SBD/November 7, 2017/Finance

Disney Discussed Taking On Many Fox Assets; What Would Fox Sports' Future Look Like?

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Fox has been "holding talks to sell most of the company" to Disney, "leaving behind a media company tightly focused on news and sports," according to sources cited by David Faber of CNBC.com. The talks have taken place over the last few weeks and there is "no certainty they will lead to a deal." The two sides are "not currently talking at this very moment." For Fox, the "willingness to engage in sale talks with Disney stems from a growing belief among its senior management that scale in media is of immediate importance and there is not a path to gain that scale in entertainment through acquisition." For Disney, the opportunity to "take control of another movie studio and significant TV production assets" as it readies an OTT service is "attractive as is Fox' significant exposure to international markets." Disney would "not buy Fox' sports programming assets in the belief that combining them with ESPN could be seen as anti-competitive from an antitrust standpoint." Sources said that Disney also would "not purchase Fox' local broadcast affiliates." But Disney would also "add entertainment networks" such as FX and NatGeo (CNBC.com, 11/6). In DC, Steven Zeitchik notes the cash Fox generates from a potential deal could be used to "buy more entities in the sports and news space and create its own scale, albeit in narrower niches" (WASHINGTON POST, 11/7). Needham & Co. Managing Dir Laura Martin said the deal could be worth $20-30B “depending how tough Fox wants to be with the negotiations" ("Power Lunch," CNBC, 11/6). 


CHANGING OF THE GUARD? The WALL STREET JOURNAL's Fritz, Flint & Hagey in a front-page piece cite sources as saying that Fox "wasn't happy with the terms Disney proposed, but is open to the idea of selling the assets." Fox Exec Chair Rupert Murdoch had spent the past several years "setting up his sons to take the helm." But a deal like the one "contemplated with Disney would throw into question that succession planning" (WALL STREET JOURNAL, 11/7). RECODE's Kafka & Molla noted the two sides "may never come back to the table again," but people can still "glean plenty from the fact that they were talking." The fact that the Murdoch family empire, or at least parts of it, are for sale is a "big change." Also the fact that Disney would be "buying film and TV studios, instead of TV and cable networks," shows how "much the media landscape has changed" (RECODE.net, 11/6).

EFFECT ON SPORTS? Former FCC Omnibus Broadband Initiative Exec Dir Blair Levin said of a potential deal not involving Fox Sports assets, “I don’t know that the antitrust regulators would regard sports as a separate content network, but … they might since (ESPN) is the primary network that people watch live, and therefore, that changes everything in terms of audience and advertising share” ("Power Lunch," CNBC, 11/6). MoffettNathanson co-Founder Michael Nathanson said of Fox, "They're good at sports and news and I think they realize that in their film and television business, it’s probably better to be a seller." Nathanson said the “worry” is Fox as a company becomes so small that with the next NFL deals, they will be "outbid by someone bigger." Nathanson said, “what everyone in our world is worrying about is that the next NFL deal will be a lot more money. For those that have the NFL now, it is the most important piece of programming, so the risk would be the next set of negotiations should drive up prices, and if you’re smaller, it's going to cost you a lot more on earnings than it would if you were bigger" ("Squawk Box," CNBC, 11/7).

POTENTIAL COUP FOR DISNEY: In L.A., Meg James writes the "courtship of two longtime rivals underscores stiff challenges facing traditional media companies as they navigate an increasingly fraught landscape." Fox shares have been "swooning for much of the year." The proposed purchase would have made Disney a more "formidable media conglomerate at a time when AT&T is trying to swallow" Time Warner (L.A. TIMES, 11/7). The HOLLYWOOD REPORTER's Bond & Szalai wrote for Disney, the benefits are "obvious as it readies its streaming subscription service that is meant to rival Netflix" (HOLLYWOODREPORTER.com, 11/6). DEADLINE's Chmielewski & Hayes noted in the short term, most Wall Street analysts and media observers see "plenty of upside for Disney but murkier prospects for Fox" (DEADLINE.com, 11/6). In N.Y., Brooks Barnes cites analysts as saying that buying "certain Fox assets -- at the right price -- would make a lot of sense for Disney." RBC Capital Markets analyst Steven Cahall in a research note wrote, "We see the real strategy here as Fox content helping Disney build out its direct-to-consumer strategy" (N.Y. TIMES, 11/7). 

HISTORY REPEATING ITSELF? CNBC contributor Dan Nathan said this deal would be a “massive risk” for Disney and “one of the reasons they’re in this situation right now is that people think they way overpaid for a lot of these sports rights a long time ago." Nathan: "So now if they start to way overpay for original content, they could -- 10 years from now -- find themselves in a very similar situation” (“Fast Money,” CNBC, 11/6).
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