People forget, but 12 years or so ago, Disney looked a lot like a troubled company, but since, then we have had a phenonium called Frozen, Despicable Me, an odd-bunch of ladies and gentleman who call themselves the Avengers, and a little-known movie franchise called Star Wars that did quite well at the box ioffice. Now Disney has its sights set on another, related market, and to help it get there, it is, regulators permitting, helping itself to 21st Century Fox. But as net neutrality comes to an end, will we see a force awaken, or are we set to see the last of the old guard of Hollywood?
Back in the mid-2000s, Disney looked like a company living off old glories. Its boss in those days, Michael Eisner, was reckoned the most powerful man in Hollywood, alas for Disney he did not get on well with the boss of Pixar – a chap called Steve Jobs – and Pixar movies were just about the only movies distributed by Disney that were making big bucks. Walt must have been turning in his grave.
It changed when Walt’s nephew, Roy Disney, got involved. Pixar became part of Disney, Jobs became the biggest shareholder in Disney and Eisner was out.
The new CEO, Bob Iger took over in 2005, and is still at the helm today.
Since then, shares have risen from $22 or so, to $108. The market cap is now at $162 billion, from around $33 billion. But then, that is what movies like Frozen, the Marvel and then Star Wars Franchise can do.
Now it is looking to buy 21st Century Fox, bringing with it movies such as Avatar, Deadpool, as well as TV content such as The Simpsons and National Geographic.
It leaves the Murdochs in a curious place and Sky in an even more curious place.
There is talk that James Murdoch may take on a senior role at the new bigger Disney, but the Murdoch empire itself will be left with its UK newspapers – The Times and The Sun, and the Fox broadcasting network which includes the Fox News Channel.
21st Century Fox has been in talks to buy Sky, but regulators have been fretting over the power this will cede to Rupert Murdoch. Will they care if Disney owns Sky? Will Disney want Sky? After all - it is Rupert Murdoch’s dream to own Sky, presumably this is not something Bob Iger feels strongly about.
Hulu and Netflix
Critics look at the Disney sporting assets, such as the ESPN network, which has been struggling of late, and question the wisdom of the deal.
But actually, that is not what this deal is about. Disney is far more interested in what Netflix and Amazon are up to.
We are in the age of TV on demand – online subscription services such as Netflix and Amazon Prime.
And the merger with 21st Century Fox will hand the new company around 60 per cent of Hulu, the US video subscription channel – with Comcast owning most of the rest, with Time Warner owning about ten per cent.
So imagine that, the mighty Disney, combined with the movies and some TV assets of 21st Century Fox, distributed via Hulu.
Disney enjoyed revenue of $55 billion in fiscal year 2017, 21st Century Fox $28.5 billion.
That’s total turnover in excess of $80 billion. Combined market cap is around $210 billion.
Netflix saw revenue of $8.83 billion in 2016, but its market cap is $81 billion. In short, its turnover is less than ten per cent of the Disney/21st Century combo, but market cap is a third that level.
Disney would like a market cap to revenue multiple like that.
The battleground
And so we have this new, mighty Disney, (in combination with 21st Century Fox, it will have around a third of US box office takings), muscling in on the TV subscription market – with a phenomenal lists of assets – Marvel (the latest Marvel TV series The Punisher is a hit on Neflix), Star Wars (imagine the potential of that as a TV series), The Simpsons, oh yes and Mickey Mouse – quite the building block.
Questions
But this leaves two questions.
What will the end of net neutrality mean? Will companies that use up a lot of bandwidth, such as Facebook, Google – via YouTube – Netflix and maybe Disney have to pay more use the internet’s network?
Will we see the large content providers merge with the telecoms, who do control the backbone of the internet – and if so, who will be the purchasers, the content companies, or the telecoms who seem to have Donald Trump on their side?
And then there is virtual reality – how will that affect the content business?
