The impending acquisition by Disney of Fox assets, which said to be worth $68B, has huge U.S ramifications but the mega-deal is believed to have major international implications with top executives and industry watchers calling it “seismic” and globally “game-changing” as they try to wrap their heads around what the combined entity will resemble overseas. There are a handful of key areas of interest, including the creation of an international box office behemoth (and its concentration of power); the face-off between a Disney/Fox OTT service and current global leader Netflix; Fox’s long-gestating bid to take full ownership of Sky; and what happens in big growth markets like China and India.
With onetime suitor Comcast now out of the mix, Disney’s Bob Iger has a clearer path to acquiring the sought-after Fox assets which are understood to include regional sports networks, international cable networks, the TV and film studio and domestic cable nets. There is also Fox’s stake in Hulu where Disney is already a partner and would be expected to absorb the share; and Fox owns a 50% stake in international production and formats powerhouse Endemol Shine Group. Both studios have stakes in the globally expanding Vice Media, while Disney also has an ownership position through its A+E Networks joint venture, meaning that a combined company would have a much larger stake in Shane Smith’s youth firm.
The hook-up will take time to flesh out – it was a roughly 18-month process for Comcast to acquire NBCU. For now, these are the key points that are on international execs minds when considering a mighty vulpine mouse:
Disney was the undisputed champ at the box office in 2016 with $7.6B in worldwide receipts and 60% coming from overseas turnstiles. Fox was in 3rd place at $4.5B WW and 66% from offshore – highlighting the importance of international returns. Year-end figures are not yet in for 2017, but Disney will lead, already with five of its films in the global Top 20 for the year — and Star Wars: The Last Jedi opening this week. Fox also had a string of solid global performers this year including Logan, War For The Planet Of The Apes and Kingsman: The Golden Circle. That’s not including Fox Searchlight’s awards-season prestige titles, The Shape Of Water and Three Billboards Outside Ebbing Missouri. Also, Fox’s Blue Sky Studios’ Ferdinand nabbed two Golden Globe nominations on Monday.
So, a combined Dis and Fox could potentially include Marvel, Lucasfilm, Pixar, Disney Live Action, Big Fox, Fox 2000, Searchlight and Blue Sky. That is a lot of release calendar real estate right there, but it’s also a lot of output if the Fox divisions keep clicking at the same pace, which is one of the key questions industry executives would like answered.
There are already plans for four Avatar sequels and Kevin Feige is understood to be keen to pull the Marvel characters that Fox owns like Deadpool and the X-Men into the MCU. One international distribution exec says, “It depends how many Fox films they continue to make. But they would have even more strength from a box office perspective and more power with exhibition.”
Disney is understood to work hard to secure higher percentages and screen guarantees for its films with domestic and international exhibitors – particularly in the case of a major event like a Star Wars film. There are clear economies of scale in the Dis/Fox tie-up in terms of bargaining power, but we’re told that most international exhibitors have medium to long-term contracts in place so new deals wouldn’t come about immediately. At the same time, folks caution, exhibition is consolidating with AMC having acquired Odeon and UCI Cinemas this past year and Regal in the process of taking over Cineworld, also creating scale.
What is thought to concern exhibitors is a concentration of power and a surfeit of product.
While Fox going away as a separate company takes one studio (and one buyer) out of the equation, “there are others stepping up to the plate,” says an exec citing a re-invigorated MGM, an aggressive STX and the deep-pocketed likes of Amazon and Apple who are looking at theatrical.
Other issues arising on the theatrical front may include the necessary unraveling of certain in-country JVs like Disney has with Sony in Mexico. And, wonders a veteran distribution chief, “Do they shut down all the Fox offices? It’s a massively complicated and expensive thing to do. Or do they just run them? There are more questions than answers at the moment.”
China may be the one place where the mouse won’t roar much louder once it swallows Fox. Dis has made savvy in-roads in the market: its Shanghai Disney Resort is a must-stop destination which has the knock-on of serving box office in the world’s 2nd largest playing field. Dis is also adding Toy Story Land to the park in time for Toy Story 4’s release in summer 2019. Avatar-themed attractions would be a potential mountain of green in a market that spent $204M seeing the first film.
But China remains a closed market where the studios are all subject to the local government and its whims. There is no control over release dates and the PROC powers that be are thought not to appreciate anyone thinking they are bigger than the politburo.
“Everyone’s hands are still tied in China, you have to play by their rules – and sometimes when you’re bigger, you get more attention,” notes an international exec.
Iger said earlier this year that Disney was pulling its movies from Netflix beginning in 2019 and will launch its own ad-free, direct-to-consumer platform by late that year. It may debut overseas ahead of domestic due to windowing opportunities, Iger said at the time.
However, Disney would not be entirely new to the offshore streaming party. It launched its Disney Life OTT service for kids in the UK in late 2015. Alice Enders of Enders Analysis says it’s “not doing as well as Netflix because it’s a different proposition. What’s missing for Disney Life is the adult piece” which Fox would bring. She contends, “Disney doesn’t need Fox, it needs its assets for a credible OTT offering.”
When Iger earlier described Disney’s OTT ambitions, he said there will be four or five original Disney-branded films made for the service as well as original Disney-branded TV series and Dis’ library of 500 movies and 7,000 episodes from the TV catalog.
Add to that Fox’s output in the film and television space – FX Networks FXNow app offers original and library content from the cable networks, including every episode of The Simpsons — and you’ve got a vast and varied slate that covers both family-friendly and edgier fare.
There are also plans for an ESPN service coming this spring with 10,000 sporting events, including soccer. The auction for the next tranche of English Premier League rights is set to kick off in the coming months, so it’s unclear how much Fox’s Sky will be able to add to this.
A deal with Disney is not expected to derail Fox’s interest in Sky, which operates in markets across Europe, including in the UK, Germany, Italy and most recently Spain. In fact, a number of industry executives believe that the deal, which is currently under investigation by the UK’s Competition and Markets Authority, may face less regulatory scrutiny under Disney ownership.
Fox has gone through an arduous regulatory process as it seeks approval for its $15.6B purchase of the remaining 61% of Sky it does not already own. By comparison, Disney would have an easier time, said analyst Tom Eagan of Telsey Advisory Group. Fox already lost out on a chance to take over Sky six years ago in the wake of the phone-hacking scandal. Disney’s comparative lack of baggage gives it “leverage in the purchase price,” Eagan wrote. “There’s no reason Disney should pay a premium over the $14.36 per share that Fox has offered.”
Sky itself is facing a number of critical issues over the coming year. The company recently revealed plans to increase its original programming by 25%, taking its total global spend to over $9BN per year. However, it will also be forced to pay more to secure valuable soccer rights to the English Premier League. The auction for the next three-year set of rights, which will kick off with the 2019/20 season, is set to begin in early 2018 and Sky may see the payments go up by as much as 45% or £600M per year as digital rivals including Amazon join the race.
Another question in the equation is what happens to Sky News. Fox already shuttered its Fox News channel in the UK ostensibly to curry favor with the authorities weighing the Sky bid — although it claimed low viewer interest. Does Disney keep the loss-maker?
It’s also thought that if Fox (or Disney) completes the Sky bid, Fox would bring many of its international distribution businesses together including Endemol Shine International, Sky Vision and Fox Networks Group. Disney does not currently own any overseas TV production companies.
A market to keep an eye on, particularly in the digital space, is India. The populous country is seeing wild digital growth – the Murdochs recently called it Fox’s “most important growth market.” In a move perhaps designed to ensure leadership there, Fox recently elevated veteran Star India Chairman and CEO Uday Shankar to President, 21st Century Fox, Asia. The exec has been at the helm of Star India since 2007, guiding its transformation into a diversified media company. In his new role, he’ll lead 21CF’s video businesses across all of Asia, including Star India, Fox Networks Group and digital video platform Hotstar.
Interestingly this year, Disney’s UTV pulled out of film production in India, despite the recent blockbuster success of Aamir Khan’s Dangal. Just last month, Fox International Productions was phased out and its chief brought under the main studio’s umbrella. But Fox Star India will still produce local-language features.
Also in the equation, what happens to News Corp’s Australian cable assets such as Foxtel, which is 65% owned by the Murdochs and 35% owned by local telco Telstra. Does the combined company keep them or jettison? Lachlan Murdoch recently lost a bid to acquire Network Ten, which was snapped up by studio rival CBS in a $160M deal. After the deal, Fox pulled its shows such as The Simpsons from the channel, but thanks to its legacy of output deals, the channel does not currently air much Disney fare.