×
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT

'Foxy' Disney plays Mickey chasing streaming Mouse

Last Updated 15 December 2017, 19:50 IST

In a move that will reverberate from Hollywood and Silicon Valley to TVs and smartphones around the world, the Walt Disney Company said Thursday that it had reached a deal to buy most of 21st Century Fox, the empire controlled by Rupert Murdoch, in an all-stock transaction valued at roughly $52.4 billion.

While the agreement is subject to the approval of antitrust regulators - and the Justice Department recently moved to block a big media company, AT&T, from becoming even bigger - Disney is acknowledging that the future of television and movie viewing is online.

The acquisition, which would make Disney a colossus unlike anything Hollywood has ever seen, is the biggest counterattack from a traditional media company against the tech giants that have aggressively moved into the entertainment business.

Disney has already announced an ambitious plan to introduce two streaming services by 2019. With this deal and the wealth of movies, TV
shows and sports programming it provides, the company will now have the muscle to challenge Netflix, Apple, Amazon, Google and Facebook in the fast-growing realm of online video.

"The pace of disruption has only hastened," Robert A Iger, Disney's chief executive and chairman, said in an interview. "This will allow us to greatly accelerate our direct-to-consumer strategy, which is our highest priority."

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 for online distribution. Founded in 1935, the Fox studio championed Marilyn Monroe, produced classics like The Sound of Music, released the first Star Wars movie and, more recently, turned Avatar into the biggest ticket-seller of all time.

But lately, as most of Hollywood has, 20th Century Fox has struggled to keep pace with the changing way younger audiences view content - namely on an internet-connected device. Some analysts interpreted Murdoch's sudden willingness to sell as his reading the writing on the wall: the business climate is going to become tougher for old-line Hollywood.

The deal got its start with a casual get-together over the summer at Moraga Vineyards, Murdoch's Bel Air winery. There, Iger and Murdoch chatted about the way technology was roiling the media business, according to Iger, who came away thinking - to his surprise - that Murdoch might be open to a merger discussion. Iger said he called him a few weeks later in August to propose more serious talks.

There was at least one due-diligence meeting at Murdoch's apartment in Manhattan with senior management. As the agreement was being completed on Tuesday, Iger had lunch with Murdoch in London.

Disney, which owns ABC and ESPN, hopes 21st Century Fox will supercharge its plans to introduce two Netflix-style streaming services. Disney's first major streaming effort, ESPN Plus, will arrive in the spring. A second and still unnamed offering, built around the company's Disney, Marvel, Lucasfilm and Pixar brands, will roll out late next year. Rounding out its streaming portfolio will be Hulu, an established service that focuses on older viewers with programming that includes ABC shows.

Iger is buying 21st Century Fox's minority stake in Hulu, resulting in majority control of the streaming service by Disney, which previously owned 30%. Comcast and Time Warner also have stakes in Hulu.

When Iger announced Disney's streaming strategy in September, he said, "We're going to launch big, and we're going to launch hot." At the
time, his comment was viewed in Hollywood
as old-fashioned showboating. Not anymore.

Disney is buying the Fox television studio, which has 36 series in production, including The Simpsons, Homeland, This Is Us and Modern Family. Disney's significantly smaller TV factory, ABC Studios, has delivered series of inconsistent quality and lost its biggest hitmaker in August when the Grey's Anatomy producer Shonda Rhimes decamped for Netflix.

To augment ESPN Plus, Disney is adding 21st
Century Fox's chain of 22 regional cable networks
dedicated to sports, including the YES Network, which carries New York Yankees games.

As part of the deal, Disney will also get the FX and National Geographic cable networks, and stakes in two behemoth overseas television-service providers, Sky of Britain and Star of India. That component of the deal would seem to contradict Disney's push to lessen its reliance on traditional television, a business built on third-party cable subscriptions that is now in decline as people turn to streaming services for home entertainment.

But those assets serve another of Iger's strategic goals: making Disney more of an international player. Disney has major operations in Europe, Japan and China, where it opened Shanghai Disneyland last year. But most of Disney's profit still comes from the United States, where ESPN dominates, despite recent struggles, and annual attendance at Walt Disney World in Florida and the Disneyland Resort in California totals 162 million people.

'Megajuggernaut'

With the acquisition, "Disney goes from being a juggernaut to being a megajuggernaut," Steven Cahall, an analyst with RBC Capital Markets, wrote in a note to clients. Cahall and other analysts said the acquisition would likely prompt other entertainment companies to join forces as a competitive manoeuvre.

Speculation quickly surrounded Viacom and
CBS, which share common ownership; Lions ­gate, which owns Starz; Metro-Goldwyn-Mayer,
which controls rights to the James Bond franchise; and Sony Pictures Entertainment, which has struggled with low box office market share.

Since taking over as Disney's chief executive in 2005, Iger has greatly expanded Disney's theme park operations, opening in Shanghai against all odds and nearly tripling the size of Disney
Cruise Line. Walt Disney Studios, bolstered by Iger's acquisitions of Pixar, Lucasfilm and Marvel, has become Hollywood's runaway leader.

But pulling off the acquisition of 21st Century Fox dwarfs those deals and will create complex integration challenges. Some executives who work at Fox's studio offices in Los Angeles have been complaining bitterly about the prospect of Disney cost-cutting. Disney said it expected the acquisition to yield at least $2 billion in total cost savings.

The Disney-Fox merger is happening as the Justice Department fights AT&T's $85.4 billion acquisition of Time Warner in court. Iger acknowledged that antitrust regulators would heavily scrutinise Disney's purchase but expressed confidence about winning their approval. Sarah Huckabee Sanders, the White House press secretary, said on Thursday that President Trump had spoken with Rupert Murdoch and "congratulated him" on the deal.

It was a striking contrast to Trump's negative view of the AT&T deal, which some have interpreted as an attempt to punish CNN, the Time Warner-owned network that is often the focus of Trump's ire. AT&T and Time Warner are not direct competitors, however, and some antitrust experts have said the Disney-Fox deal should receive similar scrutiny. Should it not, the Justice Department could face criticism regarding its political independence.

"The antitrust concerns raised by this deal are obvious and significant," the screenwriters' union, the Writers Guild of America West, said in a statement, calling media consolidation a "relentless drive to eliminate competition."

ADVERTISEMENT
(Published 15 December 2017, 19:42 IST)

Follow us on

ADVERTISEMENT
ADVERTISEMENT