Disney, 21st Century Fox deal heralds digital revolution

Disney and Murdoch’s agreement is a prelude to a battle pitting traditional media against the might of Silicon Valley.

Disney’s Bob Iger, with Mickey Mouse at the New York Stock Exchange last month. Pic: Getty Images

A digital revolution in the media and entertainment industry is well and truly under way.

The deal announced between Walt Disney and 21st Century Fox is a prelude to a battle that pits traditional media companies against the might of Silicon Valley in the age of streaming video.

Bob Iger, the chairman and chief executive of Disney, knows what is coming. This year he made direct-to-consumer streaming services the company’s top priority. Disney will launch a sports streaming service next year and a family entertainment service in 2019. At the same time, it will stop selling its films and TV shows to Netflix.

With the purchase of 21st Century Fox’s prized film and TV studios, Disney would enlarge its library of exclusive content and franchises, which is key to luring new subscribers and keeping old ones. This would help it to head off competition from Netflix, the world’s largest streaming video service, which has set aside $US8 billion to buy and make original content next year, and Amazon Prime Video, not to mention Apple and Facebook, which are in the early stages of setting up their own streaming services.

Disney would also take control of Hulu, a video streaming service that competes with Netflix, by doubling its stake to 60 per cent.

The purchase of 21st Century Fox’s assets would cement Disney’s position as the largest entertainment company in the world. It would be in better shape to compete with the big internet companies for exclusive rights to screen sports, films and television shows.

The Silicon Valley giants are already experimenting with buying up limited television rights to sporting events and that trend is likely to continue, analysts believe. In time, the technology companies could bid on big rights packages such as those for English Premier League football.

Disney will also have more power to compete for digital advertising dollars with Google and Facebook. Still, even with a post-merger valuation of about $US220 billion, the new Disney would be several times smaller than Apple, Google, Facebook or Amazon.

Brian Wieser, an analyst at Pivotal Research, said: “Disney is aiming to get into a stronger position now because they know they’ll still be in a weak position overall.”

Disney would be able to expand its international reach on television, gaining exposure to hundreds of millions of households through Sky, the European broadcaster, Star India and Fox Networks International. Disney would also acquire the Fox Sports regional channels, which would boost ESPN, the sports network, which has long been losing subscribers.

Analysts believe that consolidation is the key to survival for media companies. AT & T, the American telecommunications company that is the world’s largest, is attempting to create a $US280 billion empire by acquiring Time Warner, the world’s third largest entertainment company.

Last week the British company Cineworld agreed a $US5.8 billion takeover of its American rival Regal Entertainment to create the world’s second largest cinema chain.

For the Murdoch family, the Disney deal represents the end of an era in which Rupert Murdoch created a media empire from his ownership of a single Australian newspaper that he inherited from his father at the age of 21.

Rupert Murdoch: the end of an era. Pic: AFP

The Murdochs would retain control of significant news and sports assets from 21st Century Fox, including Fox News and Fox Business, respectively the most popular cable news and cable business news channels in the United States.

Mr Murdoch is co-chairman of 21st Century Fox with his son Lachlan, 46, and is also chairman of News Corporation, owner of The Australian and The Times. James Murdoch is chief executive of 21st Century Fox and chairman of Sky. It is unclear what role James Murdoch, 45, would have if the Disney deal is agreed by the regulators. Reports last week suggested he would take a senior executive role at Disney, and in time, replace Mr Iger.

Disney said last night that Mr Iger would stay on at Disney until the end of 2021, two years after he planned to retire, to see the deal through. Mr Iger, 66, said: “He (James Murdoch) will be integral to helping us integrate these companies over the next number of months. Over that time, we will continue to discuss whether there is a role for him here or not.”

The Times