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Disney has agreed to buy most of 21st Century Fox for $52.4 billion in a big bet on streaming services over traditional TV. It’s a landmark deal that also unravels the media empire Rupert Murdoch had built over 60 years.
The entertainment giant will get Fox’s film and TV studios, which includes the “Avatar” franchise, its regional sports networks, its international businesses and Fox’s 30 percent stake in Hulu, giving Disney a majority of the streaming service.
The deal gives Disney an oil field of content. In addition to “Avatar,” Disney will also get the “X-Men” film franchise and “Titanic,” and on the television side, it will own long-running hits like “The Simpsons” and newer series like “Empire,” “This Is Us” and “Homeland.”
Coupled with Disney’s already well-known properties, including “Star Wars” and Marvel’s hit films, the additions create a new pipeline of content for Disney’s forthcoming streaming service — a key aspect of its strategy to sell direct to consumers instead of through the pay TV ecosystem that has long fueled the media industry.
The acquisition will also give Disney sports rights via the regional sports networks that could conceivably boost its ESPN offering.
Bob Iger, the CEO of Disney who orchestrated the deal, emphasized the expanded streaming capabilities the deal provides, as well as the bonus in controlling Hulu.
“We believe Hulu is obviously a great opportunity to expand in the direct-to-consumer space,” he said on a conference call. “But having control of it will enable us to greatly accelerate Hulu into that space and be even more viable competitively.”
The competition, of course, is Netflix and the internet in general, which has cut into the pay TV industry. With fewer people paying for TV, programmers like Disney and Fox are seeing less carriage fees and lower ad revenue. Disney’s ESPN in particular has taken a big hit in the ratings.
Buying Fox also gives Disney rights to regional sports like the Yankees via the YES network. Iger sees this as the “perfect complement to the ESPN offering.”
He underscored that these local sports networks will still be distributed through the traditional pay TV distributors but didn’t rule out the possibility of a streaming offering at some point later on down the road.
Disney this spring is set to unveil a sports streaming product based on ESPN’s lesser-watched channels, but not ESPN itself.
The deal will likely have to undergo regulatory review, a prospect that hasn’t helped another major media transaction: AT&T’s purchase of Time Warner. The U.S. Department of Justice has sued AT&T to block the merger, saying it would hurt consumers. Justice had floated the possibility of AT&T selling the Turner division, which owns CNN, to win approval. President Trump’s frequent tirades against the media in general and CNN in particular has put a political spin on Justice’s lawsuit.
In the case of Disney’s Fox acquisition, one key point of difference is it doesn’t involve any news businesses. Even so, there could be a big cost if the DOJ doesn’t approve the merger. Under terms of the agreement, Disney would have to pay Fox a $2.5 billion termination fee. If Disney changes its mind on the agreement irrespective of a regulatory review, it will have to pay $1.5 billion.
Disney also announced in connection with the merger that Iger will extend his contract to stay through 2021, at least the third time his tenure has been extended. There had been reports that Fox CEO James Murdoch — and Rupert’s son James — would join Disney as part of the deal, but no formal arrangement has been struck, Iger said on the call.
“We see James as integral to the integration of these two companies, and at some point we’ll see if there’s a role for him,” Iger said.
It’s not hard to imagine James potentially running the international businesses that come with the deal: Satellite service Sky and Indian media giant Star. James used to run Sky before returning to the U.S. to concentrate on the domestic TV business, and he has extensive experience in the European pay TV market.
Separately, in a statement, Iger praised Murdoch: “We’re honored and grateful that Rupert Murdoch has entrusted us with the future of businesses he spent a lifetime building, and 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.”
For the 86-year-old Murdoch, this is a surprise retrenchment. He was still in empire-building mode as recently as a few years ago when he made an aggressive bid to buy Time Warner. That didn’t work out, and the media giant eventually agreed to sell to AT&T, a deal that’s facing an antitrust lawsuit.
Murdoch still controls News Corp, the publishing empire that includes the Wall Street Journal and newspapers in the U.K. He will also retain Fox News, Fox broadcasting and the FS1 cable sports network. Sources say he’s looking to recombine those businesses into News Corp.
Murdoch is the last of the media moguls who rose to power in the latter part of the last century, part of a colorful cohort that includes Sumner Redstone, John Malone and Barry Diller, merciless executives who forged the TV industry as cable and satellite became the dominant platform for entertainment.
But that changed precipitously in the last decade thanks to the internet.
Some deal housekeeping: The acquisition is for all stock, and 21st Century Fox shareholders will receive 0.2745 Disney shares for each 21st Century Fox share they hold. Disney sees about $2 billion in cost savings following the deal, and it will also take on $13.7 billion of Fox debt. Disney said it plans to spend up to $10 billion in stock buybacks over the next few years.
This article originally appeared on Recode.net.
