Disney – 21st Century Fox deal: What does it involve and what does it mean for Sky's future?

The combined company would own or operate 272 TV stations globally

Josie Cox
Business Editor
Thursday 14 December 2017 12:48 GMT
Rupert Murdoch has for years been focused on expanding his sprawling empire rather than selling assets
Rupert Murdoch has for years been focused on expanding his sprawling empire rather than selling assets (Getty)

Walt Disney, which has a market value of around $166bn (£124bn), has struck a $50bn-plus deal to swallow the bulk of Rupert Murdoch’s 21st Century Fox.

But what does such a tie-up actually entail? And what does it mean for Fox’s pursuit of Sky here in the UK?

We take a closer look.

What is Disney buying?

Under the terms of blockbuster deal, Fox is selling scores of assets to Disney, including its 20th Century Fox movie and TV studios, cable networks and other international operations.

If the deal goes through, Disney will be the new owner of Fox’s FX and National Geographic cable channels, India’s main network Star, and its stake in Sky, which of course is listed here in the UK.

It is also buying Fox’s stake in Hulu, a video streaming service. That will give Disney majority control of a key competitor to Netflix.

If the deal is completed, Disney will have access to an estimated 46 million subscribers in three major markets – the US, Western Europe and India – according to Barclays analysts.

Reuters noted that the deal will crucially diversify Disney’s revenue, which is particularly important considering that US cable television subscribers are declining.

The combined company would own or operate 272 TV stations globally, according to the latest SEC filings, cited by Reuters.

Why is Fox selling those assets?

News of a possible deal came as somewhat of a surprise to many in the market, especially because Murdoch has for years been focused on expanding his sprawling empire rather than selling assets.

Analysts have said the transaction would give him the opportunity to concentrate on the news business, which has been his lifelong passion. He inherited the newspaper company from his father back in the 1950s and has built it up over decades, acquiring assets like the Wall Street Journal and The Times here in the UK.

Vanity Fair reported last month that some senior executives at Fox might be pushing for a massive divestment because they think that their entertainment assets will struggle to compete in a world where technology and media companies are increasingly merging. Verizon, for example, has already bought AOL, the Huffington Post and Yahoo.

Disney has already demonstrated its ambition to try and keep up in the race against the likes of Amazon, Google and even Netflix. For one thing, it’s bought Star Wars producer Lucasfilm and Marvel.

How will the deal impact Fox’s planned takeover of Sky?

If the deal goes ahead Disney will own Fox’s existing stake in Sky.

Fox, of course, is also tied up in a bidding process for the 61 per cent of Sky it doesn’t already own. That deal is currently being scrutinised by the Competition and Markets Authority here in the UK. The CMA is not expected to decide whether to approve the deal until March next year.

But analysts have said that the Disney deal could have a bearing on the Sky takeover in that the UK Government would be more likely to approve the deal if they know that Sky will eventually end up in the hands of Disney – rather than in the hands of a company that has a very mixed history here (think phone-hacking scandal).

“Compared to Fox, it’s a no-brainer” for Disney to take over Sky unimpeded, Steven Barnett, a professor of communications at the University of Westminster told Bloomberg. “Disney has a wholesome brand image, which is not exactly something you can say about the Murdochs,” he added.

Disney also has a much smaller footprint than Fox in the UK, meaning that concerns around competition would not be as pressing if the Government does indeed think that Disney will end up being the ultimate owner of Sky.

Of course regulatory approval of Fox’s transaction with Disney will take months – maybe even a year – which means that a CMA decision on Fox’s takeover of Sky would come way ahead of that.

In the meantime, the CMA will continue its investigation as planned, especially because there are still so many questions around whether the Disney deal will indeed end up going through at all. Antitrust authorities in the US and Europe will all have to give it the nod first, and there’s no doubt they will examine it very closely.

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