With Other Deals Possibly in the Wings, Studio Opposition to Disney/Fox a Question

Experts see scenarios where major studios may or may not oppose Disney's planned buy of Fox (see 1712140038). Studios won't be happy about the increased competitive power and market share that comes with Disney/Fox, but many might also be looking to do their own mergers and acquisitions in response and don't want to raise too big an objection, said Avri Ravid, Yeshiva University professor of finance and an expert on M&A and the entertainment industry. The deal likely won't need to go through FCC review since no Fox-held FCC licenses central to operations are being transferred, a communications lawyer said.

Disney/Fox generated "a lot of dismay" in the creative community due to the increasingly concentrated media power, said Tom Nunan, UCLA School of Theater, Film and TV lecturer and founder of production company Bull's Eye Entertainment. With growth of Netflix, Amazon and other newcomers in entertainment, such deals "may be the only way for some of these more mature labels to survive," he said.

Entertainment industry unions like the Screen Actors Guild and Directors Guild of America likely will raise red flags with regulators because of the concentration of market power, Nunan said. He said that could be a tough argument to make, with Disney arguing emerging streaming operators like Netflix and Amazon offset that concentration. SAG and DGA didn't comment. Nunan said the rival studios are unlikely to raise major opposition because of deals they might want to pursue. Writers Guild of America West raised concerns about the deal (see 1712140038).

Seven studios have at least 90 percent of the theatrical release market, with Disney leading and Fox second or third, said an antitrust lawyer with motion picture experience. DOJ could take a particularly serious look at Disney/Fox and its increased concentration of control over artistic product, the lawyer said. Smaller theater chains definitely would oppose Disney/Fox, as could major studios worried about New Disney's ability to use its market power to secure positions at the major theater chains to the detriment of other studios' films, the lawyer said. Columbia Pictures owner Sony, Universal owner Comcast and Paramount owner Viacom didn't comment.

Justice already has put a lot of resources into reviewing AT&T/Time Warner and now the litigation to stop it, raising the question of whether the agency has the resources available -- such as entertainment industry expertise -- for a serious investigation of Disney/Fox, the lawyer said. The department didn't comment. AT&T, TW and the DOJ said Friday that attempts to settle Justice's lawsuit seeking to block AT&T/TW haven't been fruitful (see 1712180006).

Disney/Fox is likely to drive more studio urgency for more horizontal and vertical deals, given the big desire for direct retail distribution, Barclays' Kannan Venkateshwar wrote investors Monday. That makes it less likely Disney's studio peers will object to the transaction, the analyst said, saying smaller studios see the deal as potentially good for the industry by opening up more release windows for others. Barclays said TV production volume is expected to keep growing, and film budgets could see a barbell pattern over time, with money flowing to big franchise titles and to small titles being produced to enhance volume on direct-to-consumer platforms like Hulu or Amazon.

Disney/Fox is "both backward and forward looking," with New Disney to have significantly more market power in the traditional entertainment media market, such as far more leverage when negotiating with MVPDs, and more access to content for its direct-to-consumer streaming plans, said nScreen Media analyst Colin Dixon. He said the scrutiny AT&T/TW is getting from DOJ means Disney/Fox almost surely will also get "pretty intense scrutiny."

Hulu -- as the online hub for broadcast TV -- is a valuable property for Disney to acquire, but faces some significant challenges because Disney's acquisition of controlling interest "will completely change the balance at Hulu," Dixon blogged Sunday. Losing NBCUniversal content -- with NBCU planning to launch a streaming service in 2018 -- or CBS content "could deal it a fatal blow," he said. That no partner dominates Hulu "has kept individual partner demands in check," the analyst said. Disney would have a 60 percent controlling interest in Hulu under its $66.1 billion acquisition of much of 21st Century Fox, with NBCU owning 30 percent and Turner the rest.

Fox Executive Chairman Rupert Murdoch seems confident Disney/Fox can get U.S. approval, while EU OK will come with behavioral remedies, BTIG's Richard Greenfield wrote. He said that view lines up with the Trump administration seemingly already having precleared the deal (see 1712150032).