Big deal: Disney will add Fox movies and TV shows to its planned streaming service after it closes a $52.4 billion deal.
Disney spends $52 billion for Fox properties
The Walt Disney Co., making its boldest move yet try to knock streaming media king Netflix off the throne, is buying most of 21st Century Fox’s movie and TV business in a blockbuster $52.4 billion deal, the company said Thursday.
Disney is buying 21st Century Fox’s movie and television studios and cable entertainment networks, adding shows and films like “The Simpsons,” “Modern Family,” “XMen” and “Avatar” to Disney’s already formidable stable that includes Mickey Mouse, ABC, ESPN, San Francisco’s Lucasfilm and Emeryville’s Pixar Animation Studios.
Fox’s broadcast network, as well as its television station group, which includes Oakland’s KTVU and cable channels Fox News and FS1, will be spun off into a separate public company before the deal closes. Disney will also acquire a controlling stake in streaming service Hulu, Netflix’s closest independent rival; Disney and Fox each own one-third now. The deal is expected to close by June 30.
When asked for comment, a Netflix spokeswoman released a brief statement from the Los Gatos company, saying in part: “There is a lot still to understand about this deal and its implications for consumers.”
However, Disney has clearly set its sights on Netflix, which a decade ago shifted from renting DVDs by
mail to delivering TV shows and movies over the Internet. The company now has about 104 million subscribers around the world, including about 52 million in the United States.
Disney said in August that it plans to create its own online sports and entertainment services, including an ESPN-related online sports channel next year, and pull many of its movies and TV shows from Netflix starting in 2019. The Fox deal “is all about going after Netflix and the streaming landscape over the next decade,” said Daniel Ives, chief strategy officer and head of research at GBH Insights.
And while Netflix has held an “iron grip” on the streaming entertainment market, Disney’s “massive content treasure chest and distribution capabilities pose a competitive threat to Netflix,” Ives said in an email.
Netflix has gained subscribers rapidly, attracting them first through licensing deals, and then financing original shows like “House of Cards.” Original programming is expensive and risky: The awardwinning political drama temporarily halted production this year after allegations of sexual misconduct forced out star Kevin Spacey.
While Netflix plans to spend about $8 billion on new content for 2018, “keeping up with Disney’s content machine will be a tough task,” Ives said.
Netflix has some time to beef up its portfolio to meet the challenge, and it’s already making competitive moves. In August, it agreed to buy comic-book publisher Millarworld, a company created by Marvel veteran Mark Millar. That month, it lured “Scandal” producer Shonda Rhimes away from ABC with a new production deal.
Meanwhile, Disney is responding to changing consumer habits. Viewers are turning to the Internet to watch shows and sports, and cutting subscriptions to traditional cable and satellite TV services. Broadcast and cable networks like CBS and HBO are creating their own online services. Meanwhile, the landscape might shift even more because the Federal Communications Commission voted Thursday to repeal many net neutrality protections, which could give phone and cable companies more leverage when negotiating deals with media companies to distribute their shows online.
In an email, Paolo Pescatore, a vice president with research firm CCS Insight, said he expects Disney and other media companies to pull more of their programming off Netflix, leaving Netflix “no choice but to respond through more partnerships, more original programming.”
And Netflix will have to try new services, such as offering individual programs for rent or purchase — right now, streaming is the only option — and to move into other forms of entertainment, such as games, he said.
“Netflix is certainly at the heart of this deal, as Disney looks to position itself ahead of its competition,” Pescatore said.
However, Neil Begley, senior vice president of Moody’s Investors Service, said that both Netflix and Disney can come out winners.
“There is negligible if any effect at all on Netflix until after Disney pulls its content from Netflix in 2019, which will likely be close to or after the expected closing of the acquisition of Fox,” Begley said in an email. Netflix has already been planning for that, and for heightened competition from other media companies, he added, by expanding its original productions and its library of owned content.
The Disney-Fox deal highlights the “impact and disruption” that companies like Netflix have caused throughout the entertainment media industry, he said, but Netflix remains far ahead in international markets.
“There doesn’t have to be winners and losers,” he said, adding that if the services are competitively priced, they will both continue to capture more viewers from traditional networks than from each other.