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17-11-2017 2:48:16

Fox, Sky, Disney & Netflix: are we approaching the end of an era?

Tom Pammenter|Industry

Recent news that Fox has held talks to sell its film studio, production companies and TV channels to Disney has raised more than a few eyebrows across the industry.

In fact, this move has taken investors and analysts by surprise.

James Murdoch became chief executive of Fox in 2015, with his brother Lachlan becoming co-chairman – alongside his father – at the same time, and one analyst wrote of the talks:

The likelihood that James and Lachlan would choose to sell down assets was not very high on the list of potential outcomes for the company.

Fox’s 39 per cent stake in Sky was also apparently up for discussion, as the Competition and Markets Authority (CMA) investigates the Murdoch family’s proposed £11.7 billion takeover of the UK’s dominant pay-TV broadcaster on the grounds of both media plurality and a commitment to broadcasting standards.

 

What’s at stake? A selection of Fox’s assets

  • 20th Century Fox

  • Fox’s 39% stake in Sky

  • A 30% stake in Hulu, the streaming service

  • Fox 21 Television Studios

  • FX, the award-winning cable and satellite channel

  • The X-Men franchise

  • National Geographic

 

So why the discussions between Fox and Disney?

Is the Murdoch family on the verge of dismantling the empire they’ve spent decades building?

 

Contingency

With the UK a long way from political certainty at the moment, Fox could be planning for the prospect of a Labour government.

Nobody knows what the political landscape of the UK will look like in the coming weeks let alone months but should a general election take place sooner rather than later, taking Jeremy Corbyn to power, the Murdochs will be up against a government that’s opposed to a Fox takeover of Sky.

Rupert Murdoch and his family are more used to growth and expansion than decreasing their empire, but while the possibility of a Labour government remains, so too does the plausibility of a Fox break-up.

 

Technology

As Frame 25 has discussed more than once on these pages (we’ve blogged about both the industry’s grab for audience, influence, content and platforms and the future of TV broadcasting, for example), a handful of US-based tech giants have seriously dented the business of both traditional broadcasters and pay-TV operators.

Sky in particular has suffered at the hands of Amazon, Apple, Facebook, Google and Netflix:


 
With subscriber numbers falling, so too do advertising revenues, and this trend appears to be irreversible.

 

Power and influence

As Sky’s customer numbers drop, Netflix’s grow, along with the streaming service’s ability to exert control on the price of global rights.

Fox has hit back by pulling some of its content from Netflix while the streaming service itself has begun to invest billions of dollars in producing original programming.

Mergers are one way to maintain market share, but BTIG analyst Rich Greenfield predicts:

“The traditional TV bundle is irreparably doomed”

“As consumer viewing habits change,” he said earlier this year, “Netflix’s success, Amazon’s success, Hulu’s success, come at the expense of the legacy multichannel bundle.”

More recently, Greenfield reckons the only way for Fox to “maximise shareholder value is to sell”.

But if mergers ensure a relatively safe passage to profits, could Fox merge with an even bigger player?

They’ve tried that before – with the attempted $80 billion buy-out of Time Warner.

Lachlan Murdoch recently stated:

“Fox has the required scale continue to execute on our growth strategy and deliver increased returns to shareholders.”

That stance, though, could change again if the sale of Time Warner to AT&T (for $85 billion) fails to clear regulatory hurdles in the US.

So what’ll happen? How will this unfold?

Claire Enders, of Enders Analysis:

You will not find the Murdochs selling a damn thing unless they are forced to – or humiliated politically. They’ve never been sellers and don’t need the money.

 

Perhaps the next clue we’ll have will arrive in the week before Christmas, when the CMA plans to publish its preliminary findings in Fox’s proposed takeover of Sky.

Watch this space.

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