Disney’s potential purchase of 21ST Century fox in the offing

While the deal is widely expected to benefit Disney, its impact on Twenty First Century Fox will require more clarity.

News reports from CNBC have stated citing anonymous sources familiar with the matter at hand, Twenty-First Century Fox has held talks with Walt Disney Co to divest most of its television and film assets, in a move that enable Walt Disney Co to expand its international reach.

The talks reflect 21st Century Fox’s view that since it could not manage to gain enough mass to compete with Netflix, Amazon and other big media players, it opted to divest the bulk of its assets from the industry in order to gain a better return of investment.

Representatives of Disney and Fox had no comment.

For Disney, the deal may have potential, since it is likely to bring a whole range of programing which could lure more audiences and could aid the company in its bid to bridge the digital divide and better compete with heavy weight spenders as it pushes further into Hollywood.

The deal could also enable Disney to extend it’s reach into international markets.

Under U.S. rules, Disney is not allowed to own two broadcast networks, thus it cannot altogether purchase all of Fox’s assets. CNBC reported that it is likely that it will not buy Fox’s sports programming assets for fear of running foul of antitrust laws with its own ESPN network, as well as Fox’s broadcast network, Fox News or local broadcasting affiliates.

However, Disney did discuss buying Fox’s movie and TV production studios, National Geographic, cable networks FX and international assets, including the Star network in India and European pay TV provider Sky Plc.

Incidentally, Fox bid $14.5 billion to acquire the remaining 61% of Sky it currently does not own; the acquisition however has been delayed by British regulators.

“I see lots of synergies for Disney. It’s a no-brainer,” said Brian Wieser, an analyst at Pivotal Research. “The confusion is what it means for Fox.”

Traditional media giants are scrambling to increase size and scale as they add new businesses to their portfolios. AT&T’s bid for HBO and Time Warner Inc gains significance in this light.

Wieser mentioned that other media companies could also be interested in Fox’s assets.

As per analysts from Credit Suisse, the talks have increased the uncertainty surround the Sky deal: while Disney may prefer Sky as part of an international streaming strategy, a deal will however deepen its exposure to traditional businesses – the part that has come under pressure.

“It is not clear whether the main Disney shareholders will agree and give their support to management on this point,” said analysts in a research note.

With consumers shunning satellite and traditional cable offerings, Disney has been struggling to cope with declining subscribers at ESPN, its biggest network, and is planning to launch direct-to-consumer video streaming services to reach younger audiences.

A significant portion of Fox’s revenues are derived from its cable division, which houses Fox News, FX and other channels.

In August Fox had said it expects to see its high single-digit domestic affiliate fee grow every quarter in fiscal 2018.

Incidentally, Fox and Disney are co-owners of Hulu which in turn is partially owned by Comcast Corp and Time Warner Inc.

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