After 7,000 job cuts, some are wondering if Disney overpaid for Fox assets
Will the story judge Walt Disney Co.’s $71.3 billion purchase of 21st Century Fox as a success?
Or will the 2019 takeover turn out to be Disney CEO Bob Iger’s biggest mistake?
Activist investor Nelson Peltz’s condemnation of Iger’s decision to supercharge content for the streaming wars by buying Rupert Murdoch’s TV and film studios and other entertainment assets has sparked lively debate.
Peltz, through his Trian Fund Management, accused Disney executives of showing “poor judgment” by “paying materially too much for the Fox assets.” Earlier this month, his company ended its proxy fight against Disney.
But the hangover of the Fox deal has come into sharp focus this month amid Iger’s dramatic plan to cut costs by $5.5 billion, including cutting 7,000 jobs. It’s one of the biggest cuts in the history of the iconic entertainment company, which shed thousands of jobs in the wake of the Fox deal.
The acquisition of Murdoch’s Studios undoubtedly enabled Disney to acquire valuable franchises, including television’s longest-running series The Simpsons and movie juggernaut Avatar, giving Disney a portion of Avatar’s $2.2 billion in worldwide box office earnings ‘ received: The Way of Water.’ Disney also picked up the original Star Wars film, as well as ‘X-Men’, ‘Fantastic Four’ and ‘Deadpool’ and allowed these characters to become part of Disney’s Marvel Cinematic Universe .
Cable broadcasters National Geographic and FX also joined the deal, along with proven TV industry leaders.
All have been instrumental in improving Disney’s content pipeline.
However, some Wall Street critics argue that the acquisition and integration of Fox’s employees and operations into Disney has distracted the Burbank-based entertainment giant from its core mission of creating quality family entertainment.
Cowen & Co. media analyst Doug Creutz was never convinced by the Fox deal and now blames it in part for Disney’s current woes, which include managing an even larger portfolio of declining linear cable TV channels and absorbing billions in losses , since the company does not build a but four Streaming services to compete with Netflix, Amazon Prime Video and others.
In addition to Disney+, Disney operates ESPN+ and Hulu as well as the Disney+ Hotstar streaming service in India.
“Even without Fox, Disney would still be struggling with linear channels and figuring out how to make streaming profitable,” Creutz said. “But they would be in a much better position financially if it didn’t have all that debt on their balance sheet. And they wouldn’t have needed such a big reorganization.”
Disney declined to comment on this story.
A lot has changed since Iger announced its acquisition of Fox in December 2017.
At the time, Wall Street was at the forefront of the future of streaming companies. Iger and Murdoch initially agreed on a $52.4 billion stock deal for Fox, which several observers say would have been a coup for Disney.
But Iger was drawn into a bidding war by Comcast CEO Brian Roberts, who offered Murdoch significantly more money. Disney eventually agreed to pay $71.3 billion to complete the deal. (In addition, Disney assumed nearly $14 billion in Fox debt, according to company documents.)
Comcast paid Disney $15 billion for Fox’s stake in Sky.
Antitrust authorities also forced Disney to sell another asset — Fox’s regional sports networks, which broadcast local games from professional hockey, basketball, and baseball teams. The government refused to allow Disney to own both ESPN and more than 20 regional sports channels, so Disney auctioned off the channels, including the YES network, which broadcasts the New York Yankees, for more than $10 billion.
Deducting the proceeds from those asset sales, Disney values the Fox deal at $57 billion.
“Even that was too much – far too much,” said Creutz.
The remaining problem is the debt. In 2018 regulatory filings, Disney said it plans to incur up to $36 billion in debt to cover the cash portion of the cash-and-stock deal to Murdoch and its shareholders (regulatory filings show the company actually about $26 billion). .
Then, a year after the Fox deal closed, Disney was hit by the global pandemic — theme parks, movie theaters, and sports attractions were shutting down — and it was forced to take on even more debt. Disney’s debt was $45 billion last quarter.
When the Fox deal closed in March 2019, Iger said in a statement, “Disney and Fox’s unparalleled collection of businesses and franchises will allow us to create more engaging, high-quality content, our direct-to-consumer offering and our… expand international presence. and provide more personalized and compelling entertainment experiences to meet growing consumer demand around the world.”
Disney also offered Fox library titles to Disney+ international customers.
Disney+ has more than 160 million subscribers worldwide.
People close to the company said the Fox deal has accelerated Disney’s leap into streaming, giving it an edge over rivals like Warner Bros., NBCUniversal and Paramount.
Yale School of Management Senior Associate Dean Jeffrey Sonnenfeld called the Fox deal “brilliant.”
“Was it a high price? Yes, but you don’t judge an investment as an operating expense, you judge it by the return on the investment,” he said.
Sonnenfeld said the Fox assets could yield unexpected rewards for Disney across the board, citing an obscure historical reference: the 1867 purchase of Alaska from Russia for $7.2 million.
“Of course, gold was later discovered there, which started a gold rush,” Sonnenfeld said. “Can you imagine if [Russian President Vladimir] Putin controls these properties now?”
Disney’s purchase of Fox kept the assets, including popular streaming service Hulu, out of the hands of Comcast or some other media nemesis.
On the recent conference call, Iger told analysts the company would devote fewer resources to creating general entertainment content. But one of the main reasons Fox bought it was to expand Disney’s arsenal of general entertainment content.
“That begs the question: Why did you buy Fox?” asked Creutz.
Iger also seems to be questioning the value of Hulu. Disney currently owns two-thirds of the groundbreaking general entertainment streaming service developed by Fox, NBCUniversal and Disney; Comcast owns the other third.
Iger told CNBC earlier this month “everything is on the table” while trying to make cuts, fueling speculation in Hollywood about Hulu’s future.
Disney has already committed to paying Comcast $9 billion by January for its 33% stake in Hulu. If Comcast wants to exercise its put option, it would give Disney 100% control, but it could try to sell the platform.
“The question for Disney is, do they want to be a scaled, broad-based entertainment company, or do they want to be the mother of all niche entertainment companies with family-friendly entertainment,” said Jason Kilar, the former WarnerMedia executive who built Hulu. “Both approaches can be successful and both involve differentiated content, but that’s the big question that has yet to be definitively answered.”
Kilar predicted that by the end of the decade there will be a small handful of entertainment companies capable of generating more than $10 billion a year in cash flow from their streaming operations.
“Ultimately, if 21st Century Fox is the key factor in helping Disney solidify its status among the winners, then it was worth it,” Kilar said.
https://www.latimes.com/entertainment-arts/business/story/2023-02-18/disney-fox-purchase-iger-murdoch-analysis After 7,000 job cuts, some are wondering if Disney overpaid for Fox assets