Walt Disney Company resumes talks to purchase Fox assets

Earlier this year, The Walt Disney Company expressed an interest in purchasing some assets of 21st Century Fox, but a deal was never fully agreed upon.

Recently, Disney has resumed its discussions with Fox, looking to purchase some parts of the media conglomerate.

Besides Disney, Murdoch family-owned Fox is also in discussion over whether to sell some assets to Comcast Corporation, a cable company and owner of NBCUniversal.

Disney’s interest in Fox represents the new attempt among conventional media companies to stay relevant in a world increasingly transformed by technology and the internet.

Netflix, Inc., Hulu and their streaming counterparts are becoming more popular every day, surging in both subscriber growth and outside investment. Users are consuming audio and video content not only on their televisions, but on their smartphones and tablets as well.

Streaming companies have capitalized on this shift in media consumption by creating well-designed webpages and applications that allow users to watch their content anywhere, anytime.

In contrast, the giants of the traditional media industry have stumbled in recent years, affected by lower-than-expected box office earnings, struggling film studios and the rapidly declining viewership and subscriber base of cable networks.

Those subscribers are instead flocking to streaming services, where they have more control over what they want to watch, unburdened by invasive ads, for a much lower price tag compared to the average cable subscription.

Even technology companies like Apple and Facebook, seeing how profitable streaming media have become, are trying to outdo media conglomerates and Hollywood by producing their own content for their own platforms.

To compete, large companies such as Disney and Comcast have attempted to expand their businesses.

For example, Disney recently paid $2.5 billion for video streaming company BAMTech Media, announcing that it would introduce its own Netflix-style streaming service, according to The New York Times.

The entertainment giant has pulled its content from various services, increasing its exclusivity and ensuring that consumers who want to watch Disney content will inevitably have to subscribe to its new streaming service.

According to Bloomberg, Disney announced in August that “it will stop selling movies to Netflix and launch its own online product next year to sell premiere content, such as films and ESPN programming, directly to consumers.”

Whether Fox decides to formulate a final deal with either Disney or Comcast, the media conglomerate will retain its most profitable ventures.

Both companies have expressed an interest in the 20th Century Fox movie studio, its FX and National Geographic channels, its Star network in India, and its stake in the European pay-TV provider Sky plc. Fox would be left with its highly profitable Fox News channel, its broadcast network and its sports pay-TV channel.

The content that Disney acquires from Fox can then be put on its streaming services, giving potential customers a wider variety of shows and movies to select from, and granting a greater competitive advantage over its streaming service rivals.

Netflix, Amazon, Hulu and their ilk are spending billions of dollars to produce new content, which, more often than not, results in a financial net loss. It is more economically sound to acquire other companies’ content than to risk producing one’s own.

Disney appears to be the most likely company Fox will make a deal with. According to Reuters, the Murdoch family “prefers a deal with Disney because it would rather be paid in Disney than Comcast stock, and expects a potential deal with Disney to be cleared by U.S. antitrust regulators more easily.”

Additionally, the deal would confer upon the two companies certain benefits.

For example, Disney already owns a 30 percent stake in Hulu, and the potential deal with Fox would grant the company another 30 percent, giving it controlling ownership.

Besides figuring out which company it should sell its assets to, Fox may also have to worry about U.S. regulators, who can pose a problem.

Regulators were opposed to AT&T’s $85.4 billion takeover of Time Warner Cable. The Justice Department recently sued to block this deal, a vertical merger that would combine the largest television distributor in the United States with a major content producer, according to The New York Times.

President Donald Trump’s administration argued that the combination would give one company too much power over the creation of content and distribution of this aforementioned content.

AT&T and Time Warner are fighting the federal government’s claims, but dealmakers and investors are concerned whether the Trump administration will also move to block the sale of 21st Century Fox’s assets.

December 11, 2017

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