By Vibodh Parthasarathi

To the delight of Disney this year, Rupert Murdoch played a generous Santa Claus.

The pre-Christmas announcement of a Disney-Fox deal has much to say about the behaviour of large media corporations during this decade. Following requisite regulatory approvals, Disney will acquire from 21st Century Fox (hereafter, Fox) its movie and television production studios, US cable channels including National Geographic, stake in European satellite broadcaster Sky, and India’s STAR broadcast network. Murdoch has retained US television assets including the flagship Fox News and Fox Sports, the Fox broadcast network, Fox Business and regional stations.

Disney has tended to own highly remunerating assets, the exception being its broadcast network, ABC. On the other hand, revenues of the movie division of Fox were less than half of their TV divisions’. Through this deal, Murdoch has decided to retain those US assets that have consistently brought him, commercial and political dividend.

Despite anxieties of media concentration being voiced, including in distant Australia, the deal smartly manages the US regulatory framework. By not selling its large stations Fox News and Fox Sports to Disney, which owns ABC the other large US network, Disney and Fox sidestepped any immediate objections FCC may have to the deal. Unlike India, the USA has cogent anti-competitive regulation in the media, with current norms baring a company owning stations that together reach more than 39% of the population. As to the cinema business, being two of the big six studios of Hollywood, the Disney-Fox combine is believed to corner almost 40% of the box offices in the USA. However, the onus will be on the US government to convincingly argue and show any adverse impact of this deal either on the business milieu or more widely on public interest.

Apart from these regulatory and strategic dimensions of the deal, it has a deeper structural dimension. The coming together of mouse and the fox has been catalysed by two inter-related shifts in the evolving US media economy.

First, the reorganisation of Hollywood in response to challenges from up the Californian coast in Silicon Valley. The deal is a response to the shift in the centre of gravity of the entertainment business from 20th-century “media” conglomerates to 21st-century “tech” behemoths.

Second, the ascendancy of the subscription model in the media content business over the longstanding advertising model of the mid 20th century. In the post-broadcast milieu of the US, competing media conglomerates, rather than expanding linear TV distribution, have been compelled to consolidate, expand, and internationalise their online and non-linear distribution. Not surprisingly, Disney signalled its willingness to forego attempting to take over 100% of Sky, Britain’s largest pay-TV broadcaster, if its media regulator quashes the long pending Murdoch bid.

Disney’s acquisition of essentially the non-news properties of 21st Century Fox was motivated by the need to accumulate content in the entertainment genre. This was, in turn, driven by the exigency to fortify itself against the raiders from Silicon Valley—the real Media Moghuls of the global media economy. All 20th-century entertainment conglomerates require a mighty catalog of movies and TV shows, together with a geographically wide set of distribution platforms, to respond to Netflix and Amazon—not to forget Facebook and YouTube, or even Apple who is yet to make substantial moves online. Although the Disneys and Murdochs are the Badshahs of Los Angeles, they are modest compared the Shehenshahs of San Francisco: to put it in perspective, the $50 billion-plus Disney-Fox deal seems minor against Apple’s over $250 billion in overseas banks.

Looking closely at the assets gained by Disney, we get a sense of the broad contours along which the enlarged Hollywood major hopes to tango its way on the digital stage.

One vital property for Disney is Hulu. This streaming platform represents four Hollywood (cinema-TV) majors wading into the ocean of online distribution, to compete with Netflix and Amazon. Fox, Disney and NBCUniversal (hereafter, NBCU) each owned 30% in Hulu, the rest being with Warner Bros. If the Disney-Fox deal is approved, Disney will become the majority shareholder in Hulu, not to forget it also being armed with the much larger TV catalog of Fox—and thereby surface as a particularly serious competitor to Netflix. Last year, Disney announced withdrawing its content from Netflix after the expiry of its licensing agreement.

There are two hiccups in Disney appearing to gulp the online space through Hulu.

First, Disney will not have a free hand to leverage Hulu to solely its own benefit since the four-way JV that created it requires all major structural changes being agreed upon by Comcast/NBCU. This will essentially involve a battle between the enlarged Disney and Comcast over Hulu’s future. This is where Disney’s own branded streaming service-VOD service for movies and OTT service for sports—gain strategic importance two years before they are to be rolled out.

Second, currently, Hulu is available only in the US and Japan. This demands greater investment by Disney in the internationalisation of online distribution, beyond that in its own streaming service, DisneyLife, currently available only in the U.K. and Ireland. Fox’s extensive global commercial relationships will be an asset for Disney to geometrically enhance international distribution—undoubtedly the weakest link of this essentially American content producer.

Two platforms developed by Fox will come into play here, especially in Asia. One is HotStar, the online platform launched by Fox’s TV arm in India, the STAR network. Currently available only in India, HotStar has the requisite means and aims to commence services abroad. The second is Fox+, a streaming service offering new cinema and live sports specifically for Asian countries. Launched earlier in 2017, it has so far commenced services in Philippines and Singapore.

When the enlarged Disney gets down to concertedly take on pure-play the digital Shehenshahs outside the US, both these properties developed by Fox will be valuable in its arsenal. And Murdoch will be looking closely since his family trust is expected to become one of the largest shareholders in what will be the most globalised entertainment conglomerate.

*Vibodh Parthasarathi’s teaches media policy/business. His most recent work is on the Indian Media Economy (OUP 2018)

Also read: Disney’s $52.4 billion acquisition of 21st Century Fox includes Star India too