Market Insight

Disney completes $71 billion Fox acquisition

March 22, 2019


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Walt Disney completed its acquisition of 21st Century Fox’s film and TV studios, cable networks and other assets on Wednesday 20 March. The deal, originally agreed in December 2017, was subject to the scrutiny of regulators from five continents, some of whom required specific terms to be met in order for the sale to proceed. The acquisition price is valued at approximately $71 billion.

The merger brings under the Disney roof the 20th Century Fox, Fox Searchlight, Fox 200 Pictures and Fox Animation film studios, together with the Fox, FX Productions and Fox 21 TV studios. Cable network brands include National Geographic, FX Networks and Star India.

Walt Disney also now owns a 60% stake in Hulu, 50% of Endemol Shine International, and 30% in Indian DTH platform Tata Sky. Regulators have required Disney to sell off the Fox regional sports networks (RSN) and A&E’s shares in European factual channel brands History, H2, Crime & Investigation, Blaze and Lifetime.

The remaining Fox assets are now part of a new entity called Fox Corporation, and include the Fox broadcast network and TV stations, and the Fox News, Business and Sports networks. According to financial data published by Fox Corporation this week, its annual sales in the 12 months to 30 June 2018 were $10 billion. IHS Markit estimates the annual sales of the new Disney, including its Fox acquisitions, were $61.5 billion in its last financial year.  
 

Our analysis

IHS Markit analysts are working on a longer insight report on the prospects for the new Walt Disney. What is clear is that the long-drawn-out deal – subject to scrutiny by regulators, and further complicated by a rival bid from Comcast and the attempted full takeover of Sky by 21st Century Fox – will have further ramifications.

The first question is what further disposals and rationalisations Disney will make in the wake of the acquisition. Reports have suggested that the film studio divisions of Fox will face the loss of thousands of jobs as the company aims to eliminate duplication in roles like distribution and marketing. On the cable networks side, the US Justice Department requirement that Disney sell 22 regional sports networks makes sense as the sports networks are the only significant cable competition for the Disney-owned ESPN suite of channels. Similar rethinks may be needed in Mexico and Brazil, where Fox is directly competing with Disney in the sports arena. In India, Star is up against a sports joint venture between ESPN and Sony.

The sale of the company’s 50% share in A&E Networks’ European factual networks is an annoyance but will affect what will now be a small part of a worldwide cable networks business. The merger means that Disney will grow its worldwide channel portfolio from 27 to 100 distinct channel brands (HD channels are not included in this count), with Fox Corporation keeping seven channels.

Another question is whether Disney will find room for Endemol Shine, one of the leading international TV production networks, with brands like Big Brother and Peaky Blinders in its portfolio. The company was put up for sale last year, but no buyer could be found.
The main question, however, surrounds Disney’s move further into a direct-to-consumer (DTC) world, which is widely seen as its main motivation for the acquisition of the Fox assets. Disney now owns 60% of online video platform Hulu. NBC Universal (30%) and Warner Media (10%) own the balance, so there is a question about whether Disney buys them out or keeps them on board to be run alongside Disney's upcoming DTC service Disney+, which is due to launch later this year. Both companies are preparing to launch their own DTC services as a response to the runaway success, both in the US market and overseas, of Netflix.  

The OTT subscription provider will clearly face an enhanced threat from the combined company, which now counts the output and library of two major studios, which are likely to never license their content to Netflix again. While Netflix has invested staggering amounts of money ($13 billion in cash in 2018) in producing and acquiring original series, it will now face a steady stream of content flowing from Disney’s studios and cable networks. Such includes new original TV shows from globally established and popular IPs including Star Wars and Marvel, many of which will debut on the new Disney+ service.

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