Reports disclosing “on-again-off-again” merger talks between 21st Century Fox and the Walt Disney Co. sent Fox shares soaring as Wall Street, Hollywood and the media business digested the prospect of yet more consolidation.
Fox’s stock spiked 9% on the reports from CNBC and The Wall Street Journal, which cite unidentified insiders and describe negotiations not currently being held. Shares closed at $26.62 on heavy trading volume. Disney stock gained 2% to $100.64.
The talks have reportedly happened over several weeks, with the motivation being the increasing scale occurring across the content and distribution landscape. Senior management at Fox has come to believe that a broader portfolio is not viable unless it is offered at greater scale. The merger scenario would see Fox selling most of its media assets to Disney, preserving a more focused company built on news and sports.
Fox declined to comment on the reports. Disney reps could not immediately be reached.
Both companies have been participants in recent merger discussions, with Fox making an offer for Time Warner, which was rebuffed ahead of the company’s eventual sale to AT&T, and Disney reported to be talking with several major firms, including Netflix. It is unclear whether the current talks are still active.
Should a deal proceed between Fox and Disney, it would address some of both entities’ weak points. Fox would be able to focus on its broadcast network, local stations, news and sports, jettisoning holdings such as its film studio, FX Networks and National Geographic. Disney, meantime, would gain more international distribution (not to mention a stake in pay-TV giant Sky), while also spreading out its risk in cable programming as ESPN and other networks continue to re-orient in the cord-shaving age.
Of particular interest to Disney, which has built its content strategy around brands, would be the opportunity to re-integrate the X-Men, now under license to Fox film studio, with the rest of the Disney-owned Marvel superheroes. Disney may also have its eye on James Cameron’s lucrative “Avatar” franchise, which it licensed for the Animal Kingdom theme park in Orlando, Fla.
FX Networks, led by John Landgraf, which has been home of a slew of awards contenders and was an early adopter of multi-platform distribution, and 20th Century Fox TV, which is behind such hits as “This Is Us” and the venerable The Simpsons and Family Guy, have been assets that the Murdochs have praised publicly over the past year.
Adding more successful cable networks would strengthen Disney’s hand as it negotiates deals with pay TV distributors, said former Weather Channel CEO Mike Kelly. Augmenting its library of content would position Disney for the day it goes direct-to-consumer in 2019 with its planned streaming service, he said.
A deal that would separate Fox Broadcasting Co., which has been looking for a ratings turnaround, and TV studio 20th Century Fox Television, could have a devastating effect on the network. The broadcast network business is increasingly challenging with declining linear ratings.
To offset that, nets have become increasingly vertically integrated. This year, all new scripted series picked up by Fox came from its sister studio, 20th TV. Overall, 80% of Fox’s scripted series come from 20th TV. To forge even closer ties between the broadcast network and studio, three years ago 20th TV chairmen Dana Walden and Gary Newman also were given the reins of Fox Broadcasting company.
Such a major media consolidation might well face regulatory hurdles, especially given recent reports that the Trump Administration’s Justice Department was weighing a lawsuit to block the announced AT&T-Time Warner deal.
“We think the exclusion of sports and broadcast assets from any talks is potentially a nod to anti-trust concerns,” wrote RBC Capital Markets analyst Steven Cahall. “The studio could prove thorny with theater groups likely crying foul, though studios can argue that the world has moved beyond the theatrical window with Netflix and Amazon creating a new definition of competition and appropriate scale.”