“The Mouse gets the Fox”, ironically titled The Economist after the announcement of the acquisition of 21st Century Fox’s asset in a $54.2bn deal. This “deal of the decade” is supposed to change the dynamics of Hollywood. It demonstrates how quickly the industry is shifting and highlights the new challenge it faces: streaming media. Thus, the merger of these two juggernauts calls into question the future of the media industry.
The aim of this paper is to investigate whether the incoming media giant will face the streaming industry threat or not. We will first specify the characteristics of this merger, then we will raise the question of the awakening streaming industry, and finally consider the hypothesis of a trust implied by this merger.
A New Hope – The grounds of the merger
Hollywood is facing a watershed in its core activity model: the district in which the first permanent motion picture studio was established– Nestor Studios, built in 1911 – is transforming from a film capital to streaming-video town. In this context, Disney’s Chief Executive Officer Bob Iger has to counter-attack Netflix, the technology giant which is currently challenging Hollywood’s historical studios. But how do we challenge a giant? The answer seems obvious: by becoming a giant bigger than the one in front of us.
On one hand, we have a giant trying to become more influential and on the other hand, another giant who cannot make the same leap. Rupert Murdoch concluded that Fox was not big enough to compete with the new technology giant(s) and that the best option would be to sell to Disney at a good price. However, apart from putting Mickey Mouse and Homer Simpson under the same roof, this deal points out two things. First, Fox’s core business model is not as efficient as it used to be. Secondly, in a country where the number of movie tickets sold dropped by 5.75 percentage points, Disney still manages to attract people to cinemas – Star Wars: The Force Awakens is the most successful movie of all time. There’s still hope for Murdoch’s family business; “Under the aegis of Disney, thrive Fox can” Yoda would say.
The Streaming Awakens
Fox is selling its cable channels that are losing subscribers, such as National Geographic, to Disney. But it is important to understand why these channels are losing viewers. Instead of paying for one channel that focuses on documentaries about the planet – in the case of National Geographic –, consumers prefer a service such as Netflix, where they can tailor their choices of movies, TV-shows and documentaries. This new made-to-order service offers a winning return for the client. On Murdoch’s side, they decided to keep networks like Fox News and Fox Sports 1, which rely on programming that is much less in competition with streaming platforms.
The result? Online is the new black: Disney aims to become closer to its customers by selling them video- entertainment online.
With its acquisition of Fox, Disney will possess 60% of Hulu, a streaming service, which is expected to race against Netflix as fast as Lightening McQueen in the circuit of the Piston Cup. Indeed, even though Disney will start with zero subscribers while Netflix already has 109m, both Fox’s capacity to create TV shows like Modern Family, The Simpsons, and the acquisition of all distribution rights to the original Star Wars movie – which were not owned by Disney’s Lucasfilm – would enable Hulu to be a hit.
The Trust Menace
This vertical merger could be likely to be blocked by US Justice Department, as both Disney and Fox produce superhero films – Marvel for Disney, X-Men for Fox – and both have television channels. Thus, combining all those channels and franchises could lead to Disney dominating the market and forcing cable companies and other distributors to pay higher rates to have access to Disney and Fox content.
However, the acquisition of Fox’s stakes in Hulu could be seen as pro-competitive in the eyes of the Justice Department for two reasons. The first is that it would lead Netflix and Amazon to lower their prices. The second, which is more interesting, is that Hulu would become the exclusive place to watch Star Wars, The Simpsons and the many Disney princesses. As a result, Hulu could force its customers to pay several streaming services, each having exclusive content.
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