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Can Disney Digest its Newest Acquisition?

Disney acquires a number of key 21st Century Fox assets in a transaction valued at $66.1 billion—the deal is expected to close in 12 to 18 months, provided that it passes antitrust scrutiny. CEO Bob Iger has extended his contract to 2021 (or an extra two years) to help the entertainment giant digest its newest purchase.

To be more exact, an incomplete list of the assets includes TV studios Twentieth Century Fox Television, FX Productions and Fox21 as well as FX Networks, National Geographic, Fox’s regional sports networks, Star India as well as its interests in Hulu (bringing Disney’s share up to 60%), Sky, Tata Sky, Endemol Shine Group, and BOOM! Studios. Not included in the deal are certain broadcast assets like Fox News and the Big Ten Network.

Some of the most significant in brand licensing news:

  • The entire Star Wars family is together again thanks to Disney’s acquisition of Fox’s distribution rights to Star Wars: A New Hope.
  • All the characters from Marvel Comics have reunited—Fox held the film and TV rights to X-Men, Deadpool, and Fantastic Four. The acquisition will let Disney bring these properties into the Marvel Cinematic Universe. (Technically, Sony still owns Spider-Man, but Marvel is free to use him in films following a 2015 deal.)
  • Disney’s park attractions will get a boost from the rights to James Cameron’s Avatar and the film’s upcoming sequels.
  • The National Geographic brand might see a boost at the House of Mouse.
  • The Simpsons and Bob’s Burgers
  • American Horror Story
  • The Kingsman films
  • Ice Age and its sequels
  • The Alien films
  • Planet of the Apes

Disney eats up nearly half of all retail sales among the top entertainment/character licensors in the U.S., according to TLL‘s $100 million list (tracking retail sales of licensed merchandise for the top entertainment/character properties in the U.S./Canada).

The new film assets give Disney control over 40% of the movie business, which, as Bloomberg notes, would likely attract antitrust scrutiny and require the entity to divest some of those assets. We doubt that Disney is very attached to Fox’s adult-oriented, live-action film business though—the titan declined to buy out the historic Fox studio lot in Century City, for example. It remains to be seen what treatment more mature properties will receive at the hands of Disney. Marvel has already publicly committed to keeping Deadpool, for example, R-rated. But given that Iger was one of the first business titans to jump ship from a White House advisory council earlier this year, who knows if Disney has any friends on the Hill.

These new properties are certainly going to allow Disney to go neck-and-neck with Netflix, Hulu, and other streaming service providers. Because of its majority stake in Hulu, it seems likely (and the media giant has hinted) that Disney will release adult-oriented content on that platform. Netflix will no longer feature Disney content, but it’s important to note that the rest of the big six are firmly on board, in addition to smaller players—DreamWorks will launch six original cartoon series exclusively on the platform, for example.

The superhero properties, in particular, are going to boost Marvel’s publishing and cinematic potential—the only real top-line contenders remaining are Warner Bros. with DC Comics and Sony, which still has its hands on Spider-Man and the Valiant universe. In the latest news from superhero films, Warner is shaking up its upper management after a disappointing performance by Justice League. Because Marvel has more or less found its formula for success, it won’t be easy for others to compete.

On cable, Fox’s regional sports networks, for example, are expected to inject new blood into the slipping ESPN network (whose direct service is launching 2018). The key point that will determine if Disney remains relevant over the next 10 years is how Disney will organize its content on TV versus digital streaming—while cable still has a pulse, it’s not exactly growing. The most common assumption is that Disney will release different sets of content exclusively on its cable and digital platforms. This move carries the risk that Disney will end up sinking money into a dying platform—but we’re also assuming cable will die.

From the perspective of consumer products licensing, however, this will give licensees greater access to a wider range of assets and a deeper well of marketing and advertising support. It remains to be seen if Disney will be more selective about its licensing partners or whether it will raise its minimum guarantees and/or royalty rates.

Disney said it expects to realize $2 billion in annual cost savings from the combination, which basically translates to hundreds of job cuts. Who knows how that loss of talent will impact the direction of the entertainment industry—personally, we am looking forward to the rise of many more independent, original projects. But one thing is clear—job cuts are not going to be the biggest worry for whoever ends up at Disney Consumer Products. It remains to be seen if Disney will keep or cull Fox merchandising talent—after all, while the House of Mouse has finally learned how to cash out on superhero properties, that’s not exactly true for more adult-oriented properties. Alternatively, Disney leadership might decide that it’s not worth it to spend resources on merchandising certain franchises.

The biggest question we have is how Disney will be able to afford everything. The media giant seems to be banking on the influx of properties to support its new digital media initiatives (streaming service will launch in 2019). But it will have to price its new service at bargain rates (at least for the first year) to attract families and nerds away from power players like Netflix. Ever-attentive to Disney’s stock price, Iger has been prioritizing short-term profits over the last couple of years. There is no way that Disney will be able to avoid having to pay our flat or no returns over the next couple of years as it works to digest its newest acquisitions.

Here’s a brief timeline of some key Disney acquisitions and sales:

  • 1995—ABC Television Group acquired.
  • 2006—Pixar Animation Studios acquired.
  • 2009—Marvel Entertainment acquired.
  • 2010—Power Rangers franchise sold to Saban Brands for $100 million.
  • 2010—Miramax Films sold to Filmyard Holdings for $660 million.
  • 2012—Lucasfilm acquired from George Lucas, including Star Wars and Indiana Jones, for $4 billion.
  • 2013—Disney Interactive Studios shuts down development studio Junction Point Studios.
  • 2014—Maker Studios acquired for $500 million.
  • 2015—Disney combines its Consumer Products and Interactive Media divisions into one unified segment, Disney Consumer Products & Interactive Media.
  • 2015—Marvel Studios is reorganized under Walt Disney Studios.

Note how long some of these acquisitions took to fully realize their earning potential. For example, Marvel Avengers only appeared on the $100 million list in 2012 (at $201 million retail sales in the U.S./Canada)—or three years after Marvel Entertainment was acquired. Could it take that long for Disney to learn how to monetize some of Fox’s brands? Perhaps—and that’s the weak point that competitors have to attack.


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