Tremors shook the entertainment world Monday when CNBC first reported that 21st Century Fox had held talks with Disney over a potential sale of assets, including the Fox film and television studios and a host of global satellite channels.
The talks — which would put properties from "X-Men" to FX, "This Is Us" to STAR India, under an already enormous Disney roof — were quickly pronounced dead by several outlets. A Fox spokesman declined to comment and a Disney spokeswoman could not be reached for comment.
But even if no deal materializes, the very fact of talks is notable for what it says about the two companies’ ambitions and the larger world of entertainment content circa 2017.
In one word: scale.
In another two words: digital competition.
First, Disney. The company is already robust, with Pixar, Lucasfilm and Marvel Studios all part of its empire on the film side, and ESPN, ABC and a host of other networks under its television umbrella. In a number of key entertainment-oriented metrics, the Robert Iger-led conglomerate is outpacing some of its biggest competitors, such as Comcast or Time Warner.
So what does it gain by adding to the lead? For starters, big can always get bigger. Negotiating deals with content distributors requires leverage, and scale helps. It’s much easier to set fees with cable operators if you have a broader suite of channels to offer, and you can push theater owners to take and hold your product much longer if you control the keys to many more movies.
Scale — and, more specifically, diversification — also helps when you're a company of Disney's size. Look at how ESPN has been rocked by cord-cutting and the high costs of live programming in the past few years, which has led to layoffs. FX and National Geographic aren't going to single-handedly offset that. But they'll help, because historically some cable networks are up when others are down, and vice versa. And others — National Geographic among them — have simply figured out how to use social-media platforms to great effect.
Throw in the more than 250 global channels in markets of various levels of upside, and Fox's assets start to look really attractive.
Scale also allows for stronger in-house creative partnerships. Already fans have been focusing on one possibility that is surely also appealing to Disney executives: the chance to bring Marvel superheroes controlled by Fox together with Marvel superheroes controlled by Disney/Marvel.
"This deal could lay the groundwork for something like an Avengers vs. The X-Men film down the line," wrote the technology website Gizmodo, under a headline that read "If Disney Buys Fox, It Could Change Everything About the Marvel Cinematic Universe."
Indeed, one of Marvel Studios' biggest remaining hurdles to dominance (even after one more hit this past weekend with the newest Thor movie)is that it doesn't control all of its characters. That's a function of lending out existing licenses to other studios before the comic book giant launched its own studio. And the biggest of those licensees is — you guessed it — Fox, which counts "X-Men," "Fantastic Four" and "Deadpool" in its stable.
All that scale would seem like a problem for an industry wary of too much power in one place, because it produces what appears to be a content oligopoly and all the disadvantages that brings to a creative marketplace. "OmniGloboMegaCorp is go," wrote the television writer and journalist Marc Bernardin on Twitter shortly after the news broke.
But that’s only when viewed through the lens of other legacy companies. As executives in New York and Los Angeles parsed the news Monday, what became clear is that Disney beefing up isn’t necessarily all about keeping a lead over its rivals — it’s about keeping up with Netflix, Amazon, Facebook, Google and Apple. Those Silicon Valley firms are well-capitalized in their own right; they control key distribution pipelines and have signaled, with varying degrees of eagerness, that they want to be in the content business.
And compared with them, Disney is actually not an elephant but an underdog. This point is driven home by the company's decision to launch a streaming service of its own that will compete with Netflix — another reason it would want to stockpile and control its own content. What looks from Monday's news like a potentially war-ending takeover of one legacy company by another may simply be prelude to a larger battle: between a consolidated group of legacy entertainment companies as a whole and the Silicon Valley juggernauts that are its new competitors.
Then there’s 21st Century Fox. The news was striking to many observers because Rupert Murdoch and the family that controls so much of the company’s stock have almost always been buyers, expanding their empire in both print and screen media. So why, in this world of scale, would Fox want to get smaller?
After all, it’s not as though the studios are faltering — it had some of the biggest hits in recent years with “Deadpool” and “Hidden Figures” on the film side and “Modern Family” and “This Is Us” on the TV side.
But Fox’s stock price has been down — more than 20 percent since the spring. And maybe just as important is its ability to compete with Disney. So rather than try, it can double down on certain areas — the broadcast network, the cable-news network and the sports operation — and divest the rest. (Wall Street certainly liked that idea — it sent the Fox stock price up nearly 10 percent following the CNBC report.)
The cash Fox generates from a potential deal could even be used by the Murdochs to buy more entities in the sports and news space and create its own scale, albeit in narrower niches.
On the other hand, it could also try to sell its other assets. (A sale to Disney wouldn't be possible for a mix of regulatory and other reasons.)
There's an ironic tinge to all this news. For many years, entertainment stocks were seen as fast-growing and media as the drag.— it's in fact why Murdoch split News Corp. and Fox to begin with Now entertainment is generally seen as a riskier bet, thanks to all the Netflix- and Amazon-led competition.
This particular deal may not pan out now, or ever. But the talks themselves tell of how Hollywood is changing. Mindful of the digital war to come, some legacy entertainment companies really want out.
And others really want to get big.