News Disney and Fox come to terms -- announcement soon; huge IP acquisition

[Indy_UK]

I'm a little miffed from all this.

Igor saying SKY was the 'Crown Jewel' must have been him fibbing in order to get Roberts to push for SKY.

During this whole time, I've been wondering, if Disney are going to be pushing a 3 platform steaming service, then why buy a traditional TV distribution company in Europe? Just duplicate what your doing In the US.

It's going to be harder without the instal base there but it will be much cheaper to get up and running.

Disney have a good relationship with SKY and all their content over here so I hope it doesn't go sour.

I think for Disney to really get value out of the whole 21st CF deal, I hope there are asset swaps. Disney needs to get the 30% of Hulu, stick all the Fox content on there.

Sell the 39% of SKY and regional sports which should bring what Disney paid for Fox down a good chunk. I don't think Orlando theme park rights for Marvel are going to come into this.

 

[mikejs78]

Disney wanted Sky for their subscribers and to boost their distribution power in Europe. This was a major part of their calculus in the 21CF acquisition. They now have nothing there. Comcast made them pay more for 21CF and they didn’t event wind up with part of what they wanted froM 21CF. Big loss for TWDC.

They have the cash that they will get for their 39% of Sky. Which offsets the cost increase for Fox. Brilliant gamesmanship.

Overpay is in the eye of the beholder:

Disney's original offer for Fox's assets was $52 billion in stock (and assumption of $14 billion in debt).

Disney's revised offer for Fox's assets was $36 billion in stock, $36 billion in cash (and assumption of $14 billion in debt).


Disney's offer for Sky at 15.67 pounds values it at $35.2 billion. Comcast's offer for Sky at 17.28 pounds values it at $38.8 billion.


So yes, Disney has forced Comcast to "overpay" to the tune of $3.6 billion if they get the whole thing (you could argue $5-6 billion over an offer without a bidding war).


But conversely, Disney is taking on an extra $36 billion in debt because Comcast forced them to increase their overall offer by $20 billion and increase the cash portion by a much larger $36 billion (by exchanging stock for cash)...

It's pretty clear that Disney was forced to overpay more than Comcast on a relative basis. But both are probably happy with how it played out; they each stuck a rival with billions in extra debt while getting the assets they coveted most.

Sometimes you can have both companies overpay but still walk away reasonably happy with the outcome. That's what happened here.

Except now Disney gets $15B of that $36B back.

Well he certainly fooled Iger by making them pay a premium for 21CF beyond their initial offer which was agreed upon.... Sky fit synergisticly into their distribution growth strategy. Now Comcast has a significant leg up on the competition in Europe.

Sky doesn't fit with their growth strategy at all. They don't need a legacy distribution network. And if that is their growth strategy, it's a poor one.

 

[happycamperuni]

I'm a little miffed from all this.

Igor saying SKY was the 'Crown Jewel' must have been him fibbing in order to get Roberts to push for SKY.

During this whole time, I've been wondering, if Disney are going to be pushing a 3 platform steaming service, then why buy a traditional TV distribution company in Europe? Just duplicate what your doing In the US.

It's going to be harder without the instal base there but it will be much cheaper to get up and running.

Disney have a good relationship with SKY and all their content over here so I hope it doesn't go sour.

I think for Disney to really get value out of the whole 21st CF deal, I hope there are asset swaps. Disney needs to get the 30% of Hulu, stick all the Fox content on there.

Sell the 39% of SKY and regional sports which should bring what Disney paid for Fox down a good chunk. I don't think Orlando theme park rights for Marvel are going to come into this.

I don't think Iger was fibbing about Sky just like I don't think Roberts was fibbing about how great Fox's assets were.

Reality is both companies would have preferred to get all of the assets at a reasonable price. But if forced to only get one set of assets at a higher price instead of both, Disney and Comcast both got what they wanted most.

Sky would have gone nicely with Disney's OTT strategy in Europe; lots of synergy between cross-selling Disney's channels in Europe through Sky as well as Disney's streaming services selling alongside Sky's OTT services in Europe. There would've been a lot of opportunity for ESPN alongside Sky Sports.


But Disney didn't want to "win" Sky if it meant taking on an extra $35 billion in debt just to outbid Comcast. At a certain point, each company didn't want to overstretch their balance sheets, which is why Comcast walked away from Fox and Disney walked away from Sky.

Sky doesn't fit with their growth strategy at all. They don't need a legacy distribution network. And if that is their growth strategy, it's a poor one.

To be fair, I think both Comcast and Disney had planned to convert Sky to all-OTT as fast as possible. Both knew there's not much of a future in satellite TV compared to much cheaper OTT.

 

[mab7689]

As I'm from the UK and a Sky customer I'm now intrigued what Comcast can offer. My inclination was to root for Disney so Sky could keep up the first run rights to movies deal and potential integration with Disney Life. I hope the movies deal does not fall foul now that it's gone this way.

 

[eddie104]

Yea I'm going to pose something else.

Comcast gets:
20% of Sky
Fox Animation
Certain IP/library transfer to Comcast
NBC products get adequate promotion on Hulu

Disney Gets:
10% of Hulu
Disney streaming service/ESPN/Hulu included with Xfinity and Sky boxes at no cost to Comcast/SKY consumers for a year and all cost to Comcast
Lucrative licensing deal for Distribution of Disney/Fox properties on Sky
Cash

Comcast in recent statements have stated they don't care whose property you are watching as long as you watch it on our systems which is why they have included Netflix etc on those boxes while running certain deals that cost Comcast and Disney will want to leverage their product to the largest amount of consumers as possible. That will be more valuable in the long run than full ownership of Hulu/Sky.

Theme Park deals aren't going to happen. That is the last freaking thing on anyone's mind and is so minor in this entire thing that they wouldn't waste an leverage on that.

Why would Comcast get Fox Animation ?

 

[Twilight_Roxas]

Plus I thought Fox Animation shut down after Titan A.E bombed?

 

[Quinnmac000]

Why would Comcast get Fox Animation ?

With this purchase Disney will have Blue Sky, Pixar, WDAS, Fox Television Animation, and Fox Animation. That is an overabundance of redundancy. Comcast wants more animation studios as its given them the best ROI. They would total go for buying up Fox Animation.

 

[Quinnmac000]

Plus I thought Fox Animation shut down after Titan A.E bombed?

Two separate entities. Fox Animation Studios was the one the shuttered.

 

[eddie104]

With this purchase Disney will have Blue Sky, Pixar, WDAS, Fox Television Animation, and Fox Animation. That is an overabundance of redundancy. Comcast wants more animation studios as its given them the best ROI. They would total go for buying up Fox Animation.

I see your point but Fox Animation is lucrative asset Disney would be stupid to sell it off and I know there are some other animation studios Comcast can purchase if they really want to expand in that direction.

 

[monothingie]

Sky doesn't fit with their growth strategy at all. They don't need a legacy distribution network. And if that is their growth strategy, it's a poor one.

See except that’s your opinion. Comcast and ATT through for example through their expansion M&A strategy have taken the exact same approach to leverage against Netflix and Amazon by owning the content creation and distribution networks. Disney only has content creation right now and their only hope at distribution is an up and coming streaming service which may or may not be able to compete with the others and will have to build its footprint up from scratch with a lot of competition. And ATT and Comcast own a lot of the pipes bringing that content to subscribers.

 

[happycamperuni]

See except that’s your opinion. Comcast and ATT through for example through their expansion M&A strategy have taken the exact same approach to leverage against Netflix and Amazon by owning the content creation and distribution networks. Disney only has content creation right now and their only hope at distribution is an up and coming streaming service which may or may not be able to compete with the others and will have to build its footprint up from scratch with a lot of competition. And ATT and Comcast own a lot of the pipes bringing that content to subscribers.

Also worth pointing out that Europe is a very different from the US in terms of laws/rules, and that's why Sky is so important.

Legacy carriers have a lot more protections in Europe from streaming services; that has to be a part of the calculus here: Owning a satellite service that's converting to OTT is very different in Europe than the US where there's much weaker laws/rules like net neutrality and content % restrictions.

That's why Sky is in a much more favorable situation than DirecTV or Dish in the US.


For example, EU countries will soon require Netflix/Amazon Prime and eventually Disney's streaming service to have 30-40% of their content created locally in the EU, and they can even have quotas that apply to their own specific country (i.e. France can have a 40% EU quota with 10% French content).

There will also be possible requirements to pay into national film funds and the like...; a part of why Disney probably wanted Sky was so that it could bypass all of that by simply selling its content alongside Sky's OTT service or on Sky's broader services.

 

[mikejs78]

See except that’s your opinion. Comcast and ATT through for example through their expansion M&A strategy have taken the exact same approach to leverage against Netflix and Amazon by owning the content creation and distribution networks. Disney only has content creation right now and their only hope at distribution is an up and coming streaming service which may or may not be able to compete with the others and will have to build its footprint up from scratch with a lot of competition. And ATT and Comcast own a lot of the pipes bringing that content to subscribers.

Distribution is a rapidly changing game. Traditional distribution means like cable and satellite are going to be all but gone in the next 10-15 years. Expansion in this area may have short term gain but likely result in long term loss.

Comcast and AT&T's strategy isn't competing at all effectively with Netflix and Amazon. If anything, their recent M&As are stopgaps that will help prop them up for a few more years, but none of their recent acquisitions are setting them up to compete in the long run.

Even in regards to 'the pipes', that's going to be changing as well with the introduction of 5G, which will have the longer term effect of commodotizing that delivery mechanism (high speed broadband). Content companies will either have to sell their content OTT (like Disney) or partner with a distribution company like Netflix. At this stage, if Disney wants to get into distribution, they are pursuing exactly the right strategy with their OTT plans. Sky would have been an expensive distraction and not gotten them where they need to go for future long term growth.

 

[esskay]

Sky doesn't fit with their growth strategy at all. They don't need a legacy distribution network. And if that is their growth strategy, it's a poor one.

Actually it fit perfectly. Sky was moving away from broadcast tv, to the point that it plans to end satellite tv all together in favour of iptv services, which have been very successful for both them and other providers who've tried it. Combine that with their goals with SkyQ and Now TV to provide on-demand content over traditional channels and you've got exactly what Disney are in the middle of building. Forget crummy services like Hulu (Which will probably fade into obscurity fairly quickly now), we're talking a true media library containing tens of thousands of shows and movies.

Sky owns a vast amount of content. Combining that with Fox, Lucas and Disney and you'd have the largest streaming service in the world.

Sky will now be ruined. They had a very close relationship with Disney, offering tons of Disney content to subscribers in the form of movie channels and on demand content, covering Disney, Pixar, Marvel and Lucas. That'll likely end now. The big losers in all of this is the British public as Sky's services were available on their own platform as well as on Virgin, BT, NowTV (a wholly owned streaming subsidiary).

It even goes beyond that. Sky tv networks in Italy, Germany, Ireland and Spain as well as Amstrad (yes, the computer company) and a huge chunk of the UK's public wifi network.

Disney lost big time here on Sky UK alone. They had a door to most of the UK, and a large chunk of mainland Europe right there.

 

[monothingie]

Distribution is a rapidly changing game. Traditional distribution means like cable and satellite are going to be all but gone in the next 10-15 years. Expansion in this area may have short term gain but likely result in long term loss.

Even in regards to 'the pipes', that's going to be changing as well with the introduction of 5G, which will have the longer term effect of commodotizing that delivery mechanism (high speed broadband). Content companies will either have to sell their content OTT (like Disney) or partner with a distribution company like Netflix. At this stage, if Disney wants to get into distribution, they are pursuing exactly the right strategy with their OTT plans. Sky would have been an expensive distraction and not gotten them where they need to go for future long term growth.

There’s an interesting line of thought going with regards to cord cutters that it may be approaching a saturation point as the cost adds up to make it less competitive with legacy options.

Regardless Netflix and Amazon developed with minimal competition. Disney is going right into the headwinds to develop their base. Key to them is that people will pay to access their library of content. We will see...

 

[MisterPenguin]

Comcast has been quite shrewd so far, forcing the TWDC pay a substantial premium for 21CF over its current value, especially with the loss of Sky.

Comcast gets what it wanted, while Disney pays significantly more for 2/3 of what they wanted.

Uhh.... Didn't Disney just force Comcast to pay more for Sky than if they weren't bidding? This is twice Comcast outbid Disney. Isn't that an indication that Comcast also paid an inflated price for what they wanted?

 

[Quinnmac000]

Distribution is a rapidly changing game. Traditional distribution means like cable and satellite are going to be all but gone in the next 10-15 years. Expansion in this area may have short term gain but likely result in long term loss.

Comcast and AT&T's strategy isn't competing at all effectively with Netflix and Amazon. If anything, their recent M&As are stopgaps that will help prop them up for a few more years, but none of their recent acquisitions are setting them up to compete in the long run.

Even in regards to 'the pipes', that's going to be changing as well with the introduction of 5G, which will have the longer term effect of commodotizing that delivery mechanism (high speed broadband). Content companies will either have to sell their content OTT (like Disney) or partner with a distribution company like Netflix. At this stage, if Disney wants to get into distribution, they are pursuing exactly the right strategy with their OTT plans. Sky would have been an expensive distraction and not gotten them where they need to go for future long term growth.

You do know SKY has an expansive OTT program as well as developing their own wireless service?

 

[monothingie]

Uhh.... Didn't Disney just force Comcast to pay more for Sky than if they weren't bidding? This is twice Comcast outbid Disney. Isn't that an indication that Comcast also paid an inflated price for what they wanted?

But Disneycould have just as easily been the high bidder here.

In the end the real winner is the Murdoch’s. They’ve gained the most with Comcast and Disney.

 

[MisterPenguin]

I see your point but Fox Animation is lucrative asset Disney would be stupid to sell it off and I know there are some other animation studios Comcast can purchase if they really want to expand in that direction.

Just an FYI:

Fox Animation Studios is dead. Does not exist any more.

Blue Sky Studios (feature film animation) is owned by Fox (and now, Disney). They are still active.

TV Animation seen on Fox networks is all produced by third party studios.

 

[eddie104]

Just an FYI:

Fox Animation Studios is dead. Does not exist any more.

Blue Sky Studios (feature film animation) is owned by Fox (and now, Disney). They are still active.

TV Animation seen on Fox networks is all produced by third party studios.

Yes the studios don't exist anymore but Blue Sky falls under the Fox Animation Division.
https://en.wikipedia.org/wiki/20th_Century_Fox_Animation

 

[Rodan75]

I think both companies are probably happy with the outcome today.

On paper, this sets up a possible asset swap.

Comcast gets:
- 39% of Sky (valued at 15.1B given 17.28 bid)
- A couple of RSNs that Comcast has shown interest in (each RSN is close to at least 1B in value, some significantly higher like YES)

Disney gets:
- 30% of Hulu (valued at 2.4B as per the latest Disney SEC filings regarding the Fox acquisition)
- Outstanding Marvel rights (Namor, Hulk, Theme park rights in Orlando, usage of Marvel name in theme parks)
- Distribution to Disney movies in EU that Sky currently has the rights to
- Cash

The main problem here is what is the cash amount that both parties would agree to.

I honestly don't think Disney values theme park rights in Orlando, Marvel name for theme parks, and Namor + Hulk movie rights all that much. It's a nice cherry on top and that's it. Not sure how much they value the distribution rights that Sky has for Disney movies and when those expire, but I'm guessing it's not that valuable either. The one thing that they'd value here is Hulu 30%.

This also means Disney will have an uphill battle in Europe as they'll have to enter their DTC market there with Hulu, DisneyPlay, and ESPN+. None of those exist or a known there. It'll take a lot of capital and work to gain a foothold there.

One final note on theme park in Orlando. If both sides do agree to a deal the most likely scenario will be an amendment to the contract with an expiration date and removal of exclusivity. Marvel land at IoA won't close overnight. They'll probably have the contract expire in 10-15 years and during that time both parties can use the Marvel characters (Disney would use the MCU ones whereas Universal would keep with what they have). Universal would probably want to get out sooner though.

I think they will get done separately because otherwise I think they risk upsetting U.K. regulators. I had not previously considered that dynamic when discussing the inevitable horse trading. But otherwise I agree with your thoughts.