It was a headline-making estimate, yet not all that surprising. That is, Twenty-First Century Fox (NASDAQ:FOXA) and Walt Disney (NYSE:DIS), which are set to merge in early 2019, are going to spend a fortune on content this year. It’s tough to see this Launching a rally in Disney stock
London-based media analytics firm Ampere Analysis reckons that the two giants will collectively end up spending $22 billion creating or buying entertainment content before this is even over.
While certainly a big number, the biggest spend in the industry, in fact, current and prospective owners of Disney stock needn’t over-react. That’s what this business is.
Rivals ranging from Amazon.com (NASDAQ:AMZN) to Netflix (NASDAQ:NFLX) to Comcast (NASDAQ:CMCSA) are all spending massive amounts on content, ultimately looking to generate even more revenue with it. Comcast and Sky, in fact, are on pace to spend $21 billion on television shows and movies this year before becoming one next year.
The mere presenting of the information, however, prompts one important question that’s not yet been asked in earnest: Will merger-mania within the entertainment industry start a spending war none of these players actually wants to fight?
Big Spenders
The Ampere Analysis report published just a few days ago suggests that the $22 billion figure Fox and Disney will spend this year on content accounts for 23% of all content spending in the U.S., and 11% of global spending on content-creation. The two companies largely target North American consumers, though not exclusively.
Click to Enlarge
For perspective, Amazon is on pace to spend roughly $8 billion on television and movie content in 2018.
Ampere Analysis analyst Daniel Gadher comments within the report, “To some extent, the increasing level of consolidation is a reaction to the growing power of online video platforms,” but adds “Companies such as Netflix and Amazon continue to invest significantly in content, a trend which shows no signs of abating.”
And there’s the rub.
More Questions Than Answers
At least part of the advantage of melding two media companies into one is the ability to share costs, including those related to the creation of entertainment content. It’s not clear to what extent, if any, Disney and Fox will be willing and able to do that.
A good deal of that uncertainty is rooted in the uncertainty of what lies ahead.
Disney has already launched an ESPN-branded sports entertainment over-the-top-television platform. The Disney-branded OTTV service won’t launch until late 2019, though, with a massive amount of typical Disney and Marvel fare slated to be available.
Some has already been seen in theaters and other venues, and some will be created exclusively for the streaming service. Indeed, there’s going to be a lot of new, exclusive content, which isn’t cheap to make; particularly when it’s high-quality content only sold to streaming customers.
What’s not clear is how much of Fox’s stuff will be available via the Disney+ platform.
Early promotions of the service feature National Geographic content, which is a Fox property, suggesting at least some of Fox’s shows will be available. It remains to be seen, however, just how much of its more popular movie franchises like the Deadpool lineup and television shows like Last Man Standing will be made available through the app.
If the Disney+ app can’t leverage all the best of what Fox and Disney jointly have to offer though, it could be tough to even make a dent in Netflix’s dominance.
As of the latest tally, 89% of streamers are at least Netflix subscribers. Though they may receive more than one service, Netflix also boasts the greatest number of one-service-only users, and sports the highest retention rates in the industry.
And Netflix accomplishes this with much less content spending than Disney and Fox jointly shell out.
Disney stock owners should fear that the Disney/Fox solution to that problem is to simply throw even more money at it, and then hope for the best.
Bottom Line for Disney Stock
Or, maybe it won’t be an issue at all. Maybe Disney and Fox will share their content with one another liberally but intelligently.
In other words, while it would be wasteful and brand-damaging to make all of their collective content available through all channels, it would also be wasteful to not bolster the value of all of its channels with at least some programming and movies being made available at more than one venue. Balance is the key.
Given how disinterested Walt Disney appears to be thus far in mixing and matching the two companies’ content libraries though, current and prospective owners of Disney stock have good reason to wonder if content-spending will be culled at all once Disney and Fox consummate the relationship.
Little appears ready for change in that regard, at a time when competition is heating up. Indeed, the development of an OTTV service so far looks like a reason to spend even more on content development.
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.
