Disney : The Goliath in the Making
The first episode of the Streaming Wars is now over. The rebels won the first round, but now unsurprisingly, the empire strikes back…
Disney announced earlier this week that it would acquire the entertainment assets of 21st Century Fox for about $60 billion in stock and debt, in what would be the largest-ever merger of two showbiz companies. Already the most storied entertainment empire in the U.S., Disney would become a global colossus through this deal, gaining large stakes in the biggest entertainment companies in both Europe and India.
In the transfer of power, Disney would receive the 20th Century Fox film studio, including the film maestros at Fox Searchlight, the X-Men franchise, The Simpsons, Avatar, Fox’s television production company, the FX and National Geographic cable channels, and regional sports networks.
These additions would enrich an overflowing treasury at Disney, whose assets includes Star Wars, Marvel, Pixar, ABC, ESPN, the world’s most popular amusement parks, and, of course, its classic animated-film division. When Mufasa tells Simba in The Lion King that “everything the light touches is our kingdom,” it isn’t just memorable screenwriting. It is a foresight into the future… !!
Meanwhile, Fox will spin-off Fox Broadcasting Co., Fox Sports, Fox News, Fox Television Stations and other assets into a new company that will have revenue of $10 billion and earnings of about $2.8 billion. Fox will continue to pursue its acquisition of the remaining 61% stake in Euro satcaster Sky that it does not already own with the intention of Disney taking it over when the Disney-Fox transaction is completed.
Disney also acquires a majority stake in the TV product Hulu, which it may use to kickstart its entry into the streaming wars. At the deepest level, this corporate marriage isn’t about Mickey versus Murdoch, or Avengers versus X-Men. It’s all about Netflix… and, to a subtler extent, Google and Facebook, whose dark shadows extend over the entire media landscape.
Streaming video has conquered pay TV and created a generation of cable-cutters across the world. The youngest millennials watch 50% less traditional television in US than people that age did in 2010. That means every content company now has to be a streaming technology company. As eyeballs shift away from the cable bundle, advertising is following them to mobile devices, where Google and Facebook have built an impregnable duopoly. That means every ad-supported television business has to become a direct-to-consumer business.
Change in Time Spent Watching Traditional TV by Age Group in US
For media and entertainment companies, there is one big existential question: Get big and stream, or give up and sell? By making huge acquisition offers, Disney have chosen first option. Disney’s future hinges on whether it can build a streaming powerhouse like Netflix, distributing a library of video over the internet. The company plans to launch an internet sports product in 2018 and, most importantly, a filmed entertainment product in 2019. To truly compete with Netflix, Disney’s 2019 service via Hulu will need both a deep library for viewers as some viewers just want old shows and movies, and an excellent television production company (you always need the new stuff !!). With this deal, it would have arguably the world’s best in both categories.
As seen above, the only age demo watching more TV than in 2010 are eligible for Medicare !! By clutching Fox News with an average viewer age of nearly 70, and other traditional TV channels, Murdoch is holding fast to the appropriately gray line. And basically, Disney is spending $60 billion for a risky makeover to appeal to a younger demographic.
With this deal, Disney would control as much as 40 percent of the the U.S. movie business and U.S. television business. Its control of the sports-television landscape, between the regional sports networks and ESPN, might be even more concentrated, giving Disney’s more leverage to demand higher fees from cable and telco companies in exchange for distributing its content.
If that sounds a little scary for television distributors, or television viewers, then good. Everybody should fear the Disney Death Star. Hollywood studios should be afraid to compete with a corporate Goliath that could earn half of all box-office revenue in a good year. Every tech company should be afraid to get into a content war with a company that combines the top blockbuster movie studio, with a top prestige-film and television production company, with the most valuable franchises… Star Wars, Marvel, Pixar, and X-Men.
And consumers should fear too… not just those who are afraid that Disney will water down artsy film-making (like Fox Searchlight’s Grand Budapest Hotel) and R-rated superhero films (like X-Men’s Deadpool), but also those who are afraid that too much control of any industry confers monopoly power that restricts choices, raises prices, and hurts workers.
But here’s the weird part.. Disney should also be afraid of its own Death Star. Box-office ticket sales have been flat or declining for years, and television is in obvious structural decline. In many ways, the entire company’s future hinges on its ability to funnel its expansive universe of entertainment into a single direct-to-consumer stream that takes on Netflix, which already has more than 100 million subscribers worldwide.
The future of media is going to a very long, very expensive great-powers war. There’s no question that, as of 2017, the streaming rebels are winning. With this deal, the empire just struck back…
And the obligatory fact with almost all of the recent events… Simpsons predicted it first !!
