Analysis: why would Fox sell to Disney?

Disney StudiosYesterday, it emerged 21st Century Fox had held talks to sell much of its business to The Walt Disney Company. The questions are why, and why now.

According to CNBC, the negotiations took place over the past few weeks, but have stopped for the time being. They could resume at any point, as the discussions have been stop-start.

On the table is almost the entire Fox entertainment business – the Hollywood studio, cable channels such as FX and National Geographic, and the stake-holdings in European satcaster Sky (whether that is the current 39% or more) and Indian pay TV business Star.

Disney already owns ABC, so would not be able to take the Fox broadcasting channel due to American competition laws, and would not snap up Fox’s affiliates.

For Fox, the move would therefore leave it with Empire network Fox, and its popular Fox Sports and Fox News operations, giving it a much smaller, but more-focused business.

The wider context is media companies are running scared of the emerging content giants known collectively – and ominously – as FAANG (Facebook, Amazon, Apple, Netflix and Google).

With each of these committing huge resources to video, and in most cases high-end original TV, the traditional media groups are desperate to scale up and future-proof themselves.

Disney has already pulled its content from SVOD giant Netflix and will launch its own subscription player, plus a separate ESPN-branded service, before 2020.

Owning the Fox library and having a second US production studio would mean it could super-serve the Disney-branded service and help it become the ‘Netflix killer’ that management privately wants it to be.

CNBC reports that Fox’s controlling family, the Murdochs, are concerned that the sort of scale needed to remain relevant in the future of entertainment is unattainable due to the available assets on the market.

The company made an opportunistic approach to buy Time Warner in 2015 for around US$85 billion, but was turned down. Time Warner subsequently sold to telco AT&T for a higher premium, and both sides now have their fingers crossed the deal will pass competition scrutiny, with the Trump administration making its distaste for the deal public on a number of occasions.

To tangle the web even further, there’s no guarantee Fox selling its entertainment assets is the right course of action. FAANG companies – Amazon and Facebook especially – have been upping their interests in sports content, buying highlights packages and related programming to serve their audiences.

Most believe this is a precursor to outright bids for major sports such as English Premier League football, the NFL and the tennis Grand Slams. Should a FAANG company win one of these major contracts (Amazon has already scored global streaming rights to the ATP World Tour), pay TV would be rocked to the core.

As talks have ended for now, Fox and Disney remain competitors and rivals. However, the episode proves how content has become the key battleground in the future of media, communications and technology.

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