I was at the mall on the Wednesday before Thanksgiving, and during the Black Friday weekend. What struck me were two things: the presence of fewer people, and the degree to which retailers were discounting their products to try to deal with fewer customers. My experience was anecdotal, but data indicates there was a small dip in foot traffic to places made out of brick and mortar, with online sales soaring while the public decides to shop from home. Most analyses of this dynamic usually boil it down to the examples of Walmart and Amazon, and how each will attempt to use their advantages. Walmart has accumulated thousands of stores, a strategy which over the years has driven their retail competition into bankruptcy by selling hundreds of billions of dollars’ worth of goods. However, Walmart is still playing catch-up when it comes to selling things online. Amazon, on the other hand, is the dominant retailer online, and now attempting to get a retail foothold with the acquisition of Whole Foods and other retail locations.
Navigating the shifting tides of industry and predicting what the future may hold is tricky. Eastman Kodak was once synonymous with photography. Then digital cameras came along, and I would bet most millennials today would probably assume “Kodak” was a reference to a Cardi B track. A similar argument about being prepared for the future is playing out in the larger entertainment industry.
According to various reports over the past week, the Walt Disney Company is close to a deal in which they would acquire most of the assets of Rupert Murdoch’s 21st Century Fox. Terms of the deal are not yet finalized, but it would involve a massive reorganization of content control for the price of around $60 to 70 billion, with the Murdochs potentially getting a significant stake in Disney. Speculation based on “sources” sees Disney taking control of Fox’s production companies and their intellectual property, along with film and television assets, including Fox’s stake in Hulu (which would give Disney majority control), almost 40 percent of Sky Television, as well as ownership of the various FX and National Geographic channels. That would leave the Murdochs with Fox News, sports cable networks FS1 and FS2, the Fox Broadcasting Network, and locally-owned Fox television stations. The Murdochs’ remaining companies may form into a new company or be absorbed into News Corp.
Even if Fox and the Empire of the Mouse come to terms, it will take about a year for the deal to close and require regulatory approval. Up until now, Comcast was the other potential buyer of Fox assets, but today they bowed out of the hunt.
The latest news reports suggest an agreement could be announced “within days,” and indicate talks have progressed to the point both sides have involved their bankers, with J.P. Morgan and Goldman Sachs among the financial institutions attempting to work out the details. Beyond just the monopolistic implications of the deal, there is some speculation that James Murdoch might be a potential successor if and when Disney CEO Bob Iger should retire.
At most entertainment blogs and sites, this news has been covered from the perspective of what it might mean in terms of product. The potential nerdgasm of Disney reclaiming Marvel’s characters and combining Marvel Studios’ MCU with Fox’s X-Men universe, along with allowing Disney (and Kevin Feige especially) access to characters like Deadpool, the Fantastic Four (although, in the Fantastic Four’s case, because Fox shares the movie rights with another production company, there may be some further wrangling necessary), the Skrulls, Galactus, Silver Surfer, Doctor Doom, etc., has the potential to keep us in a steady stream of comic book movies for a good long while.
Also, Disney would gain control of content like The Simpsons and Fox-produced animation like the Ice Age films to add to their own animation studio and Pixar. 20th Century Fox Television produces and distributes series such as This Is Us, American Horror Story, Empire, Modern Family, and Family Guy, which would all be added to Disney’s ownership of ABC and ABC Studios. And if the deal goes through, Disney also gets James Cameron’s Avatar sequels, which in and of itself could potentially be worth billions in revenue.
There are also ancillary benefits to these additions. Depending on the terms of pre-existing licensing agreements, the merchandising opportunities provide another potential source of profit, since some of this content will end up in Disney theme parks, cruises, and toys.
The Rumored Aspects Of This Deal
Disney gets ... |
The murdochs keep ... |
Fox’s film and television studios, along with their intellectual property |
Fox Broadcasting Company (i.e., the Fox TV Network) |
FX Networks |
Fox News |
national geographic network |
Fox Business Network |
fox’s 22 regional sports networks |
Fox Sports Network, FS1 and FS2 |
fox’s 30 percent interest in hulu, giving disney majority control of hulu |
Fox’s 28 locally owned TV stations |
fox’s 39 percent interest in sky television |
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fox’s 50 percent interest in the endemol shine group |
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star india |
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Moreover, all of this would mean that a massive amount of popular culture across all mediums will be under Disney’s control, which would include multiple billion-dollar franchises. Not only is Marvel a Disney property, but the Star Wars and Indiana Jones franchises are, as well.
This has implications for access. There are also questions as to whether Disney, which has always tended to protect its “family-friendly” image to great lengths, will be comfortable with Fox’s more risque content being under their banner.
From Alex McLevy at the A.V. Club:
It will make Disney arguably the most powerful studio that has ever existed. The company will exert even more outsized control than it currently does, muscling in on any turf where it can wrench an extra dollar away from someone who deserves it more. One current example: Disney is demanding a massive increase in booking and profits—65 percent of profits and a guaranteed four-week screening window—from any theater that wants to screen the new Star Wars film, to the point where smaller movie theaters and locations in smaller markets are forced to turn down The Last Jedi, simply because it would be financially ruinous to keep a film up for two more weeks after everyone in their little town has already seen it.
The thinking behind this transaction seems to be putting Disney in a place where it will be better able to compete with Netflix, Amazon, and other “new media” options, as entertainment has moved more and more to direct streaming. Basically, Disney is amassing as much content as possible to deprive the other streaming services of material. Disney had already announced in August it will pull its content from Netflix in preparation for creating their own streaming service.
However, if Disney should acquire control of Hulu, that would seem to give Disney a ready-made platform from which to exploit their advantages.
From Cynthia Littleton at Variety:
Disney is negotiating a deal valued at $74 billion by Bernstein Research analyst Todd Juenger, which he calculated as a 30% premium on the $57.4 billion enterprise value of the assets in question ... “Maybe the Murdochs have looked at the future and realized their business is a declining asset, worth more today than it ever will be in the future,” Juenger wrote. “So if you can sell it today, at a premium – do so.” … “The businesses that Disney is buying have the same fundamental underlying challenges as all other TV-driven businesses, and the market is valuing them at similar or lower multiples than Disney’s,” Juenger wrote.
But at a time when “scale” is the buzzword for media investors, Disney could be the one old-school media behemoth with the muscle to grow in the face of heightened competition from new entrants such as Netflix, Amazon, Apple, Google and Facebook. Juenger likened the dynamic to the competition between Walmart and Amazon.
“Like all brick-and-mortars, Walmart is a victim of Amazon. But Walmart shares have performed extremely well recently, because the market has decided: Walmart is the last/biggest scale player left, Walmart now has a digital strategy, so Walmart will consolidate its power and accrue value,” the analyst wrote. “We think the potential analogy for Disney is obvious. Just insert ‘Netflix’ where we say ‘Amazon,’ and insert ‘Disney’ where we say ‘Walmart.’ “