The idea of Disney buying 21st Century Fox is exciting for many reasons, not the least of which is that it would pull the X-Men into the Marvel cinematic universe. It’s only a rumor at this point and neither company has commented, but the report has sent stocks rising and minds racing.
But is it possible to pull off a horizontal merger, especially in an age when a vertical merger like AT&T and Time Warner is reportedly being put through the Justice Department wringer?
The talks are reportedly on hold at the moment, which stands to reason since both Disney and Fox are reporting their quarterly earnings this week. According to CNBC’s sources though, the companies have cooked up a way to sell major pieces of Fox to Disney without sounding too many regulatory alarms.
Disney would acquire most of 21st Century Fox, and left at Fox would be "tightly focused on news and sports." Disney would not buy Fox’s broadcast network, Fox’s sports programming, or the Fox News or Business channels. But Disney could acquire Fox’s film and television studios, international assets like Sky and Star, and Fox’s cable networks including FX and National Geographic.
Though the deal seems far-fetched, the upsides are abundant, particularly for Disney. The company is currently at work on its branded streaming service, which it intends to launch in 2019 with some original series and movies, as well as Disney, Pixar, Marvel and “Star Wars” films on board. By snatching up Fox’s film and TV studios and production companies, Disney could significantly beef up the content slate for that service—although its doubtful shows like “American Horror Story” would mesh with Disney’s family-friendly image.
Will be a hugely profitable deal for $DIS in the long run. Definitely bolsters their DTC play. No way this is a Netflix killer though— Eric Jackson (@ericjackson) November 6, 2017
Eric Jackson, founder of analyst firm EMJ Capital, also points out that a deal for Fox could also potentially give Disney 60% ownership in Hulu. Earlier this year, Jackson wrote for CNBC that Hulu, which recently launched a live streaming TV service, could grow more aggressively if it had a single owner. He said streamlined ownership would make Hulu more nimble and could allow it to be more aggressive in growing internationally.
That same eye on international could be another motivating factor for Disney. Buying Fox wouldn’t give Disney any new distribution in the U.S., but it would allow the company access to Fox’s stakes in Star in India, and European pay-TV operator Sky. Fox is currently trying to up its stake at Sky but is meeting resistance from U.K. regulators.
Journalist Sarah Ellison pointed out how U.K. regulators just came after Fox and Sky over Fox News hosts Tucker Carlson and Sean Hannity breaching media impartiality rules.
By structuring a deal where Fox News and other programming is spun off from the majority of Fox, Ellison said Disney could more easily push through the deal for Sky.
Jefferies analyst John Janedis questioned that reported deal structure and why Fox and the Murdoch family would want to get rid of assets with a lot of upside left in them.
"With the assets Disney would buy...FOX would be left with the slower growing broadcast network, TV stations, Fox News, as well as the RSNs. Fox News would be the fastest growing, most valuable asset in RemainCo. We assume FOX would retain ownership of the TV studio in order to supply content to the network. It's unclear why the Murdochs would look to split from the faster growing assets that are at the cusp of accelerating growth after years of investment (and likely won't get paid full value as of now)," wrote Janedis in a research note.
Of course, no merger would ever be discussed if there weren’t benefits for the companies involved. But the true test to pass is if there are benefits for consumers—or at the very least, no outright disservices to consumers—and that is for regulators to decide.
The FCC and U.S. Justice Department have their collective hands full, reviewing AT&T’s $85 billion takeover of Time Warner Inc., Sinclair’s hotly contested $3.9 billion deal for Tribune Media and Discovery’s $14.6 billion bid to merge with Scripps Networks Interactive. While Discovery and Scripps haven’t seemed to kick up much fuss, countless lawmakers, lobbyists and public interest groups have come out against Sinclair and AT&T’s proposed transactions.
It’s likely that a Disney-Fox deal—which would further consolidate the U.S. box office, cable channel guide and maybe even ownership at Hulu—would be met with some fierce opposition.
Perhaps the companies will offer more details this week (probably not) but for now, it’s a fantasy. Though it’s never too soon to start imagining how Logan would fit into the next Avengers movie—Ben | @fiercebrdcstng