How Paranoid Should Studios & Exhibitors Be About The Disney-Fox Merger In 2019?

20th Century Fox Disney
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No one accumulates power without using it.

So, as the Disney-Fox merger officially comes together in 2019, how concerned should studios and theater chains be about the new company’s combined 37% domestic box office share power?

It’s already a Disney world, and we’re just living in it: The Burbank, CA-based studio, propelled by its Marvel, Lucasfilm, Pixar and Disney brands, set a new industry domestic B.O. record of $3 billion this year. Fox, meanwhile, earned $1.227 billion in a close 5th place behind Sony ($1.229B). If combined this year, Disney and Fox would count an unheard of $4.25B stateside and a massive $10.2 billion worldwide.

When the merger was first announced a year ago, a great paranoia prevailed that Disney-Fox would collapse jobs throughout the motion picture/TV industry, as well as big foot what is already an oligopoly industry. While there’s still a serious concern that as many as 10K jobs or more will be eliminated as a result of this horizontal merger, several industry executives we spoke with have developed a sobering attitude about the actual degree of sway that this conglom will wield on the theatrical release calendar and at the multiplex. In short, rival studios and exhibition aren’t really scared. Note Disney executives were unavailable to comment for this story. Updated chart (Universal B.O. does not include Focus Features):

Deadline/ComScore

 

Here’s some questions on everyone’s minds about Disney-Fox in 2019:

Who’s going to manage this combined slate?

That’s the most pressing question. Will Fox distribution and marketing executives continue to oversee the future slate they were involved in developing in the short run? Or will Disney’s respective departments just simply take it over? Word is both studios’ release schedules are expected to merge by the end of Q1, and there’s still no word on who from Fox distribution or marketing will make the segue to the new corp.

A combined Disney-Fox release slate would count 24 films in 2019 (14 Fox, 10 Disney), and 19 in 2020 (8 Fox, 11 Disney) and note that doesn’t include any additional Fox Searchlight titles that might show up from a festival acquisition, or big Fox films that haven’t been dated yet for 2020.

Previous absorptions such as Lionsgate/Summit and Warner Bros./New Line saw the senior company’s distribution and marketing departments taking command over the acquired slates. But there’s a lot of Fox films to book here in the next two years.

Fox distribution/marketing executives have experience in turning middle-budget fare into awards season and commercial events, and it would be key to keep them intact. However, Disney has also handled similar fare in the past, with DreamWorks dramas like The Help, Lincoln, and Bridge of Spies, but in a shorter supply.

Aladdin Disney

There are already some weekends where both Disney and Fox have double-booked movies, and the question is whether the studios want to stick to these dates. For example, over the Memorial Day weekend frame, Disney has Aladdin and Fox has the sci-fi Brad Pitt film Ad Astra. Even though both films skew to different crowds, respectively families and older males, does the new Disney want to commit that much marketing dollars to both titles over the holiday weekend, or space them out?

Will Disney-Fox choke the theatrical release schedule?

No, not necessarily. Of the industry executives we spoke with, the marketplace will either be a situation of business as usual for rival studios, or an opportunity for low-to-middle budgeted fare to flourish.

Disney already has the release schedule in a headlock, with dibs on key dates such as the end of  April/first weekend of May, Memorial Day weekend, the first weekend in November, Thanksgiving, etc. If they keep Fox as fat as it is now going forward, other majors believe they can still eventize and find dates.

This is evident in how others have dodged Disney. In so doing, other studios have opened movies to great results during non-summer and non-holiday periods on the calendar and expanded the box office marketplace as a result.

Warner Bros. Pictures

“You have to be clever when it comes to picking dates,” says domestic distribution boss Jeff Goldstein, whose studio Warner Bros. is a shining example of this, having turned the risky mid-August frame into a goldmine this year with Meg and Crazy Rich Asians (which grossed a combined near $320M at the domestic B.O.). His team also transformed the post-Labor Day weekend from a sinkhole into one of the richest frames on the calendar, with last year’s It and The Nun this year. Expect another huge weekend during that corridor next year, when they deliver It: Chapter Two, as well as Shazam! on April 5.

Should Disney ultimately cut down the Fox pipeline, then it’s an opportunity for the competition to step in the middle-budget space. Such fare this year has rallied greatly with A Star Is Born, A Quiet Place, Crazy Rich Asians, Creed II, The Nun and Peter Rabbit.

Fox

Yes, Marvel gets another renaissance by absorbing Fox’s X-Men universebut the tall task for the merger is re-introducing an Avatar sequel 11 years after the original to the masses again on Dec. 20, 2020 (despite having a Pandora park at Orlando’s Disney World). Even though Avatar was the highest-grossing movie of all-time with $2.78B WW, its merchandise (reportedly under $200M from 125 licensed products) didn’t leave a legacy mark in the $20B-plus Star Wars sense of the word.

In addition, this year and 2017’s Christmas seasons at the B.O. tell a bigger story: Rival studios aren’t afraid to date against Disney. Warner Bros. didn’t wince putting Aquaman up against Disney IP Mary Poppins Returns, with the DC movie beating the sequel by seven-fold with a global gross of $600M. Sony opened Jumanji: Welcome to the Jungle in the wake of Disney’s behemoth Star Wars: The Last Jedi and made $404.5M at the domestic B.O. The Dwayne Johnson-Kevin Hart adventure comedy lasted 14 weeks in wide release to Last Jedi‘s eight.

How will the merger’s tough rental terms impact exhibition?

Captain Marvel Disney

Disney is notorious for demanding tough rental terms and big auditorium holds over several weeks, reportedly 65% on Star Wars: The Last Jedi and Avengers: Infinity War. No doubt this will continue, but only for big event films. “They can’t charge that on everything,” says one exhibition insider.

Who gets hurt here? The smaller mom-and-pop independents who will have to weigh the cost of booking Disney titles against the revenue earned from concessions and a four-week lengthy play. Our exhibition sources do not predict a doomsday scenario where theaters start going out of business. Up until now, Disney has been respected by theater owners for holding the line on the theatrical window. We’ll see whether that changes once Disney+ is introduced.

In addition to stiff Disney contracts, the reality is that exhibition does what it wants: If a film isn’t performing, than the title’s showtimes are cut, or the movie is moved into a smaller auditorium. If the pic is over-indexing, then it receives all the multiplex spoils of several showtimes and big-seat auditoriums. It’s Darwinism.

A unified attempt by big circuit exhibition to block Disney’s tough terms would prove challenging, largely because collusion is illegal. Back in the 1990s exhibition tried to take a stand against Disney when they executed a bidding process for their films. UA and Cineplex Odeon stopped playing Disney films, but AMC and Loews caved to Disney’s terms, so the studio was able to carve a footprint. Also, we understand it’s not a hard-and-fast easy rule where Disney always gets the best terms, and other majors do not. Different chains have different terms with each major, with some studios getting better percentages than Disney.

Will Disney-Fox monopolize Walmart and Target shelves?

Disney princesses on sale at Walmart on Black Friday 2018 AP

That’s a plausible notion, considering that the International Licensing Industry Merchandisers’ Association (LIMA) three years ago reported that the consumer products for Disney’s Frozen were so successful, they froze out other attractive licenses in the retail sector.

But it’s three years later and the consumer products arena is a tough sector.

Toys R Us is out of business. Disney’s consumer product revenue (which also includes interactive media) is down $1B since 2015, or -18%, with the current year totaling $4.6B. In response to the absence of Toys R Us, Walmart and Target have expanded their toy shelf space. Meanwhile, the retail toy business is migrating online, with Edge by Ascential reporting that Amazon’s toy group earned just over a half billion in Q3, +30% from last year.

There’s even more clouds for Disney products. Earlier this year, Hasbro CEO Brian Goldner admitted that The Last Jedi toy sales were off significantly from a year ago because they hit shelves too soon. The failure of Solo at the B.O. also doesn’t help. Robot retailer Sphero announced they weren’t making any more Star Wars, Cars or Spider-Man toys because the licensed toy business required more resources than it’s worth. Even worse for Disney: there was news earlier this year over a shortage of Black Panther merchandise, as Hasbro didn’t anticipate the franchise’s phenomenal $1.3B global box office. Back in March, Disney announced that Disney Parks and Resorts chair Bob Chapek would add consumer products to his purview. The plan here by Disney is to produce products and experiences that bring Disney characters to life.

Deadline

Given the funky state of the consumer products biz, rivals believe that they can stand shoulder-to-shoulder with Disney, if not taller. Warners is banking on the resurgence of their DC brand, while STX is reportedly seeing better minimum guarantees on UglyDolls than Universal did with Despicable Me 2 dolls.

“Disney-Fox isn’t about a power play for Walmart,” says one major studio boss. “The commitment of a studio to powerfully promote alongside its marketing spend is what matters the most to Walmart, plus a franchise that’s supported by a massive theatrical experience.”

Anecdotally, a look around a local Los Angeles suburb Walmart didn’t show any Mary Poppins dolls or Solo figures en masse on the shelves. Rather, there was a big display of Paramount’s Bumblebee. 

In the end, it’s all about Netflix

“Disney’s acquisition of Fox isn’t about increasing market share in the theatrical marketplace. Disney already has that. It’s about their new streaming service, Disney+, and taking on Netflix, full stop. If you view this merger through that lens, it all makes sense,” one rival studio boss said to Deadline. Disney will need to feed its streaming pipeline, and having the Fox library at their disposal allows them to go from 0 to 60 when it happens.
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Sean Bailey, Disney’s President of Motion Picture Production, recently told THR that his division, which oversees the live-action adaptation of Disney animated classics such as Beauty and the Beast, will be churning out nine-to-ten films a year between theatrical and Disney+. For the latter, that could include the types of low-to-mid budget titles (such as Queen of Katwe, Million Dollar Arm), which haven’t historically been surefire hits at the B.O.

Still TBD: Will Disney practice a Netflix Roma-like theatrical/streaming pattern with some of the Searchlight titles?

While Netflix acquired many major studio titles that would have likely tanked at the B.O. this year, i.e. Warner Bros.’ Mowgli and Paramount’s The Cloverfield Paradox, many also wonder whether Disney will easily flick the switch on certain theatrical titles and dump them into streaming or collapse the window between theatrical and home viewing. However, dumping titles intended for theatrical into streaming isn’t a prudent business decision for Disney when they’re trying to make their streaming service a quality destination.

“Theatrical movies and streaming movies are made for two different audiences. Theatrical titles are intended to be events. They’re developed to be placed on a release calendar years in advance with long-term revenue projections based on their downward ancillaries. To pull a title off the schedule is a big deal. So far the ‘event-izing’ of streaming new movie titles hasn’t shown to payoff,” says the same rival studio boss.

He further adds, “No one knows what Netflix really means in how their views and metrics drive subscriptions. Netflix is driving costs through a system by which rival studios cannot compete.”

Disney+ is expected to launch in late 2019, and the next year and beyond will determine how much the theatrical landscape gets re-drawn, and whether other studios will merge to compete in a streaming world. Warner Bros. is prepping their streaming service and Google and Apple are anxious to get in on the game.

The market cap for Disney-Fox would be roughly valued around $200M, and while that’s bigger than other entertainment congloms like Comcast ($151B), Netflix ($111B), Sony ($60B) and Viacom ($10.6B), the new merger is significantly smaller than many tech companies such as Apple ($745B), Google ($723B) and Amazon ($719B).

But as of right now, most majors have their gloves on, and they’re ready to fight. What Disney has done here in acquiring Fox, other studios would kill to do.

 

COMBINED DISNEY-FOX MERGER RELEASE SLATE

 

2019

Jan. 25

The Kid Who Would Be King (20th)

Alita: Battle Angel
Alita 20th Century Fox

Feb. 14

Alita: Battle Angel (20th)

March 8

Captain Marvel (Disney/Marvel)

March 15

The Aftermath (FSL) – limited

March 29

Dumbo (Disney)

April 17 – Easter Weekend — 2 Disney/Fox films on the marquee

Breakthrough (20th)

Penguins (Disney Nature)

April 26

Avengers: Endgame (Dis/Marvel)

Ad Astra Fox

May 24  — 2 Disney/Fox films on the marquee

Aladdin (Disney)

Ad Astra (20th)

June 7

Dark Phoenix (20th)

June 21

Toy Story 4 (Disney/Pixar)

June 28

Ford v. Ferrari (20th)

July 12

Stuber (20th)

July 19

The Lion King (Dis)

The New Mutants Fox

Aug. 2

The New Mutants (20th)

Aug. 9

Artemis Fowl (Dis)

Sept. 13

Spies in Disguise (20th)

Sept. 27

The Art of Racing in the Rain (20th)

Oct. 4

The Woman in the Window (20th)

Nov. 15

Untitled Kingsman Movie (20th)

Nov. 22

Frozen 2 (Dis)

The Last Jedi Disney

Dec. 20

Star Wars: Episode IX (Dis)

Dec. 25

The Call of the Wild (20th)

 

2020

Feb. 14 —2 Disney/Fox films on the same weekend

Untitled Disney Live Action film

Nimona (20th)

March 6

Onward  (Disney)

March 13

Gambit (20th)

March 27

Mulan (Dis)

May 1

Untitled Marvel (Dis)

Maleficent Disney

May 29

Maleficent 2 (Dis)

June 19

Untitled Pixar

June 26

Untitled Fox Marvel

July 17

Bob’s Burgers (20th)

Jungle Cruise
Jungle Cruise Disney

July 24

Jungle Cruise (Dis)

Oct. 2 – Two Fox films on same weekend

Untitled Fox/Marvel

Death on the Nile (20th)

Oct. 9

Untitled Disney Live Action

Nov. 6 – Two Disney/Fox films on same weekend

Untitled Marvel

Ron’s Gone Wrong (20th)

Nov. 25

Untitled Disney Animation

Dec. 18

Avatar 2 (20th)

Dec. 25

Untitled Disney Live Action

2021

Feb. 12

Untitled Marvel (Disney)

March 5 – Two Fox pics on same weekend

Foster (20th)

Untitled Fox/Marvel (20th)

March 12

Untitled Disney Live Action

May 7

Untitled Marvel

May 28

Untitled Disney Live Action

June 18

Untitled Pixar

Paramount

July 9

Untitled Indiana Jones (Dis)

July 30

Untitled Disney Live Action

Oct. 8

Untitled Disney Live Action

Nov. 5

Untitled Marvel (Disney)

Nov. 24

Untitled Disney Animation

Dec. 17

Avatar 3 (20th)

Dec. 22

Untitled Disney Live Action

 

2022

Feb. 18

Untitled Marvel (Disney)

March 18

Untitled Pixar (Disney)

May 6

Untitled Marvel (Disney)

May 27

Untitled Disney Live Action

June 17

Untitled Pixar

July 8

Untitled Disney Live Action

July 29

Untitled Marvel (Disney)

Oct. 7

Untitled Disney Live Action

Nov. 4

Untitled Disney Live Action

Nov. 23

Untitled Disney Animation

Dec. 16

Untitled Disney Live Action

 

2023

Feb. 17

Untitled Disney Live Action

2024

Dec. 20

Avatar 4 (20th)

2025

Dec. 19

Avatar 5 (20th)

This article was printed from https://deadline.com/2018/12/disney-fox-merger-2019-impact-on-box-office-theaters-major-hollywood-studios-1202525476/