How the Fox/Disney deal may play out in Australia

19 December, 2017 by Don Groves

Australian screen industry executives have been pondering the likely repercussions for Disney and 21st Century Fox’s operations down under once the $US52.4 billion deal between the media and entertainment giants is consummated.

It’s all speculation, but the execs canvassed by IF agree generally that the combined entity will wield far more clout in negotiating terms with exhibitors,  Foxtel, streaming services and home entertainment retailers.

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There will be significant cost savings from consolidating operations in Oz and globally as Disney has already flagged at least $US2 billion in synergies.  The savings could be closer to $US2.5 billion according to research firm MoffettNathanson.

BTIG analyst Rich Greenfield predicts Disney alone will shed up to 10,000 jobs worldwide to reduce costs. That may sound a lot, but according to its most recent annual report, Disney’s global workforce is 195,000. Fox employs 22,000.

Some exhibitors fear for the future of Fox Searchlight as the Mouse House has shown no interest in producing and releasing upmarket films since unloading Miramax.

Others expect Fox Searchlight to continue for as long as it makes money, a seemingly safe bet given its track record including 12 Years a Slave, Birdman, The Grand Budapest Hotel, Slumdog Millionaire, and Beasts of the Southern Wild.

The Fox film brand could well continue as the banner responsible for films for grown-ups, as one exhib puts it, producing fare of the ilk of Hidden Figures, plus the four Avatar sequels and Blue Sky Studios’ animated features. Conceivably the X-Men franchise could move to Disney.

In Oz and worldwide the united entity will be able to negotiate better deals with major advertising outlets, giving it bigger bucks for marketing.

Fox Studios Australia is almost certain to benefit as it hosts more films from Disney and Fox, probably at the expense of studios in Melbourne and on the Gold Coast.

As one illustration of the combined market power of the two companies, in Australia last weekend Disney’s Star Wars: The Last Jedi and Fox/Blue Sky Studios’ Ferdinand collectively accounted for 85 per cent of the national BO.

“With Disney eventually overseeing the dating and distribution of Fox output, they will inevitably hold even greater control over the release calendar,” Cinema Nova general manager Kristian Connelly tells IF.

Connelly observes, “The largest question-mark for Cinema Nova will be the future of the output of Fox Searchlight, an annual Oscar contender and bullish acquirer of independently-made productions.

“Post-Miramax, Disney has shown a declining interest in less commercial releases. In the event the Fox acquisition is driven primarily by uniting the Marvel franchise and gaining ownership of Star Wars: A New Hope and other key properties, the greatest long-term impact on the wider filmmaking community may be felt by the downsizing or shuttering of the Searchlight arm. That might allow A24, Annapurna, STX and others to eventually fill any upscale/specialist void, but this remains to be seen.”

However another exhibitor does not expect Disney to be able to extract better terms for its franchise films, which already command premium rentals, while any increase in film hire for other titles which run for five or six weeks or longer would be marginal.

Some home entertainment executives believe that while Disney/Fox would be an even more formidable competitor to Universal Sony Pictures Home Entertainment and Roadshow Entertainment. However there is a finite amount of shelf space for the category as physical sales continue to shrink at JB Hi-Fi and mass market retailers, which would continue to buy titles selectively.

Foxtel may be disadvantaged from the deal, in part because it will lose its sister company relationship with Sky’s channels in Europe which will move to Disney.

Also as Disney would add National Geographic Channels and FX to its roster of pay channels including Disney and ESPN, Disney would have more clout in renewing carriage deals with Foxtel.

Foxtel has a non-exclusive movie arrangement with Disney and a long-term deal with Fox.  Disney has signaled it will withdraw its film content from Netflix in 2019 as it prepares to launch a streaming service direct to consumers. So might the enlarged studio decide to pull its films from Foxtel too?

Essence Media MD Steve Allen thinks Network Ten may regain Fox content which it lost amid the acrimony over the CBS takeover. “The rift between Ten and Fox will disappear,” he says.

Allen expects Hulu to launch in Australia next year, before the merger is completed, as Disney would control 60 per cent of the streaming service including Fox’s 30 per cent stake.

Some observers expect Murdoch may decide to fold the assets of the so-called NewFox with News Corp at some point.

Allen disagrees, saying: “Murdoch got significant benefits from separating Fox and News Corp. Why would he reverse that?”

Veteran analyst Peter Cox debunks the idea that Murdoch is taking the cash as he sells the majority of Fox’s assets. “This is a total scrip deal for Fox shareholders,” he says. “Murdoch will own about 4.4 per cent of Disney, which has huge debt levels and will take on Fox’s debt.

“Fox shareholders won’t be able to cash in their Disney shares early because the market would just crash. So it will be a long, slow process getting out of what I call a legacy business in Disney. Murdoch is locked in and he does not have control, which is a weakness in the deal for the Murdoch family.”

Disney chief financial officer Christine McCarthy has said that the firm expects the acquisition to close within 12 to 18 months. The deal will have to cross significant regulatory hurdles and it requires shareholders’ approvals.

 

 

 

 

 

 

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