Disney’s $52.4 billion acquisition of 21st Century Fox includes a never-ending list of A-list media properties, including The Simpsons, Avatar, and the X-Men. But the most important name in the deal is nowhere to be found in the press release.
Netflix, which started out as a repository for other companies’s content, now has more than 100 million members worldwide and is a producer in its own right. It has snagged top-notch directors like David Fincher and Martin Scorsese and TV showrunners like Shonda Rhimes, all with an eye toward decreasing its reliance on the back catalog of old TV shows and movies.
That dynamic is why Disney’s latest movie releases are leaving Netflix and heading to Disney’s own subscription-streaming service, which it plans to launch in 2019. The offering will become the streaming home for Pixar, Marvel, Lucasfilm, and Disney Animation movies as well as other programming from Disney and its TV networks—and now potentially all the Fox properties as well.
Disney CEO Bob Iger said in the press release that the new franchises and brands joining Disney like, Avatar and X-Men, and shows from networks like FX Networks and National Geographic would “greatly enhance our growing direct-to-consumer offerings.”
The media mammoth wants to take back control of its relationship with consumers, amidst subscriber declines in the cable-TV space and uncertainty in the broader media landscape.
Disney already has a deep bench of family-friendly assets that people love, from its animated kids movies to Marvel and Star Wars. Today’s deal will give Disney an even wider breadth of content to play with. Fox’s TV production arm, for example, makes shows like This Is Us for NBC, and its cable-TV networks like FX are home to popular zeitgeist-hitting shows like Atlanta and American Crime Story.
“It’s a sign of Disney wanting to develop scale in order to compete with Netflix,” Toby Chapman, an associate partner at global strategy consultant OC&C, tells Quartz. “On its own, it’s difficult for even a company like Disney to compete with breadth of content that Netflix has. You’ve got to have something really broad or something with really specific strengths.”
The deal is likely to mean big changes for Hulu—Disney is acquiring Fox’s 30% stake, which will give it majority control of the streaming video platform, with Comcast and Time Warner as minority partners. It’s not clear how that will intersect with Disney’s own streaming plans, or whether Disney’s rivals will want to keep licensing their shows to Hulu—but it’s clear that Disney now sees Netflix as a primary threat.
“Netflix has a hail-fire that’s about to hit them if this deal happens because that means tremendous competition that can also match the scale that Netflix operates in,” said Eric Schiffer, chief executive of the private-equity firm The Patriarch Organization. “This gets [Disney] a mammoth amount of programming to be able to strike at the jugular of Netflix during a time where there’s just a lot of risk in the space.”
On top of competing with Netflix for subscribers, Disney, with Fox in the wing, could drive up the cost of content at crucial time for Netflix. The fewer deep-pocketed players there are vying for top talent like J.J. Abrams, the more the cost for that talent goes up. Hollywood is also a relationship business; Fox would bring more relationships with talented showrunners like Ryan Murphy and Donald Glover to Disney.
Netflix, for its part, has been able to woo talent by offering big checks and creative freedom. But it’s already spending a ton of money producing and acquiring TV shows and movies; it plans to spend $8 billion on content in 2018, up from $6 billion this year. And investors are taking note.
“This has to prompt a reply from Netflix,” said Greg Portell, a partner at management consulting firm A.T. Kearney.