Walt Disney Co. (DIS - Get Report) boss Bob Iger has apparently outlasted Brian Roberts at Comcast Corp. (CMCSA - Get Report) in the pursuit of some of Twenty-First Century Fox Inc.'s (FOXA) prime entertainment assets. If Disney can close a deal to buy film, TV and other assets from the Murdochs, the looming question is whether Iger's team can win over regulators.
Disney reportedly offered to pay $60 billion or so for Fox's film studios, the Fox entertainment networks such as FX and National Geographic, Fox's regional sports networks, the Star satellite TV network in India, and stakes in European satellite TV network Sky Plc and streaming partnership Hulu LLC.
With an announcement expected as soon as Thursday, Disney shares were essentially flat at $107.50 on Wednesday, while Fox dropped 3.8% to $32.80. The deal values Fox as a whole at around $40 a share, the Wall Street Journal reported.
AT&T's purchase of Time Warner is a vertical deal, combining the production and distribution of movies and TV. The Justice Department argues that AT&T could withhold Time Warner's content from other pay-TV providers and jack up prices for popular programs such as "Game of Thrones."
Disney's purchase of the Fox assets would be also a vertical combination primarily, this one involving film and TV assets—in the U.S. at least. Disney would reportedly acquire a stake in satellite TV groups in Europe and India. Still, overlapping film and TV properties could raise concerns in Washington. But political considerations may outweigh any economic ones.
In fact, regulatory issues may would not likely prevent the companies from merging, IBISWorld analyst Devin McGinley suggested.
"The overlap in their operations that would most concern regulators is their broadcast television stations, which if combined would violate FCC ownership limits, but those do not appear to be part of the discussions," McGinley said. "Since they're both content companies and will not have any vertical integration, they're also unlikely to face as many hurdles as the AT&T/Time Warner proposal."
If regulators do object to parts of a Disney-Fox combination, Jeffrey Logsdon of JBL Advisors suggested, do not expect many divestitures. "I don't think [Disney] will include any assets that they would logically have to divest," Logsdon said. The assets would likely stay with Fox.
Disney would likely suggest to regulators that combining with Fox's film and cable channels is not anti-competitive, given the entrance of Netflix Inc. (NFLX - Get Report) , Amazon.com Inc. (AMZN - Get Report) , Apple Inc. (AAPL - Get Report) and others to the video market. The argument did not work out for AT&T, however, which has similarly argued that the video market is increasingly diverse and competitive.
Even in the age of Netflix, Disney would gain substantial market clout by acquiring Fox's movie production. Combining the film studios would create a studio of 39% market share and had 6 of the 10 top-grossing movies last year, Rich Greenfield of BTIG LLC observed in a recent note.
"Disney is already using its box office muscle to bully movie domestic exhibitors, extracting financial terms far beyond their studio peers," Greenfield wrote. "Adding Fox, which controls portions of the Marvel universe (X-Men, Deadpool) and Avatar franchise, would enable Disney to gain unprecedented market power."
Disney has also been known to use its muscle in the cable TV market. Disney owns ESPN and would pick up Fox's network of regional sports networks that dot the country from Fox Sports San Diego to the YES Network in New York.
In New York, Greenfield noted, Disney would have great market influence. "Disney would control the ABC affiliate that has the NBA finals and the Oscars, the YES Network, and ESPN/ESPN2, etc.," he wrote.
Of course, the subtext in the Department of Justice's lawsuit against AT&T-Time Warner is President Trump's disdain for CNN. Trump has warmer feelings for Fox, and frequently tweets his approval of its programs.
"The regulatory wildcard remains the Trump administration's close relationship to Rupert Murdoch/Fox News," Greenfield wrote, "which could ease regulatory approval of any proposed transaction in stark contrast to the difficulties facing AT&T Time Warner tied to the administration's dislike for CNN."
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