OK, maybe media and entertainment giant Walt Disney Co (NYSE:DIS) is interested in owning a piece of Twenty-First Century Fox Inc (NASDAQ:FOXA) after all. Rumors of the deal first surfaced in early November, though by the middle of last month those talks had ended when owners of DIS stock learned other suitors were reportedly interested in securing certain Fox assets.
What changed? What brought the two companies back to the same table in a world that rarely recycles previously-dropped proposal? In simplest terms, both sides likely recognized the originally-suggested deal was and still is the smartest play, at least as it stands right now.
With that as the backdrop, what’s this deal really all about, and what do owners of DIS stock need to know before and after it might take shape?
A Deal Makes Good Sense
Actually, for the record, by the time investors learned early last month Disney and Fox had been talking, the talks appeared to be over. Now, it’s clear they weren’t over just yet.
The prospect of a Disney/Fox tie-up is a compelling one to be sure to owners of DIS stock and one that should worry rivals of all ilks including Netflix, Inc. (NASDAQ:NFLX). It also should worry cable television middlemen like Charter Communications Inc (NASDAQ:CHTR).
Disney of course is the name behind several incredible animated films ranging from the classic Cinderella to the more modern Frozen. It’s not just cartoons though. It also now owns the Star Wars Franchise, as well as Marvel’s Avengers characters.
Twenty-First Century Fox, meanwhile, controls the rights to Marvel’s X-Men movies, as well as Deadpool and Fantastic Four. Also under Fox’s movie umbrella are recent hits like Murder on the Orient Express and all the ‘”Alien” flicks.
On the television front, Walt Disney obviously owns The Disney Channel and its offshoot Disney XD, though it also owns an increasingly-beleaguered ESPN. Many consumers may not realize it, but Disney is also the parent of the ABC network.
Meanwhile, Fox is obviously the owner of Fox Broadcasting and Fox News, but also has a controlling interest in the UK’s Sky satellite TV service. A deal wouldn’t actually bring all of Fox’s assets under one roof. Regulations prevent overlapping ownership of comparable properties.
This means Fox’s sports programming and Fox News couldn’t become part of the Disney Family, as they could potentially conflict with ESPN and ABC. Everything else, however, is fair game.
The obvious, immediate benefit is also the most meaningful one. The singularized organization would enjoy enormous scale and potential cost-savings. What’s less obvious is whether owning so much capacity to create television and movie content, it would also enjoy distribution leverage.
The proverbial x-factor in the midst of the jockeying is the streaming service Disney announced in August would be ready to roll in 2019. It is, calling a spade a spade, a jab at Netflix.
And, while Disney certainly has a respectable library of movies and television programming to tap into, it may not have enough on its own to become viable competition to Netflix.
With the X-Man franchise and television shows like The Simpsons and Gotham at its disposal though, consumers potentially could view the two streaming service providers in an either/or light.
Looking Ahead for DIS Stock
As savvy as such a pairing might be, it’s too soon for DIS stock holders to celebrate just yet.
While this is the second time these talks have materialized, bear in mind that in the interim, cable company Comcast Corporation (NASDAQ:CMCSA) also expressed interest in acquiring most of Twenty-First Century Fox’s assets; it would leave behind the ones it wasn’t allowed to own.
Comcast is looking for the same kind of scale and leverage Disney is, but from a distribution direction rather than content-creation direction. In fact, media players other than Comcast are reportedly interested in some of Fox’s properties.
Disney is far from laying a firm claim to Fox’s parts, even if that’s the market’s favorite deal. If the two organizations are able to reach some sort of agreement though, it’s the pairing that holds the most potential.
It’s also a pairing that may well be enough to change Disney’s fortune at a time it desperately needs such change. Last quarter’s top and bottom lines were another disappointing entry in a lengthening streak of lackluster results.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.