Disney’s announcement in December that it would acquire, subject to regulatory approval, most of the entertainment assets of 21st Century Fox for $60 billion in stock and debt, will create the largest-ever “merger” of two entertainment companies.
The purchase includes some of the most famous properties in television and film:
- the 20th Century Fox film studio, including the independent film house Fox Searchlight (Slumdog Millionaire, 12 Years a Slave, and Birdman), and brands like the x-Men franchise.
- Fox’s television production company (The Simpsons, Modern Family, Homeland).
- The FX and National Geographic cable channels.
- Fox’s regional sports networks.
- Fox’s shareholding in Hulu, which will give Disney a majority stake in the TV streaming product Hulu.
- Star TV in India, and Sky TV in Europe
Disney already owns Lucasfilm (Star Wars, Indiana Jones), Marvel, Pixar, ABC, ESPN, the Disney amusement parks, the classic animated-film division, and BAMTech, the sports streaming technology used by MLB.
The Murdoch family will end up with stock in Disney, and leave them with what is effectively a news and sport entertainment company: the Fox broadcast network, the Fox News Channel, and several newspapers and national sports networks. Rupert Murdoch built the family fortune from one inherited small-city newspaper in Australia.
Simplifying things hugely, Disney has four divisions:
- Parks & Resorts
- Consumer Products
Disney had about 30% of the movie market share in 2017 (with five of the top ten movies), and the resorts and consumer products flow from that. They’re great at it. In the US, that market is stagnating, globally its growing, and Disney made nearly $8 billion profit from those three sources in 2017.
While this merger will help those three divisions by giving them some extra current and historical properties, this deal is about the Media Networks division (i.e. TV). Media Networks represent 42% of Disney’s revenue, and almost half its current profit. Thanks to ESPN, this was the cash machine of Disney for over a decade, with every cable service paying a premium bundled in their package for carrying ESPN’s channels. That revenue, like-for-like, will start to plummet, as households continue to drop cable altogether and turn to streaming services, while rights costs are rising. Ad revenue on ABC goes largely to Facebook and Google now. TV has passed the point of no return.
ESPN of course hasn’t helped itself by a range of dipshit lurches from recently assholed President John Skipper, and how every talk show seems to have to have a Trump angle to it:
Anyway, this is a graph of US TV viewership by age:
Disney’s “Media Networks” future depends on whether it can build a streaming model with their library of content over the internet to phones, tablets, and TVs. It has already announced that it will start two new streaming services: an ESPN sports service in 2018, and a Disney streaming service in 2019.
Netflix has around 110,000,000 subscribers – a figure like $10 a month per subscriber is around $13 billion. That’s what Disney’s after: some subscriber volume of that size. Its certainly achievable over time. No-one on the planet has the content and potential content to appeal to all age groups that they have if you include the Fox properties, EPSN, Fox Sports Networks, Disney, Pixar, Lucasfilm, Miramax, Marvel and ABC.
But there’s one certain way this will fail: and that’s if Disney attempt to restrict certain content from streaming on those apps, whether that’s the live sport or the entertainment. Disney has to make all of their property content available – movies, ABC shows, all the ESPN sports current and historic – on each of the apps if they’re to maximise subscribers and not be left wallowing in five years.
Disney has got one problem competing with Netflix: Netflix is highly unprofitable, and owns almost no content – even the “Netflix exclusive” content they show is mostly licensed. So far, shareholders don’t care that Netflix loses money. Disney shareholders will care. That’s why their back-catalogue is key, and needs to be fully available – they won’t compete with Netflix and Amazon video with a half-assed product, and they won’t be able to show the profits they need to by licensing someone else’s crap.
Bob Iger has consistently proven himself a genius in his acquisitions for Disney. Getting this streaming generation right will be his legacy.