Disney acquires 21st Century Fox

A landmark deal has been struck between Walt Disney and 21st Century Fox. Disney will be acquiring much of 21st Century Fox’s business for a deal worth $52.4bn (£39bn). This is likely to shape the global media industry.

Background

The Walt Disney Company, (which is more popularly known as just Disney) is world's second largest media conglomerate in terms of revenue. The largest media conglomerate currently is Comcast. It is currently headquartered in Burbank, California. It was founded on October 16th, 1923 by brothers Walt Disney and Roy O. Disney. At the time it was called the Disney Brothers Cartoon Studio. In 2017, its revenue was US$55.137 billion. The organization began as an animation company (with its mascot being Mickey Mouse) and has since diversified into film production, television, and theme parks.

21st Century Fox is an American multinational mass media corporation based in Midtown Manhattan, New York City. It was one of two companies formed from the 2013 spin-off of the publishing assets of News Corporation, as founded by Rupert Murdoch in 1979. It was named after William Fox. 21st Century was founded in 2013 after the dissolution of News Corporation. News Corp was founded by media magnate Rupert Murdoch in 1979. It was a holding company for News Limited. 21st Century Fox is the legal successor to News Corporation dealing primarily in the film and television industries. Rupert Murdoch inherited one single newspaper from his father (an Australian newspaper) and grew it into one of the most formidable media companies in the world.

Analysis

In 2017, Disney announced its decision to part ways with the streaming service Netflix during its latest earnings report. It said that it will be launching two– one will stream sports content and the other will television and movie content. Disney owns cable networks such as ESPN, which will boost its sporting content. Disney now has a trove of its own intellectual property. In the past decade it has acquired, Pixar Animation Studios, Marvel Entertainment and Lucasfilm.

On December 2017, it was confirmed that Disney will be buying most of 21st Century Fox's business for a landmark deal worth $52.4bn (£39bn). According to the final deal, Disney, will now have Fox’s films and television studios. It will also have 39% stake in in satellite broadcaster Sky. Fox has announced that it will form a specific news media organization with the businesses that are left. Fox shareholders will receive 0.2745 Disney shares for each Fox share they hold.

Murdoch in an investor call remained optimistic and recognized that the media landscape has changed since the advent of streaming services like Netflix. He said, “Are we retreating? Absolutely not. We are pivoting at a pivotal moment.” It is unclear if Murdoch’s younger son, James Murdoch, will join Disney as part of the deal. Bob Iger, Disney’s chairman and chief executive said, “James and I have had a lot of conversations about the future of the two companies. He will be integral to us integrating these two companies over the next few months. During that time, he and I will talk about whether there is a role for him here or not.”

As part of the deal, Iger has extended his own contract to be in the company till 2021. This deal considerably increased Disney’s footprint across the world including India. It will now have acquired Star India and Fox's interests in Sky plc and Tata Sky.

David Yelland, former editor of the Murdoch owned Sun newspaper in the UK said, “In ten years time there'll be two Chinese giants and four US giants and [of the current entertainment companies] the only one that'll survive will be Disney.”

According to Bernstein analyst Todd Juenger, Disney would be facing a lot of potential earnings headwinds in coming years, starting with the fact that the Fox assets have historically been valued at a lower earnings multiple than Disney’s.

Assessment

Our assessment is that Disney’s acquisition signals the changing entertainment and media landscape especially with regards to streaming services. This has significantly disrupted old models of revenues and advertising. Disney now will become one of the most powerful media entities in the word wielding considerable influence on everything from entertainment to news dissemination.