Implications of Disney Buying Fox

Disney-Fox-Merger

 

News broke yesterday that Walt Disney Co. was in talks to buy the bulk of rival film studio 21st  Century Fox.

The revelation sent shockwaves through the industry and the stock price of both companies soaring yesterday. Shares of Fox bounced 8.96%, while shares of Disney rose 2%.

(Keep in mind that the stock of the acquiring company usually goes down due to the increased debt burden. That this did not happen here with Disney is remarkable.)

What?

Sky-TV

The proposed deal would give Disney Fox’s movie and entertainment assets. It would also include the bulk of Fox’s international TV exposure in markets including Germany, Italy, and the U.K., through networks including Sky and Star.

Other stations Disney would receive include FX and National Geographic.

The deal would omit, however, Fox’s news, network and sports properties, including Fox News, Fox Business, and local Fox affiliates nationwide.

Why?

Fox’s stated reason for wanting to sell is it believes it doesn’t have the market scale to compete with the new digital streaming landscape, which has eroded box office receipts in reason years.

Services including Netflix, Hulu, Amazon, Google, HBO Go, and Showtime have hurt traditional movies sales, and Fox seems unwilling to enter that market.

For its part, Disney has already announced its plans to launch two digital streaming services in 2018 – one for its sports properties (including ESPN) and another for its TV and movie properties (which include the Star Wars and Marvel Comics universes).

Analysis

The net effect of the acquisition is it would concentrate Fox’s strength in news and sports.

Disney, meanwhile, would add significantly to its entertainment vault by gaining such Fox properties as the X-Men, Deadpool, and Avatar.

Disney, which owns ABC, has struggled with its TV properties lately, and recently lost creator Shonda Rhimes (Scandal, How to Get Away with Murder, Grey’s Anatomy) to Netflix. The acquisition would give Disney TV shows including The Simpsons, Family Guy and Modern Family.

Comic Book Movies

Comic book nerd rage at Fox has subsided in recent years due to recent quality comic book movies such as X-Men: First Class, Deadpool, and Logan.

But many geeks have long hoped for Fox to sell back its key Marvel properties (including the X-Men and Fantastic Four) to Disney, so that the key characters could finally appear in Marvel crossover movies.

X-Men-Avengers

This summer’s Logan, for instance, differed wildly from its comic book source materials because the major characters were split among three studios. Wolverine was owned by Fox, while The Hulk is co-owned by Disney and Universal, and Hawkeye is owned by Disney. As a result, the story was altered to omit The Hulk and Hawkeye.

The purchase would also give Disney the Fantastic Four characters, which have suffered three failed movies so far. There, the supporting characters of Silver Surfer and villain Doctor Doom are regarded as almost more important IP than the Fantastic Four themselves.

Other Film Properties

Would-be Fox tentpole films have suffered lately under increased competition from streaming options.

Last year movies like Independence Day: Resurgence and Alien: Covenant significantly underperformed.

This year War for the Planet of the Apes also posted disappointing results, despite receiving rave reviews from critics.

Final Thoughts

We certainly live in interesting times.

Few would have guessed that Amazon would buy Whole Foods, or that drug store chain CVS would make a credible play to buy health insurer Aetna.

That one of the major movie and TV studios might buy another demonstrates more than ever the changing nature of the media landscape.

And, more importantly, of viewer behavior. Streaming services are the future.

To compete, entertainment conglomerates will need to have not only a streaming distribution pipeline, but also a large reservoir of original content.

Fox seems to realize that – without its Star Wars or Indiana Jones properties – it lacks the necessary intellectual property needed to win at scale.

Thus, selling to Disney may prove a strategically savvy move.

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