete.”

As the New York Times notes, “Disney now has enough muscle to become a true competitor to Netflix, Apple, Amazon, Google and Facebook in the fast-growing realm of online video. At the same time, the agreement means that one of moviedom’s most celebrated studios, 20th Century Fox, will be downsized, with some operations folded into Walt Disney Studios or refocused to make films designed for online distribution.”

Disney and Fox, pioneers in the entertainment industry, are rewriting the rules and reordering the global entertainment universe as media conglomeration reaches historic and unprecedented proportion—provided, of course, the deal passes regulatory hurdles.

Some of the coverage this morning, including by Disney- and Fox-owned media outlets:

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