Analyst: Disney to Benefit from Scale of Fox Transaction
There’s several advantages for Disney in its decision to purchase a large percentage of 21st Century Fox’s film and TV assets for $52.4 billion, but one standout minus is the apparent lack of sports content that will be picked up in the deal, according to Pivotal Research Group analyst Brian Wieser.
“The one negative consideration (if an unsurprising one) from the transaction is that Fox will evidently continue to operate its national sports properties in competition with Disney’s ESPN,” he said Dec. 14 in a research note. ESPN has already been struggling as consumers continue to cut the cord with their pay TV services and Fox Sports has been a major ESPN rival.
“Sports rights fees were already likely to undergo significant inflationary conditions as significant packages of content become available given the likely presence of Facebook, Amazon, Alphabet and Verizon as bidders in addition to Disney, Fox, Comcast and CBS,” Wieser said, adding: “This view underpins our expectation for ongoing margin pressures for both companies’ domestic cable networks businesses.”
But he said Disney “will gain advantages from the additional scale it is buying” from Fox and “Disney shareholders also benefit from greater certainty about near-term leadership of the company” as Disney extended its contract with CEO Robert Iger through 2021.
One of the major film properties that Disney will wind up with if the transaction is completed is James Cameron’s “Avatar” series, which include several planned sequels, Iger pointed out in a meeting with investors that was webcast Dec. 14, several hours after Disney and Fox held separate briefings with analysts and reporters that were also webcast.
Iger spoke to Cameron Dec. 14, Iger said, noting: “We have a really good relationship with Jim having licensed ‘Avatar’ for our parks” prior to the Fox transaction. “Obviously, he sees all sorts of other opportunities and the fact that we have a relationship already and he’s already been impressed with how Disney has handled one of his prize possessions [makes him] very excited about that and there’s great potential there,” Iger said.
Disney will also get a small number of Marvel Entertainment film properties that it doesn’t distribute now, including “Deadpool,” “Fantastic Four” and “X-Men,” Iger pointed out to investors.
“We’ll stay in that business,” he said, pointing out that other “interesting tentpole opportunities” that Disney will be getting from Fox include “Planet of the Apes.”
Iger’s also “impressed” with Fox Searchlight, which will give Disney a studio that focuses on independent, foreign and other relatively low-budget, “high-quality” feature films for the first time since it sold off Miramax in 2010, he noted.
Disney would also get “The Simpsons,” Iger pointed out, joking that there could be a pay-per-view fight between Homer Simpson and Mickey Mouse.
On the over-the-top (OTT) front, Disney will also gain a controlling stake in Hulu via the Fox transaction that stands to make Hulu an even bigger competitor to Netflix. Disney intends to continue supplying content to Hulu and intends to use it as its main streaming service for content it owns that’s targeted at adult viewers, according to Iger.
Disney, meanwhile, is “bullish about our prospects in the OTT space to ultimately gain a fair amount of reach” and “we think actually we’ll be able to launch with some decent reach,” he said, pointing to his company’s plans to launch a new ESPN Plus streaming service this spring and a Disney-branded direct-to-consumer streaming service including animated, Marvel and “Star Wars” content in 2019.
The OTT sector “is evolving because the business of going over-the-top direct to consumer really is still a relatively nascent business — although obviously Netflix probably wouldn’t look at it that way,” Iger said.
Disney, meanwhile, remains “neutral” on net neutrality, Iger told investors. But he predicted: “We believe that nothing really will be able to stand in the way or in between great in-demand content and the consumer, and if any interloper gets between them in a way that basically diminishes the impact to the consumer from a variety of perspectives, I think that that will create issues and will create trouble.”
He added: “With this acquisition we have even more confidence in our ability to reach consumers under optimal circumstances whether there’s a net neutrality law in place or not.” But “that’s not true for everyone obviously,” he conceded.