Twenty-First Century Fox - Class B (NASDAQ:FOX)
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Acquisition of 21st Century Fox assets adds heft in effort to compete with Netflix
By Erich Schwartzel and Joe Flint
This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (March 21, 2019).
Walt Disney Co. closed its $71.3 billion acquisition of the major entertainment assets of 21st Century Fox, the companies said, combining some of Hollywood's best-known studios, characters and franchises as media companies look to get bigger to better compete in a world where shows and movies are increasingly streamed.
Disney will now control Fox's movie and television production studios, as well as its FX cable network, Fox Searchlight label and National Geographic properties.
The deal, which stemmed from talks about 18 months ago at a Los Angeles winery owned by Fox Chairman Rupert Murdoch, closed following approval in several foreign markets. After quickly getting approved by the U.S. Justice Department last year, the deal was slowed by the partial government shutdown earlier this year.
The combined Disney-Fox entity is part of a race for scale in Hollywood, where having a hit movie or TV show is no longer enough. Studios today need a deep stable of characters and franchises to sell streaming subscriptions, movie tickets, toys and theme-park admissions.
That trend has led to rapid consolidation. AT&T Inc. acquired Time Warner Inc., a merger the telecom giant is planning to use to pipe entertainment onto its phones and launch its own direct-to-consumer streaming service. Comcast Corp., to boost its NBCUniversal and Universal Pictures divisions, purchased DreamWorks Animation SKG Inc. in 2016. CBS Corp. and Viacom Inc. are seen as a potential merger this year by industry analysts.
Disney will now be regarded as a leader in this new Hollywood, though Chief Executive Robert Iger will need to manage a merger of companies that will lay off thousands of employees and prompt tough questions about which Fox properties align with Disney's family-friendly brand.
Disney's rise has been driven by its acquisitions: For a combined $15.4 billion, the company has purchased Pixar Animation Studios, Marvel Entertainment and Lucasfilm Ltd. The acquisitions have put lucrative properties such as "Toy Story," "The Avengers" and "Star Wars" under the same roof as its storied animation studio, extending the franchise business model that allows Disney to exploit those characters at the box office, on toy shelves and at theme parks.
Disney is positioning its bet on Fox -- by far the biggest acquisition in the company's history -- as a central element of its long-term strategy. The rise of Netflix has forced traditional studios to look for ways to create direct business relationships with consumers, skipping the multiplex and going directly into the home.
Disney has launched one streaming service, tied to its ESPN programming, and is planning a family-oriented one for later this year. To prepare for that launch, it already has started removing its movies and television shows from Netflix's library.
Disney has a considerable advantage in its streaming ventures, given the popularity of its well-known characters and movies. But launching a streaming service requires an extensive catalog of programming to convince consumers to pay a monthly fee, and Fox programming such as National Geographic documentaries is expected to launch on the Disney service alongside Disney shows like "High School Musical."
In a sign of the awkwardness of the Disney-Fox mashup, edgier Fox fare -- such as FX shows like "American Horror Story" or "Pose" and movies like "Deadpool" -- will appear on streaming service Hulu, over which Disney will assume majority control now that the deal has closed. However, many FX shows are on Netflix and will remain there for some time.
Acquiring Fox's 20th Century Fox Television Studio gives Disney one of the industry's most prolific producers of content and a large library that includes such hits as "The Simpsons," "The X-Files" and "Modern Family."
Disney has put Fox's television team in charge of its TV operations, including the ABC network, its cable networks and ABC Studios. Peter Rice, who headed Fox's Network Group, has been named chairman of Walt Disney Television, while former Fox TV Group Chairman Dana Walden has been named chairman of Disney Television Studios and ABC Entertainment.
ESPN will continue to be overseen separately by President James Pitaro, who reports directly to Mr. Iger.
It remains to be seen what will ultimately happen to Fox's movie studios. Its Fox Searchlight label has had considerable success at the Oscars, releasing best-picture winner "The Shape of Water" in 2017 and nominee "The Favourite" last year, and as a result of the acquisition is expected to focus primarily on movies for the streaming services. The larger Fox studio will likely see its output diminish.
Movie-theater owners are watching the acquisition warily, given Disney's already-dominant position at the box office. Disney's string of hits, including "Black Panther" and "The Incredibles 2," gave the studio a 26% market share of the box office in 2018, providing Disney with remarkable leverage over exhibitors. Fox releases accounted for about 9%, down from around 12% in recent years.
Messrs. Iger and Murdoch began talking of a potential deal between their two companies in August 2017, according to regulatory filings. A $52.4 billion deal was announced that December.
The proposed tie-up was quickly complicated, though, when Comcast Corp. made a competing $65 billion offer for the Fox assets. The resulting bidding war culminated with Disney's final $71.3 billion offer last June. Comcast ended up winning control of Fox's stake in Sky PLC.
Disney and Fox shareholders approved the transaction in July.
The merger is expected to result in thousands of layoffs across Fox, but it will also bring several high-ranking Fox executives into the Disney fold at a time when succession at the world's largest entertainment company remains a looming question. Mr. Iger has postponed his own retirement five times, most recently so that he could see through the Fox deal and the launch of Disney's streaming services.
His deal now runs through December 2021, with no obvious successor in sight. Two internal candidates -- Bob Chapek, chairman of the parks, experiences and products division, and Kevin Mayer, chairman of direct-to-consumer and international -- are seen as possibilities. Mr. Rice, who had headed Fox's Network Group, enters Disney as a candidate as well.
Tea-leaf readers throughout Hollywood have noted Mr. Rice's appearance with Mr. Iger at events such as the annual luncheon celebrating Oscar nominees.
Write to Erich Schwartzel at email@example.com and Joe Flint at firstname.lastname@example.org
(END) Dow Jones Newswires
March 21, 2019 02:47 ET (06:47 GMT)
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