CNBC shocked the world this week with the remarkable report that Disney actually held talks to discuss purchasing 21st Century Fox. Although the talks are reportedly on hold right now, the news was enough to leave the Internet buzzing with excitement. Were the deal to go ahead, it would be the most dramatic restructure of the film and TV industry in decades.
Film fans are excitedly wondering what this would mean for their favorite superheroes, and there's been discussion suggesting that the X-Men film rights could revert to Marvel. But these are almost certainly side benefits for the deal, rather than the main focus. Why would Disney and Fox really be interested in these kind of negotiations?
The Disney Perspective
Let's begin with Disney. The House of Mouse is currently planning to reorient itself towards the digital marketplace. In 2019, we'll see Disney release a brand new streaming service, one that will contain the entire Disney library. As a result, Disney has already announced that their content will be pulled from Netflix when their current contract expires.
Disney's fundamental goal is to ensure this new streaming site has as much content as possible. They're not just interested in Fox's current properties; their eyes are set on the 21st Century Fox Vault. As businessman Mike Kelly told The Wrap:
"All the media companies that used to make their money by licensing their content to other people. Now they’re realizing they have the opportunity to go directly to consumer. They’re being pushed in that direction. I think Disney looks at it as a way it can increase its catalog and it can bring more value to streaming services."
Imagine a single streaming site containing everything ever made by Disney or 21st Century Fox. It would be a library so vast that even Netflix would move to second-place. Meanwhile, there are other additional benefits too. Although Disney own Lucasfilm, Fox own distribution rights to the Star Wars Original Trilogy until 2019. Significantly, because Fox co-produced and co-funded A New Hope, Disney will never gain the rights to the first Star Wars movie. That leaves a Death-Star-sized hole in Disney's streaming plans. Imagine a Star Wars library without A New Hope.
Disney would gain a new, experienced studio house (including film rights to the X-Men and the Fantastic Four), and what CNBC calls "significant TV production assets." Notably, these assets are also international in nature, giving Disney a stronger global footprint.
The Fox Perspective
On Fox's side, the deal is set against an intriguing backdrop. The company currently owns 39 percent of the UK broadcaster Sky, and has bid £11.7 billion ($15.4 billion) to take ownership of the company. Should Fox's bid be successful, it would transform the British news landscape. As the Financial Times noted:
"There is little doubt that a Fox-Sky merger would create a monster. Despite the spin-off of their newspaper holdings, the Murdoch family still exert common control through substantial stakes in their TV and press ventures, which include the Sun, Times and the Sunday Times titles. Should Fox get control of Sky, they would control the dominant UK news producer across television, radio and print."
In what was widely seen as an attempt to ease these concerns, Fox actually closed Fox News in the UK earlier this year. Unfortunately for Fox, the bid's coming under ever-increasing degrees of political scrutiny, and there are costs if the Government turn it down. It's currently been referred to the UK's Competition and Markets Authority, and the odds don't look good. It's no coincidence that Fox's discussions with Disney apparently included their shares in Sky.
This is forcing Fox to reconsider its future plans. According to CNBC, senior management at Fox believe that scale is important in the modern media landscape. They don't possess sufficient scale to capitalize on the film and broadcast divisions in a digital age (unlike Disney). Given that future acquisitions now seem unlikely, the only way to continue increasing the scale of the sports and news operation is a corporate restructure, with a slimmed-down leadership focused on these areas.
It's fascinating to take a look behind the curtain, and assess the business reasons behind headline-making deals like this one. While film fans speculate as to the impact on their favorite franchises, the reality is that these two companies are looking far beyond the X-Men and the Fantastic Four. Should this deal go ahead, we'll see Disney's digital offering become even more significant than we'd expected, while Fox will be able to focus on increasing their importance in news and sports coverage.
Do you think this sounds like a good deal for the two companies? Let me know your thoughts in the comments!