How Much Could Disney Benefit From Acquiring Fox’s Studio Business? 

December 11th, 2017 by Trefis Team
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Disney (NYSE: DIS) is reportedly in talks to acquire much of 21st Century Fox‘s (NYSE: FOX) studio and network portfolio again. Rumors of the deal first surfaced in early November, although the two sides stopped negotiating officially by the middle of the month. However, both companies are now reportedly closing in on a deal, which could happen as soon as this week, according to sources familiar with the matter. The assets being sold in this deal reportedly include Fox’s offerings on television – Fox’s Nat Geo, Star, and regional sports network – as well as a stake in Sky and Hulu, in addition to Fox Studios. On the other hand, Fox’s focus is likely expected to shift to producing news and sports content for newspapers and TV channels, including Fox News, broadcast networks, and Fox Sports.

Fox Studios A Good Fit For Disney’s Portfolio

Per Trefis estimates, both Fox and Disney’s studio operations contribute around 15% of each respective company’s value. Fox’s studio operations contribute almost 30% of its total revenues, while Disney’s studio operation makes up 17% of the company’s total revenues. Disney collected around $250 million per movie this year, the highest of any studio in 2017, compared to Fox’s $110 million per movie. While Disney is only behind Warner Bros. in terms of domestic market share this year, we expect Star Wars: The Last Jedi to drive it over the top going forward. Moreover, if the potential Fox-Disney deal goes through, the combined entity would have around a 30% market share, which would put it ahead of all other studios.

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The studio negotiations come at a crucial time, as Disney grapples with continuous declines at ESPN. Disney could use movie content from Fox to compete in the rapidly changing streaming space, where competition now includes companies such as Amazon (NASDAQ: AMZN) and Netflix (NASDAQ: NFLX). In addition, Fox’s movie portfolio can direct more consumers to Disney’s streaming platform going forward, which is expected to launch in 2019, following the expiry of the Netflix and Disney’s deal at the end of 2018. The potential union would also provide a blend of animated movies from both studios, including Toy Story, Finding Nemo, Ice Age, Rio – into one streaming offering, which should prove to be a huge value proposition to the consumers. There is also a possibility that Fox’s addition to Disney’s library could lead to Marvel franchises such as The Avengers, the Guardians Of The Galaxy, the Fantastic Four, and The X-Men (including Deadpool) all on screen together.

The reality of the situation is that the media industry is seeing secular pressure, primarily due to the growing cord-cutting phenomenon. This, in turn, is affecting cable and broadcasting businesses. Since many big media players are facing slowdowns from these industry dynamics, they are considering M&A and other deals in order to improve their positioning. However, we cannot count on the Fox-Disney mega deal until after federal courts rule on the AT&T and Time Warner deal. Disney and Fox’s deal is expected to pose more problems, as combining entities with major TV and film franchises could typically raise concerns from an antitrust perspective.

Please refer to our complete analysis for Disney & 21st Century Fox