The mouse is roaring.
Walt Disney Co.'s blockbuster $52.4-billion (U.S.) deal to buy most of Rupert Murdoch's Twenty-First Century Fox, announced on Thursday, takes aim at an exploding direct-to-consumer content market that's dominated by Netflix and challenged by the likes of Apple and Amazon.com.
The all-stock transaction brings together the world's best-known film and TV franchises – from Mickey Mouse to Homer Simpson – at a time when delivery to viewers' small screens is in the midst of a massive shift. Critics have said Disney is already late to the fray.
Its ultimate success as it musters its resources to fight back against the tech world's biggest names will depend on its ability to offer superior one-stop entertainment shopping through competitive streaming systems without becoming an unwieldy corporate beast, weighed down by clashing cultures.
The extension of Disney chief executive officer Bob Iger's contract by two years to 2021 – a condition of the deal that Mr. Murdoch insisted on – is designed to see it doesn't stumble where other big media mergers have.
First, the merger will have to fly with regulators. That's not a sure thing in today's media world. The U.S. Justice Department is trying to block AT&T's takeover of Time Warner over antitrust concerns and allegations that the $85.4-billion deal would mean higher bills for U.S. consumers. The prospect of such a stumbling block for Disney is a pricey one – it would have to pay $2.5-billion to Fox if regulators scuttle the transaction.
There's no question the inventory of film and television production Fox offers is impressive, from movies such as Avatar, Deadpool and Hidden Figures to TV series that include The Americans, Modern Family and The Simpsons (which prophetically poked fun at the idea of Fox becoming a Disney property in 1998). They get placed alongside such Disney holdings as the Walt Disney films, the ABC and ESPN TV networks, Pixar, Lucasfilm and Marvel Entertainment. The latter pair have notched major box-office successes over the past two years.
As part of the deal, Disney gets Fox's stake in the online streaming service Hulu (currently Disney, Fox and Comcast each own a third and Time Warner holds the remaining 10 per cent), giving it a majority share.
It also gets international Fox businesses such as Sky, the European pay-television network that reaches 23 million households, and Star India. Not included are Fox News, Fox Business and Fox Sports, which will be spun off as a separate company.
Disney was already girding for a streaming war.
In August, it served notice that it plans to launch its own service and move many of its film titles from Netflix. With the takeover, the Fox properties will help stuff the new Disney streaming outfit with content. Mr. Iger has detailed a three-pronged approach to winning the digital wars – concentrating on a family-friendly television and movie service, a live sports platform and Hulu.
Following the deal, Fox's own licensing agreement with Netflix could be coming to an end, Disney's Mr. Iger told Bloomberg on Thursday.
"We're going to be looking at more direct-to-consumer opportunities for our company and if that requires us to wean the businesses off their relationships with other distributors then that's what we'll do, just as we did with Netflix," he said.
From the start, it faces its biggest challenge against Netflix, which reaches an estimated three-quarters of U.S. homes that use streaming services, according to comScore, an audience and consumer-behaviour research firm.
But Disney's plans also present a threat to Netflix. Yes, it's an efficient operation, but it requires a pipeline of new content to satisfy its customers and it is unable to provide that solely with with its own productions.
Mr. Iger's biggest struggle in the latest bid for what was once called convergence will be successfully integrating the operations.
This will be key. Massive media deals always bring up unpleasant memories of the merger of AOL and Time Warner in 2000. At the time, internet provider AOL was a leader in a new industry that was undergoing a boom, and Time Warner was looking to establish an online presence for its content. Of course, the cultures failed to mesh, and before long the dot-com bubble burst and AOL's subscriber base shrank.
Disney-Fox is another case of a deal struck to match massive amounts of content with a modern delivery system, only this time there are more competitors enjoying first-mover advantage.
The gambit Mr. Iger is making is that a storehouse of much-loved TV shows and movies will lure millions of eyeballs away from the established services that they have grown accustomed to.
Jeffrey Jones