The Walt Disney Company has agreed to acquire 21st Century Fox, less some of its broadcast channels like Fox News, for $52.4 billion in stock. The effective merger of two major movie studios is predicated on the need for scale to compete in the global media market. Much of the focus appears to be on boosting direct-to-consumer online propositions. What does this mean for Sky and for Sky News in particular?
21st Century Fox will separate the Fox Broadcasting network and stations, Fox News Channel, Fox Business Network, FS1, FS2 and Big Ten Network, into a new listed company that will be spun off to its shareholders.
Disney will acquire the Twentieth Century Fox Film and Television studios, together with cable and international television businesses, including brands like National Geographic.
The deal will create a stronger branded entertainment proposition in Disney, strengthening its hand against new entrants like Netflix and Amazon. It will give it a controlling 60% interest in Hulu. With Comcast left with a 30% stake and Turner having 10%, it seems possible that Disney might seek to extend its ownership.
Disney is already creating distinct direct-to-consumer online propositions for ESPN and a family product to include the Disney, Marvel and Pixar brands and franchises such as Star Wars. With Hulu it will be able to offer more adult-oriented output, including ABC programming.
Through Fox, it will have 39% ownership of Sky in Europe, with the potential to acquire control of the company subject to regulatory approval. That could be facilitated by the divestment of Fox News.
What does that then mean for the future of Sky News? The news operation is loss making but provided a valuable flagship as part of the Murdoch media interests. Disney may be less interested in sustaining such an operation.
“The acquisition of this stellar collection of businesses from 21st Century Fox reflects the increasing consumer demand for a rich diversity of entertainment experiences that are more compelling, accessible and convenient than ever before,” said Robert Iger, the chairman and chief executive of The Walt Disney Company, who will remain with the company until the end of 2021.
“The deal will also substantially expand our international reach, allowing us to offer world-class storytelling and innovative distribution platforms to more consumers in key markets around the world.”
No mention of news then. In a statement, the company said: “The complementary offerings of each company enhance Disney’s development of films, television programming and related products to provide consumers with a more enjoyable and immersive entertainment experience.”
Disney will expand its international reach through the addition of Sky, with 23 million households in Europe, Fox Networks International, with more than 350 channels in 170 countries, and Star India, which operates 69 channels reaching 720 million viewers across India and more than 100 other countries.
The company said that 21st Century Fox is committed to completing its current offer for Sky and expects that to close by the end of June 2018, subject to regulatory approval. On this basis, Disney would assume full ownership of Sky, including the assumption of its outstanding debt, when the transaction with 21st Century Fox completes.
In the event that Fox does not receive regulatory approval to acquire Sky, Disney will still be in a position once it becomes 39% owner of Sky to acquire the remaining stake.
In a call with analysts, Bob Iger described Sky as “far more advanced, from a technical perspective, user interface et cetera, than a lot of products that we’re familiar with in the United States”.
Disney already has a close relationship with Sky and could benefit from synergies with its direct to consumer services, including NOW TV, and the potential to address a pan-European market.
The company has already launched Disney Life as a separate online service in the United Kingdom. The chief executive admitted that it had learnt from the experience. The programming was not as exclusive as it could have been because some of it was already licenced to Sky and it dropped its price in response.
“We also learned, rookie mistake at the time, that the app needed to be adapted very, very carefully to basically multiple hardware devices and multiple operating systems. We were great on Apple devices and the iOS platform, not so great on Android, and the app rating was substantially lower and that was a bad experience,” he said.
Disney acquired BAMTech in August, paying $1.58 billion for a remaining 42% stake in the interactive media arm of Major League Baseball. “We bought BAMTech because we knew that we were less experienced than we needed to be to be in this business at a much more significant basis and they quickly gave us an education in what was needed.”
Disney has indicated that it is going to be pulling back from distribution through services like Netflix when existing deals expire, a strategy reiterated by the chief executive.
“We believe that in order to be in the OTT business for the long-run, and we think it’s the right thing for us to do as a company, we ultimately need to take back control of our content.”