From the moment that the first reports emerged stating Disney (DIS) - Get Walt Disney Company Report was looking to buy most of 21st Century Fox (FOXA) - Get Fox Corporation Class A Report, it was easy to grasp that one of Disney's main motivations for inking the deal is to put its streaming efforts on better competitive footing with the likes of Netflix (NFLX) - Get Netflix, Inc. (NFLX) Report, Amazon (AMZN) - Get Amazon.com, Inc. Report and Time Warner (TWX) (HBO).
And the comments the media giant has made since announcing the deal on Thursday morning certainly do nothing to dispel that notion.
To recap: Disney already had a 30% stake in Hulu, and is a few months removed from unveiling plans to pull its films from Netflix at decade's end, launch a streaming service in 2019 that would become the exclusive home of Disney's marquee film properties (among other things) and launch a sports streaming service in 2018 that will air content not broadcast on ESPN.
Now, Disney is gaining Fox's 30% stake in Hulu; film franchises such as X-Men, Fantastic Four, Avatar, Home Alone and Die Hard; and TV franchises such as The Simpsons, Futurama, Modern Family, The Americans, Sons of Anarchy and American Horror Story. It's also getting FX Networks, National Geographic channels, Fox Networks International, the Star India TV network unit, a 39% stake in European pay-TV leader Sky (the stake will soon be 61%, provided regulators approve) and Fox's 22 regional sports networks (RSNs).
Based on what Disney has said about the deal through its press release and deal slides, as well as what CEO Bob Iger and others have said through a conference call and interviews, here are some takeaways on how Disney plans to leverage Fox's assets to further its streaming ambitions.
1. Disney wants to keep a controlling stake in Hulu, in spite of the potential fallout.
Hulu is currently a partnership between Disney (30% stake), Fox (30%), Comcast's (CMCSA) - Get Comcast Corporation Class A Report NBCUniversal (30%) and Time Warner (10%). Each investor has supplied Hulu with a healthy amount of content, and that's a big reason why the service, which had 12 million subscribers as of May 2016, maintains a cult following among avid TV show viewers. It's also why Hulu is often able to air new shows shortly after they've been broadcast.
Much of that could soon change, with Iger signaling on the call that Disney wants to retain the 60% stake in Hulu that it's set to have. "[O]wning roughly a third of [Hulu] was great, but having control of it will enable us to greatly accelerate Hulu into [the streaming] space and become an even more viable competitor to those that are already out there," he said. And though he didn't make any promises to do so, Iger left the door open to upping Hulu's original content investments with the help of Disney and Fox's intellectual property.
All of that suggests Hulu will have even more Disney and Fox TV/film content going forward. It also makes it likely that NBCUniversal and Time Warner will re-think how much support they want to give Hulu. That's especially true for Time Warner, which only has a 10% stake and can opt to push more content instead to its HBO Go and HBO Now streaming services.
2. Disney wants to keep its upcoming streaming service "family" oriented.
"[I]f you think about our direct-to-consumer offerings, Hulu is sort of a more adult-oriented product using Fox television production and FX," Iger said on Thursday. "ESPN [is] obviously in the sports vein and then Disney, Marvel, Pixar, Lucasfilm [are] in the more family vein." He added that Fox's Marvel and National Geographic assets are good fits for the upcoming Disney service.
That kind of segmentation between Hulu and the upcoming Disney service gives Disney a larger total opportunity. But with well over half of U.S. households likely to be signed up for Netflix and Amazon Prime by decade's end, it also risks stretching the company's streaming efforts too thin. Consumers already hooked on Netflix and Amazon Prime -- the latter, of course, features a lot more than just video services -- could balk at paying for two more streaming offerings.
Assuming they're willing to pay for one more, splitting Disney/Fox's content between two services spells a tougher fight against HBO -- particularly for households that don't have kids.
3. Disney has big plans for Fox's international content assets.
Fox Networks International provides Disney with 350-plus channels in 170 countries. Star India gives Disney 69 channels in the world's second-most-populous country, as well as the local Hotstar streaming service. Disney is also getting Fox Deportes, a Spanish-language sports network reaching over 21 million U.S. households; and the European content rights possessed by Sky, which claims over 21 million subscribers and runs a pair of streaming services.
All of this spells many opportunities to offer international streaming services with a mixture of Disney/Fox studio content and local material. It also offers chances (depending on the exact licensing rights) to bring content controlled by overseas Fox subsidiaries to U.S. streaming services.
There could especially be some interesting options for sports content, given the distribution rights that Fox subsidiaries have for major overseas soccer leagues and the Indian Premier League (cricket). Iger declares that pairing Fox's sports assets with those of ESPN "creates exciting new avenues to grow [the ESPN] brand far beyond the United States."
4. Disney will tread carefully when it comes to using Fox's regional sports content.
When asked on the call about Disney's plans for Fox's U.S. RSNs, Iger talked up the potential for them to supply content for ESPN's national networks, and vice versa. But he added that Disney isn't "anticipating a substantial value proposition in terms of the direct-to-consumer aspect of ESPN because the Regional Sports Networks will primarily be distributed as they have been distributed by multichannel providers."
Translation: Disney doesn't want to step on the toes of pay-TV providers paying massive per-user affiliate fees for ESPN and the RSNs by adding a ton of regional content to its ESPN streaming service. But with the RSNs collectively having the broadcast rights for 15 MLB teams, 17 NBA teams, 12 NHL teams and a slew of elite college football and basketball programs, Disney could still have some flexibility to use the RSNs to strengthen the ESPN streaming service -- for now, it has promised to show MLB, NHL and MLS games, but not any NBA or NFL games.
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