On Friday, July 27, Disney and 21st Century Fox shareholders approved a deal that has been in the works since last summer. Disney will take ownership of 20th Century Fox studio – including the physical property and media library, FX Networks, National Geographic Partners, and a number of other assets. Rumors of the deal first began in November, with a deal announced at the beginning of December. There were a few Hollywood-level plot complications between then and last month’s announcement that Fox would put the matter before shareholders in a largely pro-forma vote. The biggest challenge was Comcast’s upping the bid before Disney threw more money at Fox – something that a cash-strapped Comcast could not compete with. The expected hurdle of a Federal anti-trust investigation was easily cleared when Disney agreed to spin off the Fox Sports assets within 90 days of completing the acquisition.
The shareholder vote was largely a foregone conclusion. Fox shareholders met for a total of 15 minutes, while Disney Disney shareholders met in a large ballroom for only 10 with only one shareholder dissenting. The Mouse still has to receive approval from some foreign regulators, but the deal is expected to be concluded in early 2019.
As has been mentioned previously, the reason for this merger was primarily for ownership of Fox’ television and movie library which will be leveraged to boost Disney’s streaming service – which also debuts in 2019. In addition, Fox also owns some lucrative franchises that will continue to be developed or possibly even be rebooted.
Business and accounting aspects aside, there is a lot of geek culture news wrapped up in the deal as well.
“I’ve been waiting for you, Obi-Wan. We meet again, at last. The circle is now complete.” — Darth Vader
Despite purchasing Lucasfilm for $4B in 2012 – a move that was seen as a huge gamble at the time – Disney did not completely own the rights to all aspects of the Star Wars franchise. This dates back to the 1977 release of A New Hope. Fox has continued to hold the distribution rights for that first film ever since and Lucasfilm – and later Disney – had to come to them any time they wished to release the movie on tape or disk.
Traditionalists among the fans had bemoaned the lack of the “20th Century Fox Fanfare” at the beginning of the most recent films. There’s no telling whether that will be re-instated or completely removed from any box set release following the release of Star Wars: Episode IX in 2019.
Marvel and Mutants
Fourteen years before it launched its studio, a financially struggling Marvel Entertainment Group sold the film rights to Deadpool, Fantastic Four and X-Men to Fox. This last property also included the rights to use the term “Mutants”. This lead Marvel to instead focus on Kree, the Inhumans and genetic tinkering as the source of metahuman powers in movies and television with mixed success. Now, as Phase 3 of the Marvel Cinematic Universe wraps up with the conclusion of Avengers: Infinity War on May 3, 2019, there is the possibility that the characters may appear in any of the 20 new Marvel films slated to be produced through 2028.
It is also possible that Disney may replicate the approach it has taken with Cloak & Dagger, The Defenders and even its upcoming live-action Star Wars series and produce mutant-centered shows for the small screen. There are rumors – so far unsubstantiated – that The New Mutants and X-Men: Dark Phoenix are in trouble and run the risk of being pulled from cinematic release despite being in advanced stages of production.
Other Fantasy and SciFi
In addition to regaining control of its wayward properties, Disney also picks up several thriving franchises plus a number that can be revived. Planet of the Apes and Avatar are very much active and having success at the box office. In an echo of “Star Tours” arriving at the theme parks over a decade before the Disney-Lucasfilm merger, Walt Disney World recently opened its “World of Avatar” section of Animal Kingdom. A total of four sequels to James Cameron’s hit are planned with episodes 2 and 3 being filmed simultaneously. Avatar 2 is scheduled to be released on December 18, 2020 but that may now be moved so as to not compete with a potential Star Wars movie for the holiday box office.
In addition, Disney will take possession of Aliens, Predator and Independence Day along with family-friendly Ice Age, Night at the Museum and Home Alone, among others. The Aliens and Independence Day franchises have had rough outings of late, and the fourth Predator movie The Predator hits theaters on September 14 so it remains to be seen whether audiences wish to return.
After the deal, Murdoch and his family will retain control of Fox News and Fox Broadcasting Company – the television network. This will leave Fox as the only broadcast network without its own studio and reliant on other studios for content. Disney will own the live action series American Horror Story, Atlanta, Fargo, Modern Family, It’s Always Sunny in Philadelphia, the breakout sci-fi hitThe Orville, and even The X-Files. It’s not unreasonable to believe that Fox will continue to broadcast the first three of those shows as they are not all compatible with it’s more family-friendly ABC network while Modern Family is a desperately needed hit after the spectacular implosion of Rosanne. It will be interesting to see what happens with Legion. The FX Channel show is centered on the X-Men anti-hero David Haller, the son of Charles Xavier. It is tied to the X-Men film series and has been green lit for a third series. It could conceivably serve as a bridge to introduce the X-men to the MCU.
Of course, Fox also has some very well-known animated series including The Simpsons (now in its 30th year), Family Guy, American Dad, Archer, Bob’s Burgers among others. So far, Disney has been pretty good about not messing with success (a point of contention with some Star Wars fans). It remains to be seen whether those highly irreverent shows appear on the forthcoming Disney streaming service which Chairman Bob Iger has stated is intended for families and will only show content with a G, PG or PG-13 rating.
Which leads us to…
One of the first streaming services, Hulu was formed as a partnership between Time Warner (now part of AT&T), NBC Universal (now part of Comcast), Disney and Fox. Disney and Fox each own 30% of the over-the-top service and Disney will become majority shareholder with a 60% stake after the deal is concluded. While it may seem self-defeating to control a rival to its own service, it provides an outlet for content that is too mature to be carried under the Disney name. Deadpool and Logan both carry R ratings and making them exclusively available on Hulu is a simple way to maximize profit.
Further, Disney has already stated that will be removing its content from rival Netflix in 2019 in favor of bringing it “in house.” Hulu will, of course, benefit from any R-rated content, such as that distributed by Touchstone Pictures or the now-defunct Hollywood Pictures including Down and Out in Beverly Hills and The Sixth Sense, respectively.
The rise in cord-cutting among consumers has also revealed that they are willing to subscribe to more than one streaming service. Amazon essentially gives away access to its library for $100 a year as part of its Prime service, while Netflix raised its fees late last year. Iger stated that Disney’s service will be “less than $10 a month.” The bet is that, if forced to choose, customers will choose those with the best combination of price and content. And Disney does not intend to come in second.
Other Media and Outlets
In addition to controlling interest in Hulu, plus the FX channels and the partnership with National Geographic, Disney finds itself in possession of some other media properties. Fox’ 40% stake in Vice Media will transfer to Disney as will 50% ownership of Endemol Shine Group which created Big Brother, The Biggest Loser and MasterChef. Fox had been looking to sell off its portion of the production company and Disney may continue to seek a buyer. Similarly, it may also look to sell off its ownership of fantasy sports betting network Draftkings as Disney already takes great pains to disassociate itself from gambling. Interest in Gamefly and Atom Tickets is also included, but unlike his predecessor, Michael Eisner, Iger is insistent that Disney sticks to its core competencies and they may be sold off as well.
Further, Disney finds itself once again competing with Comcast, but this time for ownership of British satellite television operator Sky. The leading pay-TV provider, Sky’s reach extends into the Indian subcontinent. Sky just reported that it had a banner year in profits, prompting the UK regulator overseeing the sale to call on Disney and Comcast to raise their respective bids. Any purchase of Sky includes a huge slate of sports and entertainment channels. It has also recently begun to create its own original content. Ownership of Sky would give Disney the ability to further expand its audience.
What Disney Didn’t Get
As mentioned at the top, “New Fox” will retain the local televisions (Fox Television Stations Group) as well as the money-making Fox News cable channel and The Fox Business Network. It will also retain all of its liabilities including the fines for the phone tapping scandal in the UK which partially torpedoed its chances to buy Sky. It must also continue to pay into the $165M EPA Superfund cleanup of the Passaic River in New Jersey which had been contaminated by Chriss-Craft Industries – which Murdoch acquired for its television stations in 2000. During the back-and-forth with Comcast over Fox, it was speculated that being required to take on the company’s liabilities would add another $14B to the total price.
Murdoch was ultimately unsuccessful in getting one of his sons onto the Disney board of directors, but the nature of the stock-or-cash deal means that the tax liability for him and key shareholders is less than if it had been Comcast’s all-cash offer that had been successful.
Disney will temporarily own both nationwide sports networks – its own ESPN and the more successful Fox Sports regional network. The Commerce Department demanded that Disney find a separate buyer because the assets and talent of the regional networks could be used to support the local ABC affiliates, thereby creating unfair competition. It’s a small price for Disney to pay, and the $1B it should be able to earn for the sale is small drop in the bucket towards the $71.3B cost. But, Disney has a reputation for getting a return on its pricey media acquisitions as shown by its history with Pixar, Marvel and Lucasfilm.
The Mouse that Roared
In the end, it is estimated that Disney will ultimately own 40% of all theatrical box office plus an equally significant portion of the American news, radio and television production. The domestic box office for the past five years has averaged about $11B annually with global revenue being around $40B annually. It will take a while for Disney to earn back its $71.3B, but no one should bet against the Mouse.