It was reported today that 21st Century Fox and the Walt Disney Company have seriously discussed Disney’s acquisition of Fox’s film and television production and distribution business as well as its international business. The acquisition of one entertainment conglomerate by another likely would draw significant scrutiny from government regulators, including the Federal Communications Commission, Justice Department, and Capitol Hill as well as consumer groups already concerned about the consolidation of media in the hands of a few.
Antitrust Laws in the United States are a collection of federal and state government laws that regulate the conduct and organization of businesses to promote fair competition for the benefit of consumers. The main Federal statutes are the Sherman Act of 1890, the Clayton Act of 1914 and the Federal Trade Commission Act of 1914 and many states have their own antitrust laws such as California’s Cartwright Act and New York’s Donnelly Act. In regard to mergers and acquisitions, the goal of antitrust laws is to prevent acquisitions and mergers that would limit the general public’s ability to make choices and receive products and services at a fair price
In regards to Disney’s acquisitions of Fox, a major issue of concern would be Disney’s power in the creative community in regard to production companies, producers, directors, and writers looking to make television shows and movies. The majority of TV shows and movies are produced by just a handful of companies--Time Warner, 21st Century Fox, Walt Disney Co., Comcast's NBCUniversal and Sony Corp. A merger of two of the biggest producers would eliminate a buyer and give the acquiring entity far more leverage in determining what is produced as well as the deals given to production companies, producers, directors, and writers. Disney is already extremely powerful in the entertainment industry and this deal would only make it more powerful and give it the ability to have a tremendous effect on competition in the entertainment industry and the content consumers will consume in the future.
Based on what has been reported about the proposed deal, it appears that Disney is concerned about government regulators. After all, it has been reported that Disney would purposefully not acquire Fox’s sports entities since Disney already owns ESPN and the combination would certainly limit the number of companies that are producing sports-related content. It has also been reported that Disney would not acquire the Fox broadcast network because once company cannot own two broadcast networks. Similarly, the deal reportedly does not involve Fox News or Fox Business Channel or Fox's local broadcasting affiliates. So, antitrust issues are already being considered by the companies and efforts are being made to structure the deal at an early stage to avoid such regulatory hurdles. Given the current Administration’s anti-regulatory positions, it is likely that such an acquisition would be allowed.
If it does come to fruition, this would be a great deal for Disney, who would add 21st Century Fox’s huge library of movies and whatever else is currently in production to Disney’s vast library, which contains extremely popular movies of its own. Further, acquisition of Fox’s movie studio assets would give Disney control of the intellectual property of some of the top performing animated films outside of Disney including: Ice Age, Rio, Robots, The Simpsons, and Anastasia. This content expansion is significant given that Disney is expected to roll out its yet unnamed digital streaming platform for movies and TV in 2019. Moreover, this deal could also bring back home the Marvel properties that Fox secured prior to Disney’s acquisition of the super hero comic book company (mainly the X-men and the Fantastic Four). Added to all of this is Fox’s other assets include movie studios like 20th Century Fox, Fox Searchlight Pictures, Blue Sky Studios, and 20th Century Fox Animation, plus entertainment networks like FX, FXM, and National Geographic and international assets such as Star and Sky, which would make Disney even more of a worldwide force.
This move, combined with the roll out of its digital streaming platform, places Disney on the forefront of the entertainment industry and in the best position of any of the other studios to capitalize on the changing face of the entertainment landscape. As Millennials and Generation Z continue to change the way entertainment content is consumed, traditional studios have found themselves facing greater competition from the likes of Netflix, Amazon and YouTube.
Negotiations like this are not uncommon and often amount to nothing when the two (or more) sides can’t come to an agreement. But, given Disney’s CEO Robert Iger’s fearless acquisition strategy over the past several years (Marvel, LucasFilm), don’t declare this deal dead at any point.
Bryan M. Sullivan, Partner at Early Sullivan Wright Gizer & McRae, advises and represents his clients as a legal strategist in all their business affairs. He has significant experience on the litigation and appeals side of the practice, as well as with entertainment and intellectual property contracts, investment and financing agreements, and corporate structure documents on the dealmaking side.