A tangled web of deals has tied together the fates of the world’s biggest media conglomerates.
A federal judge will decide this afternoon (June 12) whether AT&T will be allowed to buy Time Warner, parent of Westworld and Game of Thrones network HBO, DC Entertainment, and Harry Potter studio Warner Bros. The US Department of Justice sued the telecom late last year to block the proposed $85.4 billion deal. The outcome will influence a number of other potential deals.
“The decision will hopefully shed light on the government view of how much consolidation risk there is in the industry,” says Greg Portell, partner at consulting firm ATKearney. “If the deal is allowed to go through, obviously you have a large player being taken out of the marketplace and that opens the door for other large players” to be acquired.
Fox will feel it first. The day after the ruling, June 13, cable operator Comcast is expected to formally make a hostile bid for Fox, which Disney already agreed to buy for $52.4 billion. BTIG analyst Richard Greenfield expects Comcast to make an offer worth at least 25% more than that for the Rupert Murdoch-run conglomerate, which owns international businesses like Star, one of India’s largest media companies, US TV channels like Fox News Channel, FX, Fox Sports 1, National Geographic, and US broadcaster Fox, and entertainment properties like Avatar, The Simpsons, and X-Men.
Disney won’t go down without a fight. It has already incorporated Fox into its future plans and it’s unlikely CEO Bob Iger, who is due to retire in 2021 after the transition is completed, will allow his legacy to end on a failed acquisition. Disney and Fox are each scheduled to vote on the proposed merger on July 10.
Meanwhile, Comcast is challenging Fox across the Atlantic. Comcast and Fox have rival bids in to buy European broadcaster and pay-TV giant Sky, of which Fox already owns 39.14%. Both Fox and Comcast got the all-clear from UK regulators last week. (Fox under the condition that it divest Sky News to Disney or another company.) Fox got the go ahead from the European Commission last year. EU antitrust regulators are set to approve Comcast’s higher bid by June 15.
If the AT&T-Time Warner deal is blocked, Comcast could still move on Fox, but the deal might look less attractive to shareholders who hope to avoid US regulatory scrutiny. The fight for Sky could then heat up overseas, as it’s also unlikely Comcast CEO Brian Roberts will leave empty handed.
Meanwhile, if AT&T gets Time Warner, telecom rival Verizon may consider an entertainment play of its own. The wireless company has reportedly expressed interest in CBS, which is in tense talks to merge with its sister company, Viacom. Sony Pictures, Discovery-Scripps, or Lionsgate could also be targets for the right price. Whichever company loses Fox could shore up its growth plans with one of these companies, though none are as valuable as Fox. “It’s a big chess game,” said Mary Ann Halford at consultancy OC&C. “It’s going to be really interesting to see how everybody responds.”
Think there a lot of movie sequels and reboots now? Imagine how many more there will be when movie studios like Disney and Comcast’s NBCUniversal get their hands on even more entertainment brands. One side effect of all this media consolidation could be bigger franchises that extend across TV, film, streaming, and other forms of entertainment.
“We’re going to get a lot more Star Wars and Kung Fu Panda movies,” said Portell. ”If we see continued consolidation of entertainment enterprises along with need to pay the cost for that acquisition, we’re going to see a lot of the same content recreated and redone.”
If Disney wins Fox, for example, you could envision it exploring the worlds of Avatar, which Disney has already brought to its parks, on TV or streaming video. The X-Men or Deadpool franchises might also be rebooted or rolled into the Marvel Cinematic Universe.
Another consequence, especially in a Disney-takes-all scenario, could be higher cable bills and less flexible TV bundles, said Greenfield at BTIG. Disney has the upper hand in negotiating the fees its paid by cable and satellite providers because it owns the US’s top sports network, ESPN.
“Disney has already got the sledge hammer in the media world with ESPN where they use that to drive up the fees you pay every month for cable and satellite,” said Greenfield. “Add into ESPN all the leverage they’re going to get from regional sports networks. When you see horizontal leverage like that on the sports networks side, the end result usually for consumers is higher prices.”
Whatever the outcomes, the rise in deals among top content owners and distributors paves the way for more Netflix rivals and streaming alternatives over the next few years. AT&T CEO Randall Stephenson has talked about how a combined AT&T-Time Warner could create new possibilities for video distribution and grow existing streaming offerings like DirecTV Now and HBO Now. Disney’s Iger has also said Fox is key to its plans for Hulu, which it would gain control of if it acquired Fox. Alternatively, Comcast would gain control of Hulu if it wins Fox.
“We believe it will lead to more distribution, content, and eventual competitors to Netflix a few years down the road,” says Daniel Ives, head of technology research at GBH Insights, “as the cord-cutting trend is driving these consolidations with stalwarts like Disney and Comcast looking to accelerate their streaming ambitions.”