27 Sep The Happiest Media Conglomerate on Earth
BY TAYLOR BALL
Ariel and Prince Eric, Cinderella and Prince Charming, Princess Jasmine and Aladdin… and now Disney and 21st Century Fox?
Disney recently bought 21st Century Fox for a whopping $71.3 billion – that’s with a B! This makes the Disney-Fox acquisition the third largest media merger of all time… A very expensive wedding for the father of the bride. However, this media marriage seems far from magical and will have complicated and widespread implication for movie-goers and the entertainment industry as a whole. In my view, the Disney-Fox dynamic bares resemblance to Anna and Hans’ relationship in Frozen.
$71.3 billion is inarguably no small price to pay and many experts argue Disney paid a significant premium. So what exactly did Disney get out of this deal and more importantly, what do they plan to do with it?
Disney is acquiring the majority of 21st Century Fox, the 83-year old entertainment company owned by Rupert Murdoch. This acquisition will give Disney the rights to two of the biggest back catalogues in entertainment: 20th Century Fox for films and 20th Century Fox Television for shows.
The majority of moviegoers may not differentiate between production studios (understandably) so you may be surprised to learn that many of your favourite films and TV shows fall under the Fox umbrella.
Fox 2000, a Fox subsidiary, specializes in literary adaptations and is responsible for hits like “Love, Simon” (2018), “Hidden Figures” (2016), “The Fault in Our Stars” (2014), “Life of Pi” (2012) and “The Devil Wears Prada” (2006), among others.
Fox’s animation divisions are responsible for children’s movies like Ice Age, Rio, and Alvin and the Chipmunks as well as more mature shows like The Simpsons, Family Guy, Bob’s Burgers and Futurama.
Other 20th Century Fox Television shows include This Is Us, Empire, American Horror Story and Homeland. Even Modern Family, one of Disney’s longest running hits on ABC, is actually produced by Fox.
Fox is also the creator of superhero (and anti-hero) franchises like X-Men, Fantastic Four and Deadpool. Although nothing has been said publicly, Marvel fans are excited about the possibilities of crossovers within the two universes.
Disney will also acquire Fox’s prestigious, indie-film division, Fox Searchlight. This division is particularly appealing due to its consistent praise from film critics. At the 2018 Oscars, Searchlight proved its worth: The Shape of Water collected 13 nominations (the most of any film) while Three Billboards Outside of Ebbing, Missouri took home seven (Keegan, 2018). Both films were nominated for best-picture with The Shape of Water taking home the grand prize. More impressively, Searchlight has won three of the last five Academy Awards for Best Picture (Gerhardt, 2018). As Disney’s CEO Roger Iger stated “It’s hard to argue Searchlight needs any help from anyone”.
Historically, Disney’s films have not fared well in the Best Picture category at the Oscars. Despite being three years older than the Academy itself, Disney has never received Best Picture. Although Disney has been nominated for three times for Best Picture: Beauty and the Beast (1992), Up (2010) and Toy Story 3 (2011). This is likely due to the Academy’s tendency to nominate “Oscar-Bait” dramas while dismissing other genres like animation and comedy as too lighthearted for the “serious” prizes. While Disney’s live-action films have been overlooked, their animated features often steal the spotlight. Since the introduction of the Animated Feature category in 2001, Disney and Pixar (which was acquired in 2006) took home the grand title 12 times. Lately, Disney is on a hot streak; they’ve won 9 Animated Features in the last decade. While Disney is doing perfectly fine on the animation front, the acquisition of Fox Searchlight could help elevate the status of its live-action films among critics.
This acquisition is in line with Disney’s previous business moves. The House of Mouse has been systematically acquiring other studios as they expand their already massive content library in preparation for their streaming service. Over the past 12 years, Disney purchased Pixar for $7.4 billion as well as Lucasfilm and Marvel Entertainment each for $4 billion. As theatre attendance and cable subscriptions drop, Disney is taking strides to remain competitive. According to Iger, in the age of streaming, the best (and perhaps only) way to do this is by expanding their back catalogue: “We’ve always believed we have the brands and content to be extremely competitive and to thrive alongside Netflix, Amazon, and anyone else in the market and adding the Fox brands and creative assets, such as Searchlight, FX, and National Geographic to Disney, Pixar, Marvel, Lucasfilm and ABC will make our direct-to-consumer products even more compelling for consumers.”
To date, Disney’s entrance into the world of streaming has been far from magical. Upon the initial announcement of Disney’s streaming service, their star ABC showrunner, Shonda Rhimes, cut ties with Disney in
Despite this initial set-back, Disney released ESPN+, a sports streaming service, in April 2018 and plan to release an unnamed service for their Disney-branded content at the end of 2019. According to Iger, ESPN+ has had “encouraging” results in its first few months. Out of fear of cannibalizing ESPN (which racked in $7.57 billion last year in subscription fees) Disney has positioned ESPN+ as a complementary service for “hardcore sports fans, people who follow niche sports in the U.S. like cricket or rugby, and college sports fans underserved by existing linear offerings”. ESPN+ is run by Disney’s BAMTech division, a recent $2.6 billion acquisition that has provided Disney with streaming technology. After BAMTech’s success with HBO Now and the WWE Network, it seemed like a natural fit for Disney and they plan to use it in their Disney-branded streaming service.
Currently, the Disney-branded streaming service is said to be offered at a lower price relative to Netflix to reflect the limited volume of content. “We want to walk before we run when it comes to volume of content. We have to put enough on to make sense from a price-to-value relationship perspective” stated Iger. This pricing also reflects the fact that some of Disney’s biggest franchises like Star Wars will be initially unavailable due to previous licensing agreements.
At first glance, this may seem like a great deal for consumers. For a cheaper cost, subscribers can access a pretty substantial and growing library of content. However, (and here I am going to sound like the business nerd that I am), usually when there is less competition, the consumer suffers. With this acquisition, Disney could control up to 40% of the US film market. Now, I love Disney movies as much as the next person, but this much power is rarely a good thing.
Even without the acquisition, Disney is an industry giant and uses their power in their favour. Normally when a film is shown in theatres the studio will take a 40-55% cut of each ticket. However, Disney has used their sizeable influence to take much more: when they released Star Wars: The Force Awakens and Star Wars: The Last Jedi they took 64% and 65% of ticket sales. Not only did they take a bigger piece of the pie (or popcorn?) but they also required the films to play for a minimum of two and four weeks respectively. This may not seem like a big difference but for small independent theatres, this could be the difference between breaking even and going bankrupt. All of these costs will ultimately get passed down to you, the consumer.
In The Atlantic article “DisneyFlix is Coming. And Netflix Should Be Scared”, author Derek Thompson argues that due to declining cinema attendance, Disney may need to completely eradicate theatrical releases: “To save the kingdom, Disney may have to blow up the castle”. Even though Disney has produced six of the highest grossing films in the last seven years, we entering the era of streaming and Disney is currently unequipped.To become the go-to streaming service for families, argues Thompson, Disney may need to skip theatrical releases all together and offer it directly on their platform. While this would result in substantial monetary loss, the service “could function as a non-stop advertisement for Disney itself”. Under Thompson’s vision, Disney’s platform “wouldn’t just be Netflix with Star Wars movies – it would be Amazon for Star Wars pillowcases and Groupon for rides on Star Wars roller coasters and Kayak for the Star Wars suite at Disney hotels. The company just has to destroy its business – and the U.S. entertainment landscape – to build this” he concludes.
Disney has prided themselves on their fun-for-the-whole-family brand. In fact, they haven’t produced any R-rated movies since The Fifth Estate (2013) which was only released due to a distribution agreement with DreamWorks and pulled a meager $3 million domestically. This raises the question: what will Disney do with their newly acquired R-rated movies and shows?
Perhaps one of the most important aspects of this deal is that Disney will gain control of the majority of Hulu’s shares. At the moment, Disney holds 30% ownership but this deal will increase their stake to 60%. The remaining shares are owned by Comcast and Times Warner who control 30% and 10% respectively. Many experts expect that Disney will release Fox’s mature films and TV shows on Hulu in order to maintain Disney’s family friendly brand.
All of this raises some questions. Will Disney successfully gain a foothold in the streaming industry despite their rocky start? Will Disney turn the industry Inside Out and completely eradicate theatrical releases? Will Searchlight help boost Disney’s appeal among critiques or will Disney limit Searchlight’s freedom and prevent them from releasing R rated movies?
Finally, what will this mean to consumers? Will the price of seeing a movie in theatres skyrocket? Will there even be as many films to go see? It’s highly unlikely Disney will continue to produce the same quantity of movies if they have just eliminated a large competitor. Why should they release more movies if they would potentially cannibalize the box office revenues of their other movies? Sadly, without a magical mirror, we have no way of predicting the impacts of this acquisition. Only time will tell if these two companies will live happily even after the merger.
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