NEW YORK — The Walt Disney Company, an entertainment firm as sprawling as one of its landmark theme parks, has pulled off one of the largest media mergers in history by acquiring the majority of assets from rival 21st Century Fox. The announcement ...
As Disney acquires 21st Century Fox, here's what the deal means for your some of your favorite movies and TV shows. It goes beyond the Star Wars franchise. (Nicki DeMarco/The Washington Post)
NEW YORK — The Walt Disney Company announced Thursday that it will acquire the majority of assets from rival 21st Century Fox, a megamerger that aims to reset the balance of power in an industry under siege from Silicon Valley.
The merger pairs Disney, the No. 1 studio at the box office and company behind massive hits like “The Avengers” and “Star Wars” reboots, with the No. 3 studio, Fox, which has produced the “X-Men” and “Avatar” franchises as well as a range of mid-budget crowd-pleasers and critically acclaimed films.
It also brings brands such as FX, National Geographic and “The Simpsons” into the same fold as ESPN and ABC — all part of Disney’s gamble that only a company of this size could effectively thwart a furious charge into the business of entertainment by well-financed technology giants like Netflix, Apple and Google.
Disney will pay $52.4 billion for Fox, which for its part will spin off Fox broadcast networks, the Fox News Channel and Fox Business Channel, the Fox studio lot in Los Angeles and several national sports channels, leaving them in the hands of 21st Century Fox chairman Rupert Murdoch and his family.
Robert Iger, the chairman and chief executive of Disney who had been discussed as a potential 2020 presidential candidate, will continue with the combined firm through 2021.
The deal takes two media and entertainments titans and, after a period of negotiating chess, essentially divides up territory between them. Iger will lead the legacy-entertainment charge against the new competitors, while Murdoch will attempt to make gains as the business of news and live programming face challenges from digital upstarts.
Disney has watched as viewership to its one-time powerhouse ESPN and other cable channels has shrunk as consumers have cut the cord on pricey cable bills. Instead, many consumers have opted for subscriptions to the likes of Netflix or Amazon, which offers a wide swath of video content at a fraction of the cost. (Amazon’s chief executive, Jeffrey P. Bezos, owns The Washington Post.)
The conglomerate is building up an arsenal of programming in the hope of fending off those firms’ forays into the content market. With enough material, it hopes, it can develop a streaming service that will win over customers who’ve cut the cord on its products.
“We’re excited about this extraordinary opportunity to significantly increase our portfolio of well-loved franchises and branded content to greatly enhance our growing direct-to-consumer offerings,” Iger said in a statement Thursday morning.
Murdoch, meanwhile, is confronting similar challenges in the news business. Fox News and Fox Business come as part of most basic cable bundles and are susceptible to the same cord-cutting challenges. The thorn in his side are free platforms like Facebook, which have become increasingly central to how many Americans consume news. A focused news company with its own scale, Murdoch hopes, can help defeat these rivals — potentially one reason Murdoch is reportedly interested in buying CNN.
“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 said in a statement.
The new Fox will own 25 percent of the newly combined entity, but it’s not yet clear what representation the Murdochs will have in the new company. One of Rupert Murdoch’s sons, James, is chief executive of 21st century Fox, and it’s common for studio heads to remain after acquisitions. Iger on Thursday said he “look[s] forward to talking to him about it” in the coming months, referring to James.
As part of the all-stock deal, Disney will also acquire Fox’s 30 percent stake in Hulu, a group of U.S. cable stations, several powerhouse international satellite channels such as Star India and Sky Italia, and a host of U.S. regional sports outlets.
The deal takes Murdoch out of much of the scripted television game and all of the film business, ending a Hollywood association that began more than three decades ago when Murdoch bought Twentieth Century Fox from industrialist Marvin Davis and crested as recently as 2014 when Fox led all studios by market share for the first time this century.
Lachlan Murdoch, Rupert’s son and the executive co-chair of 21st Century Fox, noted that “while the merged business is about scale, the new Fox is about returning to our roots as a lean and aggressive brand.” The family said there had not been talk yet of recombining with the print media-driven News Corp., owner of the Wall Street Journal and other publication.
“If we do, it’s well into the future,” Rupert Murdoch said.
But close observers said Murdoch wants to remain involved in entertainment and simply saw a Disney combination as the best way forward.
“Rupert doesn’t see this as much as selling as he does buying,” the Los Angeles-based investment banker Lloyd Greif said in an email to The Post. “He’s buying Bob Iger and his Midas touch when it comes to filmed content,” Greif said.
Greif added, “It’s a vote of confidence by Rupert in Iger and his management team over his own. He sees troubled waters ahead and wants the best ship and crew to navigate them.”
For Iger, Thursday’s deal amounts to another success after earlier efforts to buy Pixar, Marvel and Lucasfilm.
But Fox will provide the greatest integration challenge yet, with many of the newly acquired company’s divisions overlapping with Disney’s existing operations. And greater scale, while valuable in negotiating traditional distributor deals with cable operators and movie theaters, is no guarantee of direct-to-consumer success.
Wall Street was bullish on the announcement, sending Disney’s stock up nearly three and Fox almost seven percent.
Regulators and shareholders must still approve the Disney-Fox deal, but most analysts do not expect it to face problems. In a very different scenario, the Justice Department is currently suing AT&T to stop its acquisition of Time Warner, noting concerns about the marriage of a distributor and content provider.
A few experts dissented, though, and said the sheer volume of creative assets could give regulators pause.
“The scrutiny could be very close and the new antitrust leadership is unpredictable at this point, as witnessed by Time Warner-ATT,” said Carl Tobias, a professor at the University of Richmond law school. “I expect DOJ and Congress will be most interested in what this combination will mean for consumers and whether it concentrates too much power in the new entity.”
Combined, the new Disney could boast as much as $75 billion in revenue, with nearly a third coming from Fox assets.
On the Disney call, Iger said that he envisions Disney’s new service, set for 2019, coexisting with Hulu, the former in a “family vein” and latter as “adult-oriented.” Analysts, however, have questioned what the long-term future of Hulu will hold now that Disney owns a controlling 60 percent stake (Comcast Universal has 30 percent and Time Warner 10 percent).
Would executives shelve the service and shift their resources to Disney’s proprietary platform? Or would they actually try to maintain both Hulu and a separate streaming service?
“I think it’s going to be tough — I don’t understand how you would segment it,” said Aaron Shapiro, the founder of Huge, a digital marketing agency that has done work for Hulu.
He said he eventually saw one Disney entry point for consumers, under one brand, whatever it was called. “I think they need to put all their eggs in one basket and go for it,” he said, noting the challenge of attracting many of the 100 million Netflix subscribers.
The Disney acquisition hints at a further industry consolidation, analysts say, that could see Viacom, CBS, Lionsgate and Sony seek large buyers too, and leave just a few large legacy conglomerates such as Disney-Fox, Comcast Universal and a potential AT&T Time Warner.
Insiders said they believe Disney will be a test for other content providers as they seek to launch direct-to-consumer businesses — if the world’s largest media conglomerate is unable to successfully do so, it might make them reconsider whether they should even try.
The news provides a bookend of sorts to a 1995 merger that also saw Disney combine with a television giant — Capital Cities/ABC — setting off a wave of entertainment-industry consolidation. Coincidentally, it was that deal that brought Iger into the Disney fold: he was the president of Capital Cities/ABC at the time.
In the call, Iger alluded to that past, saying he was a “product” of that merger, which in turn makes him “respect and appreciate the talent” that comes with the Fox acquisition.
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