Disney Co’s entertainment kingdom is about to get a whole lot bigger
thanks to its pending purchase of 21st Century Fox assets, and the rest
of Hollywood has only just begun to grapple with the consequences of the
company’s increasing power.
The long-anticipated $71-billion
acquisition will put the X-Men, Homer Simpson, the Avengers, Buzz
Lightyear, Kylo Ren and the gang from Avatar under the same roof, giving
the Burbank company an unprecedented share of film and television
The deal, expected to close in the coming days, would
boost Disney’s share of the domestic box office to at least 40 percent
and reinforce its stronghold in toys, theme parks and cruise lines. The
Mouse House will have an unrivalled say over when and how movies are
“Basically, they become the 800-pound gorilla in the media
landscape,” said Lloyd Greif, chief executive of LA investment bank
Greif & Co. “It gives Disney even greater clout from a streaming
standpoint and even greater clout from an exhibitor standpoint.”
ambitions have taken on a new urgency with the development of its
upcoming streaming service, Disney+, set to launch late this year, and
its increased ownership of Hulu, both of which will pose a challenge to
Netflix. All these moves have wide-ranging implications for the various
stakeholders in entertainment, including movie theatres, streaming video
companies, talent agencies and pay-TV operators.
“What you have here
is the makings of a behemoth in every sense of that word,” said Tuna
Amobi, a media industry analyst with CFRA. “It’s hard to think that this
deal gives them more leverage than they already have, but it does.”
industry insiders are just now coming to terms with the likely fallout
of the historic merger, which reduces the number of major studios from
six to five overnight.
“I don’t think the industry has remotely
digested what that’s going to do to the pulse and culture of the
industry,” said one producer, who requested anonymity to allow him to
speak candidly without fear of reprisals.
a greater share of box office receipts, Disney could pressure theatre
owners to fork over a larger portion of the box office for its films.
Disney already receives more than 60 percent of box office receipts for
its biggest movies, including the Avengers and Star Wars pictures.
That’s higher than the typical 50 percent split for movies, and having
more franchises will improve Disney’s already formidable negotiating
Cinema chains depend on movies like the upcoming Star Wars,
Toy Story and Frozen sequels to fill seats, and denying those movies
screens is not an option at a time when attendance is under long-term
pressure from TV, streaming and video games. Admissions rose 5 percent
to 1.3 billion in the US and Canada last year but was still down
slightly from 2016. However, to the surprise of some cinema operators,
the US Department of Justice approved the merger last year with no
mention of how its clout could impact exhibitors.
unquestionably bad for the theatre companies,” said Doug Creutz, a media
and entertainment industry analyst with Cowen & Co. “Disney has
been dominant, and they will dominate more now.”
Disney and the
theatres have come to blows before. With the release of 2015’s Avengers:
Age of Ultron, the company’s demands on exhibitors provoked a rare
response from the National Association of Theatre Owners, which
represents the exhibition industry. In 2013, AMC stopped advance ticket
sales for Iron Man 3 during a dispute over revenue splits.
has been tempered by the belief that Disney will avoid extracting terms
so draconian that they draw the notice of regulators. Some exhibitors
argue that they will benefit from Disney having a greater share of the
box office, because the company has a strong track record of producing
popular entertainment. Theatres should make up ground lost on box office
by generating more revenue from concessions.
“Obviously, it’s an
industry-changing event,” said Adam Aron, CEO of AMC Entertainment. “But
we think it’s an event that will be good for consumers, good for
theatres and good for movie makers.”
Eric Wold, an entertainment
analyst with B. Riley FBR, said he would be “surprised if they push up
rates across the board for everything. If Disney’s going to put its
marketing muscle and theme parks behind new titles, maybe that’s worth
paying for. You’d rather pay 65 percent for a billion-dollar film than
50 percent for a $100-million film.”
But privately, industry
executives caution against wishful thinking. Some theatres worry that
the number of movies released theatrically will shrink dramatically once
the Fox deal closes. Disney focuses almost exclusively on expensive
productions that draw huge global audiences, and Fox’s more midlevel
films may be scrapped.
Then there’s the looming spectre of Disney+,
which will feature original Disney content that bypasses theatres. The
advent of Disney’s streaming offering and the continued rise of Netflix
could accelerate the push by studios to collapse the traditional 90-day
gap between a movie’s theatrical release and its availability for home
viewing. While theatres have long protested any changes to so-called
windowing, fearing damage to their business model, the proliferation of
streaming services makes the decline of theatrical exclusivity all but
A blow for Netflix?
Los Gatos, California-based
Netflix has used its debt-financed war chest to create a jaw-dropping
amount of film and TV content, tightening its grip on the viewing public
by amassing more than 140 million global subscribers. It flexed its
power recently by raising prices by $1 to $2 a month.
But Disney is
about to mount a serious challenge to Netflix’s streaming dominance with
the launch of Disney+, which it is expected to preview for investors at
an April meeting.
Disney hasn’t revealed its pricing plan but has
slowly unveiled details, saying it will include a live-action series
starring Diego Luna that will take place before the events of Rogue One:
A Star Wars Story, along with a Marvel show about Loki, the popular
trickster figure from Thor played by Tom Hiddleston. The service will
include movies and shows from five brands: Disney, Pixar, Marvel, Star
Wars and Fox’s National Geographic.
“These guys are and have been an
IP [intellectual property] juggernaut,” said Rick Kay, head of MUFG’s
Media, Telecom & Sports Finance practice. “Now you’ve got greater
capabilities, greater breadth, wider talent pool and even bigger
libraries in Disney’s hands. This will help feed their offerings and be
attraction points for subscribers.”
Analysts say Disney’s entry into
the streaming wars could slow Netflix’s growth. Disney is also pulling
its movies from Netflix, a blow for the company that has benefited from
being the streaming home of films such as Black Panther. A streaming
service with Disney family content may be a no-brainer investment for
parents of kids who watch Disney and Pixar movies.
Disney has also
said it will boost investment in programming for Hulu, one of Netflix’s
biggest competitors. Disney will own 60 percent of Hulu after it
acquires Fox’s 30 percent stake in the Santa Monica streamer as part of
the deal. Disney is expected to bolster Hulu with edgier Fox programming
from channels such as FX Networks.
“The leg up Disney and 20th
Century Fox have over the newer streamers is they have a historical
knowledge of the television business, and they have been more open to
being creative than ever before,” said Kevin Crotty, head of TV lit for
talent agency ICM Partners.
But Netflix executives insist they’re not
worried. The company recently said it faces more screen-time
competition from online video game Fortnite than other streaming
“We compete so broadly with all of these different
providers that any one provider entering only makes a difference on the
margin,” said Netflix CEO Reed Hastings in a recent video call with
Making agencies sweat
The consolidation of the
studios will also have ramifications for talent agencies. Having five
major film companies instead of six — and fewer theatrical films in the
industry — means Disney will be able to extract better deal terms from
talent agencies trying to get their filmmaker and actor clients jobs in
its shows and movies, industry executives said. Unions such as the
Writers Guild of America, which opposed the deal, could also feel
Agencies are waiting to see how Disney’s purchase of Fox
alters its TV strategy. Famously vertically integrated Disney has
traditionally made shows that air mostly on networks it owns, including
ABC and Freeform. Fox has been more open to producing shows for other
networks, creating competition that boosts revenues for agencies. That’s
less likely to happen under Disney.
“When competition goes down,
you’ve got to think those fees are going to change,” said one producer
who asked to remain anonymous to protect relationships.
are taking solace that overall job opportunities for talent are
increasing because of growing players such as Netflix, Amazon and Apple
looking to buy shows and movies for their platforms. The battle for
talent has led to some blockbuster producer deals, including those for
Shonda Rhimes and Ryan Murphy at Netflix. Agents also are counting on
Disney and other traditional players — such as AT&T-owned
WarnerMedia — to invest heavily in productions to fill their own
streaming services with new content.
“I know there’s been a lot of
concern, with people saying we’re losing a studio, and that’s going to
hurt our business,” said ICM’s Crotty. “I don’t look at it that way.
There’s going to be more distribution platforms at the end of the day.
There are real deals for showrunners. There are many opportunities to
succeed and lots of money to be made.”
How to adapt?
The combination of Disney and Fox will affect other studios on multiple fronts.
studios like Lionsgate, Metro-Goldwyn-Mayer Studios, Sony Pictures and
Paramount Pictures increasingly look like minor-league players, and many
of those companies may eventually sell to a content-hungry tech giant
or mobile phone carrier.
Some distributors have already tried to
downsize, or even rethink their strategies, to adapt to the rapidly
changing industry in which midbudget comedies, adult dramas and
thrillers struggle to compete with franchise films released by Disney.
Lionsgate recently cut jobs, while CBS Corp. is folding its modest
movies unit into its larger entertainment business to focus on making
content for streaming.—Los Angeles Times/TNS