Singapore Markets closed

Disney doubling down on streaming services with Fox deal

Ayesha Javed
Disney chief executive Bob Iger at the premiere of Star Wars: The Last Jedi with star Daisy Ridley - REUTERS

In buying most of Rupert Murdoch's 21st Century Fox business, Disney is reshaping its business in order to better compete with digital rivals that have transformed how the world watches TV and films in the space of few short years. 

The $66bn (£49.1bn) deal will give Disney more control of the entire entertainment value chain - ranging producing content to getting in front of an audience. It is also expected to make $2bn in expected cost savings as it shapes up for a fight with subscription streaming heavyweights like Netflix and Amazon Prime, according to analysts and industry experts.

“Even a giant like Disney has not been immune to changing behavioural patterns as consumers have embraced new ways of watching TV shows and movies,” said Paolo Pescatore, vice president of multiplay and media at market researcher CCS Insight.

Bob Iger, Disney's chief executive, said in August that he was going to launch his own subscription streaming service, known in the industry as an "over the top" media service, in 2019. The company has already begun pulling its content from rival Netflix, paving the way to compete directly.

Clive Malcher, a senior vice president at video technology provider Piksel, said that Disney's latest deal would give it access to "huge amounts of valuable audience data", as well as more users and and a greater variety of means to deliver its content.

"All of this positions Disney very well to take on the likes of Netflix," said Mr Malcher. "By owning the rights to more popular shows, Disney can control the distribution and force these OTT providers to pay even more to licence content. Fundamentally the deal firmly cements Disney’s position as a truly global entertainment provider."

The move will also put Disney in a "great position to compete head on with the threat posed by the web providers such as Amazon and Facebook”, Mr Pescatore said. Mr Iger said on an investor call on Thursday that the purchase of the Fox assets "basically fills in the blanks for us".

The deal, which is expected to take 12 to 18 months to close, will give Disney control of streaming service Hulu. But it will also give the group more clout beyond the US, through Sky's streaming platform and it's original content for the European market.

Claire Enders, founder of Enders Analysis said: "Sky has 22.5m subscribers in Europe. That's something they are going to build on. Disney wouldn't be paying for it if they [thought] it was on the skids fundamentally."

Hulu and Sky would also be "complemented by Disney’s announced OTT ESPN service, the upcoming Disney entertainment content offering and other services such as Disney Life, which is operating in the UK", said Brian Wieser, a senior analyst at Pivotal Research Group.

Mr Iger said Hulu's adult-oriented content offering would sit well alongside a sports platform that will include ESPN and Fox's sports offerings, as well as family-oriented content that will include Disney, Marvel and Pixar productions. 

He said that having control over Hulu was a "great opportunity to expand in the direct-to-consumer" space, which would allow it to become a bigger competitor to subscription streaming rivals. 

Claire Danes and Damian Lewis hold the awards for Outstanding Actress and Actor in a Drama Series for their roles in 'Homeland' Credit: Paul Buck

Under the adult entertainment umbrella, Disney will have access to audiences for edgier shows, like Homeland, American Horror Story and This Is Us. 

But the likes of Netflix and Amazon Prime shouldn't be overestimated, some analysts warned.  "Netflix is not that significant to Disney compared to studio, cinema and other interests," said Ms Enders. "Far too many people are far to concerned that this [deal] is going to destroy incumbents," said Mr Wieser.

He said that Netflix accounts for just about 5pc of the overall $50bn to $55bn that gets spent on content licensing.  Meanwhile, Amazon Prime's subscription service has different interests and is essentially "subsidising" Amazon's free shipping product, Mr Wieser said. 

For the Murdoch family, this is a chance to focus on the news businesses that are closest to their hearts. This include Fox’s Broadcasting network and channels including Fox News and Fox Business - which will be spun off under the umbrella 'New Fox' - and the publishing giant News Corporation, whose brands include the Wall Street Journal, The Times, The Sun and HarperCollins.  

The family's decision may have been influenced by the ongoing effort to fully acquire Sky. Fox may not have been able to invest as much in the assets now earmarked for sale because of the amount of capital it has tied up in the £11.7bn Sky takeover deal, Mr Wieser said.

On a call with investors Mr Murdoch said: "I firmly believe that this combination with Disney will unlock even more value for shareholders as the new Disney continues to set the pace in what is an exciting and dynamic industry."

Disney said its purchase was not contingent on Fox successfully completing its planned takeover of the 61pc of Sky it does not currently own. Sky and Fox will push on with that deal, which is awaiting regulatory approval and is expected to be approved or rejected early next year. 

The Competition & Markets Authority is undertaking a six-month investigation into whether Fox's purchase of the remainder of Sky would limit media plurality and affect broadcasting standards, following a recommendation by Culture Secretary Karen Bradley in September. 

A spokesperson for the CMA said: "The investigation process will continue unchanged.”  The investigation would only stop if the CMA received a formal withdrawal from the parties involved. 

Given that Sky will ultimately end up in the hands of Disney, there could be less pressure from the Government for the CMA to continue reviewing the deal. Media regulator Ofcom conducted its own three-month probe earlier this year, and found that there were grounds to refer the deal to the CMA for scrutiny over media plurality, but not over broadcasting standards.

The Disney deal will not necessarily spell the end of Murdoch influence over 21st Century Fox. Mr Igner, who will extend his contract to lead Disney until 2021, has also left the door open for Mr Mudoch's son, James, to take a role at Disney in the future, saying that it was something that the two would continue to discuss.

For consumers, it looks like little will change in film and TV streaming, but spending on sports will likely increase, Mr Wieser said. An increase in the number of bidders for sports coverage will drive up cable bills, but the entry of Facebook, Amazon and Google into sports streaming will have less of an impact, he said.