There is a little bit of a wrinkle in the move by The Walt Disney Company (NYSE:DIS) to acquire properties from Twenty-First Century Fox, Inc. (NASDAQ:FOX), but it won’t hurt DIS stock in a big way.
Fox hit a roadblock in its deal to purchase the 61% of the UK’s pay-TV giant Sky. The antitrust regulators abroad said that the deal itself wasn’t a problem, but that when combined with owner Rupert Murdoch’s control of Sky News, The Sun, The Times, and The Sunday Times, it would give Murdoch too much influence in British media.
Murdoch’s reach would extend to roughly a third of the UK’s population, as well as have a combined share of public news consumption that is larger than all other news providers, with the exception of the BBC and ITN. This would give it “excessive influence over public opinion and the political agenda.”
The Competition and Markets Authority (CMA) did say that it approved of the deal from a broadcasting standards perspective.
That is, Murdoch’s media empire “has a genuine commitment to broadcasting standards in the UK. It is an established broadcaster here, having held licenses for over 20 years. The CMA took account of the policies and procedures Fox has in place to ensure broadcasting standards are met.”
That doesn’t sound like much, but a broadcasting standards thumbs-down usually kills deals.
Like all regulatory findings, however, the plurality issue doesn’t shut the deal down. In the UK, there are usually remedial options available and Murdoch will likely be able to meet those requests. Those remedies include spinning off or selling Sky News, or maintaining independence of Sky from Fox News.
But there is a solution someplace, which is good news for DIS stock.
CEO Robert Iger said he was “committed to Sky News.” That’s all well and good, and DIS hoped to be the owners of 100% of Sky News.
However, the truth is Iger doesn’t care about Sky News because Disney isn’t in the news business; DIS stock is more about entertainment. Not only that, Sky News doesn’t make any money – it actually loses money. I imagine Iger would be perfectly happy is the UK regulator blocks the deal.
Regardless, Sky News does not make or break the FOX stock acquisition. The FOX stock buyout is all about entertainment assets, film and TV.
FOX enjoys massive revenue from both its film and TV businesses, including franchises of Planet of the Apes, Alien, Kingsman, Deadpool, Maze Runner and each of the Avatar films. It outright owns the rights to the X-Men franchise, and both Kingsman and Deadpool are Marvel franchises, owned by DIS. And movies are a big plus for DIS stock.
Meanwhile, over at the TV business, it owns the entire FOX and FX networks’ group of shows, plus a 50% ownership of production entity Endemol Shine, and each of the National Geographic channels, plus partial ownership in Hulu, giving it reach into streaming content.
The tie-up is a content play, and that’s because in the days of streaming, content is king.
Also, grabbing hold of the Fox properties gives more ammunition to Disney’s streaming service, which is prepping for launch. Disney already had a formidable lineup of content, but imagine adding decades of content from Fox and FX TV shows along with all the movies. That makes Disney a force to be reckoned with in streaming.
So never fear. The SKY is not falling.
Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance and is the Manager of The Liberty Portfolio at www.thelibertyportfolio.com. He does not own any stock mentioned. He has 23 years’ experience in the stock market, and has written more than 1,800 articles on investing. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.
