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How Disney’s Streaming Dreams And Nightmares About Silicon Valley Invading Reed Fox Deal

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Disney and 21st Century Fox acquisition: How it will shake Hollywood

The state of Hollywood to shake; Disney has announced plans to acquire parts of 21st Century Fox. Here is a look at what that means for the consumer and the impact of entertainment on streaming services such as Netflix and Hulu.

Disney needs all the superheroes it can resist from the Silicon Valley, Hollywood invasion. The deal with Fox illustrates how even the giant media companies feel the need to bulk up and re-invent their businesses to confront with such online competitors like Netflix, Amazon and others.

Disney CEO Bob Iger said today announced $52.4 billion all-stock deal will advance its plans for a streaming service to rival Netflix and deepening of the studio’s direct connection with the consumer. Through the acquisition of 21st Century Fox film and television assets, Disney stands to gain large lines of popular entertainment franchises such as Avatar and X-Men, for enhancing the family-friendly streaming service that he is planning to start in 2019 with Disney, Marvel and Lucasfilm movies and TV shows.

Fox edgier, more violent TV think FX-American Horror Story —would be available via Hulu, which Disney would acquire a majority stake, but will continue to operate as a separate streaming service offering more erotic entertainment rate.

“This acquisition reflects a changing media landscape increasingly defined by the transform of the technology and the changing expectations of the consumer,” Iger said in a call this morning with analysts.

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Silicon Valley companies do their disruptive dance on Hollywood, bringing about fundamental changes in how, when and where consumers make their movie-and TV-repairs — and along the way, breaking decades-old business models.

Relative newcomers, such as Amazon and Netflix, spend billions of dollars on original content to capture and retain subscribers, in the process making the cost of programming for the traditional players such as networks. Cash-flush Apple has reportedly ready to spend $1 billion to acquire or produce content next year, signalling its plans to be a Hollywood splash.

Meanwhile, Google and Facebook have tightened their stranglehold on the digital ad market, raking in a combined 63% of the expenditure of this year.

A prominent digital media executive to ensure that in the land of tech giants, media companies would disappear, absorbed by, let’s say, a larger telecommunications company that views content as a lure to attract the subscribers, or a social network looking to increase user engagement.

All these changes provide the context for Disney’s Fox deal, and explain why a savvy media mogul like Rupert Murdoch, who built one of the largest entertainment conglomerates in the world, would consider the sale of large pieces.

“The world has changed radically in the media and entertainment business, and Disney has not all in, recognizing the new reality,” says Peter Csathy, chairman of the CreaTV media advice. “It is a Netflix-dominated world, and the gorillas are entering this space.”

This existential threat was hard to miss, as cord-cutting and fall reviews battered Disney’s television business.

This summer, Iger pronounced a new emphasis on streaming services, the announcement that Disney would pay $1.58 billion to get a majority ownership of BAMTech, a live streaming platform. This technology will have the power Iger’s ambitions to take advantage of the galloping popularity of streaming services like Netflix, which now has 109 million subscribers, with an ESPN-branded sports service, starting early next year, and a family entertainment, filled with movies and tv-shows, scheduled for 2019.

Iger talked about the importance of floor of Disney’s direct relationships with consumers as an important element in the acquisition.

“Were excited about this extraordinary opportunity to significantly increase our offerings of beloved franchises and branded content to greatly enhance our growing direct-to-consumer offerings,” Iger said. “The deal will also significantly expand our international reach, allowing us to offer world-class storytelling and innovative distribution platforms to more consumers in key markets around the world.

In a conference call with analysts, Iger went into more detail about the digital plans. “The multichannel ecosystem to the point where it is not as viable as we need it, we want to be well-positioned to, in effect, flip a switch, and distribution of these programs directly to consumers via the platforms that we have created.”

Hulu also offers direct-to-consumer benefits, Iger added. “Owning a third of it was amazing,” he said, but having a majority control to enable Disney to build in “an even more viable competitor.” The post-merger management structure of Hulu will be “a bit more clearly, a bit more efficient, effective,” Iger said.

The Burbank entertainment giant, the lonely Hollywood studios with enough brand cachet, such as a direct-to-consumer proposition work, thanks to thestrength of the roster of well-known, family-friendly entertainment properties.

Fox’s popular film and TV franchises – Avatar, X-Men opening Age, it would reinforce the attractiveness of a Disney-branded streaming service. And perhaps just as important, would the holding of such popular content from Netflix competitive service, notes veteran media analyst Michael Nathanson.

Although the Fox, FX and FXX shows a small percentage of Netflix’s general catalogue, a Parrot Analytics analysis showed that the demand for these programs in November was twice as high as was typical for a Netflix show.

“Disney has already announced that the content of some of her most valuable possessions of Netflix. That is a powerful thing,” said Csathy. “So if it canbring in the X-men and Avatar —and also keep away from Netflix that is a powerful punch.”

The obtaining of a controlling interest in Hulu would give Disney more control over their future, and to further the studio’s ambitions to deliver content to customers all over the world when and how they want. A call with analysts this morning, Iger said it is “too early to speculate” about the future investment in the original content on Hulu, but he noticed the enhanced IP portfolio is expected to drive forward.

Also, Fox’s regional sports networks would seemingly strengthen in an ESPN-branded streaming service with more live games available on request, observed a digital media executive.

Brian Wieser of Pivotal Research told Deadline that the matrix of the digital offerings of the combined company brings to the market — with Hulu, overseas services DisneyLife and Sky TV platform, plus the planned Disney direct-to-consumer streaming service — is an advantage. “The fact that they are trying so many approaches is a good thing,” Wieser said. “Itgives them more kicks at the can.”

Not every media analyst is convinced that the Disney-Fox deal is for the step into the digital future. BTIG Richard Greenfield sees the proposed roll-up of the popular entertainment and sports networks, if giving Disney added leverage in talks with cable, satellite and telecommunications providers.

“With Disney just started with the introduction of a new round of affiliate negotiations, we would expect affiliate costs to rise faster than they would do without the Fox assets,” Greenfield wrote. “Higher programming costs and the forced transport of more networks will likely lead to lower margins and/or more video subscriber losses on MVPDs who try to pass these costs along to consumers.”

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