Disney-Fox Deal Marks Seismic Shift for Hollywood's Studio System
The $52.4 billion deal would be the first time in modern history that a major Hollywood studio has gobbled up another major, throwing the fate of Fox's film and television operations into question.
On Nov. 6, hours after word broke that Disney was in talks to buy most of 21st Century Fox, actor Ryan Reynolds tweeted, "If this is true, I wonder how the fudge it would affect Deadpool?"
It's a question that applies to the entire Fox film studio pipeline, and one that will become even more pointed now that Disney has officially unveiled its $52.4 billion deal to acquire big parts of the Fox empire, including the 20th Century Fox film and television studios, Fox's stake in Hulu and other assets.
The transaction, if cleared by regulators in Washington, could prove to be a seismic shift for Hollywood as it tries to compete with the likes of Netflix and is the first time in modern history that one of the six major studios has gobbled up another major.
Insiders say the mood on the Fox lot is apprehensive and morose. The state of limbo will only intensify during the deal's integration process, which could take 12-18 months. Per rules laid out by the Securities and Exchange Commission, there can't be any structural or organizational changes until the union is blessed. Thursday's official deal announcement left many other questions unanswered, especially as to how the studio combination will play out.
Disney chairman-CEO Bob Iger said during a media call Thursday that the company demonstrated in its past acquisitions that it has respected the culture and talent acquired, and that executive talent always ended up getting "more opportunities."
While he didn't discuss the future of specific Fox executives, Iger said: "I've always been impressed with them as competitors."
Disney is eager to take over Fox's TV production and distribution business, but how it plans to integrate Fox's film business is considered much more tenuous. There's widespread speculation that the film operation, headed by Stacey Snider, will be folded into Disney and become a label alongside Lucasfilm, Marvel Studios and Pixar, reducing the overall number of films that the six major studios feed theaters each year. Overseeing it all will be Disney Studios chairman Alan Horn, who runs the most successful film studio in Hollywood, including Disney's own live-action studio and Disney Animation Studios, in addition to Hollywood's most impressive stable of production silos.
To be sure, the TV side can expect to see some dramatic changes — particularly at the now-split Fox Broadcasting Company and 20th Century Fox TV Studios. The wall between the two has crumbled over the years, all but disappearing completely in 2014 when then-studio chiefs Dana Walden and Gary Newman also assumed control of the broadcast network with the formation of the Fox Television Group. That group is dismantled by the merger, with the network staying in the Murdoch fold and the studio going off to Disney.
Network staffers below the more nebulous CEO suite seemingly have more immediate security than those at the acquired properties, so the days leading up to the merger announcement are said to have been less stressful — albeit no less confusing — at Building 100 on the Fox lot. The recent appointment of Brian Sullivan as FNG president and COO, who is favored by 21st Century Fox executive co-chairman Rupert Murdoch and president Peter Rice, was greeted by many as a sign that he would be a player in the transition for the network. Still, it's hard for many to imagine Fox would keep functioning in any way similar to the way it does today, with no sister studio supplying programming or profitability.
Potential industry winners from the deal unveiled Thursday are the independent production houses (Sony Pictures Television, Warner Bros, etc.). Fox will now exist as the only major broadcast network not affiliated with a sister studio, after years of doing the bulk of its buying from 20th TV. What original programming Fox will buy moving forward can come from anywhere, though its actual scripted offerings are expected to dwindle.
As for 20th TV, sources say there's been more fear in recent weeks as the reality of the merger became clear, but its potential effects — not to mention the extent of its inevitable reductions — remain a mystery. Much of its future is seen to depend on where Newman and, particularly, Walden wind up in all of this.
Among the affected cable properties, FX is arguably been the biggest driver of prestige content outside of HBO and Netflix. And while linear ratings have declined, the suite's hefty catalog of programming (much of it owned) has become a source of profit. The merger marks an unusual position for FX Network and FX Productions CEO John Landgraf. He has charted his own course in a manner distinct among his contemporaries up until now, and is often regarded as one of the smarter programmers working today. National Geographic Channels, majority-owned by 21st Century Fox since 2015, has suffered a deeper ratings decline, but its rebrand and own prestige push had been a passion project for Rice.
On the film side, Snider's fate also is unclear, as well as the fate of Fox film vice chairman and president of production Emma Watts. What is certain is that Fox will no longer be a full-fledged movie studio, since Disney wouldn't need two separate marketing and distribution divisions. That means major layoffs. And while the 2018 release calendar is set, what will happen to the 2019 slate is unknown.
Snider and her top lieutenants, including Watts, were in one of their regular Monday staff meetings when the news blast came through on Nov. 6. Snider, who hadn't been told of any sale talks by her bosses, 21st Century Fox CEO James Murdoch and co-executive chairman Lachlan Murdoch, was soon pulled out of the meeting to take a phone call, according to a source. "Everyone," says the insider, "turned white."
In acquiring Fox, Iger would get his hands on two key film franchises — James Cameron's Avatar franchise (there's already an Avatar theme attraction at Walt Disney World) and the X-Men series of Marvel characters, expected to be bequeathed to Marvel Studios president Kevin Feige.
The long-gestating Avatar 2 is set for release Dec. 17, 2021, the same corridor that Disney uses for its Star Wars movies. So far, the studio hasn't dated a Star Wars movie for that year.
Reynolds' R-rated X-Men spinoff Deadpool made history in February 2016 when it became the top-grossing R-rated film of all time with $783 million in global ticket sales (Deadpool 2 is slated for release on June 1, 2018). Disney as a rule doesn't make R-rated films. Feige also would get his hands on the Fantastic Four franchise, another Marvel property that it had licensed to Fox before Marvel was acquired by Disney in 2009.
One reason for the acquisition is to make sure Disney has enough content for a new streaming service it is planning to roll out over the next two years in a move to rival Netflix, in addition to becoming the majority owner of Hulu. That could mean making original movies directly for streaming. Industry observers say customers have a voracious appetite for a diverse menu of offerings — far broader than just the all-audience tentpoles and family-friendly fare Disney has come to be known for. "It's like a jukebox. If it's just the top 10 films, people will get bored pretty quickly. They want the B sides, too," says one veteran Hollywood executive.
Fox 2000 and acclaimed specialty label Fox Searchlight, for example, are both are bastions for adult-skewing specialty fare. Fox Searchlight is at the top of its game at the moment, earning multiple Golden Globe and SAG Award nominations for The Shape of Water, Three Billboards Outside Ebbing, Missouri and Battle of the Sexes.
Between its various divisions, including Fox proper, the film studio nabbed 27 Golden Globe noms earlier this week, more than any other studio. One Fox insider immediately questioned whether such a feat would be possible once Fox merged with Disney, which collected just two Golden Globe mentions. (Disney did own Miramax at one point.)
Iger said during the call that Disney is expected to keep Fox Searchlight and Fox 2000 in the studio fold on the movie side. Iger also said the Fox assets would allow Disney to expand its tentpole business. "But we also like being in the business of making quality movies. We're very impressed with what Fox Searchlight has accomplished from a quality perspective, and with Fox 2000, we fully intend to stay in those businesses," the exec told reporters. Iger also added there is a place for an R-rated Deadpool.
Currently, Disney releases the fewest movies per year of any major studio, but it still rules in global market share. This year, it will release eight movies, including Star Wars: The Last Jedi, which rolls out this weekend.
Fox released 16 movies last year, and will release 13 in 2017, including year-end offerings The Post, directed by Steven Spielberg; The Greatest Showman, starring Hugh Jackman; and animated pic Ferdinand, from Fox Animation and Blue Sky Studios. (Add Blue Sky's future to the list of unknowns.) Separately, Searchlight released another 11 films.
"Disney will keep the Fox [film] franchises, such as Avatar and X-Men. Now they'll be able to integrate X-Men into the overall Marvel universe. There's also Kingsman, but I don't know what they do with Alien," says Eric Handler, analyst at MKM Partners. "Otherwise, I would presume production will get cut."
Handler says that could be a good thing for other studios, since it means more room on the release calendar for Disney's competitors: "We will see a return to equilibrium over time as other studios look to fill the gap, but it might not be instantaneous."
After the deal closes, Disney would wield unprecedented market share upon adding Fox films, further strengthening its bargaining position with theater owners. Last year, Disney and Fox films accounted for 40 percent of all tickets sold at the global box office.
Some on Wall Street expect regulators could take a close look at the deal, given the increased box-office share of a combined studio operation, even if Fox reduces its output.
"There may be some degree of anti-trust problem on the theatrical side," Sanford C. Bernstein analyst Todd Juenger wrote in a research report. "Just running a simple HHI [Herfindahl-Hirschman Index, a commonly accepted measure of market concentration] calculation, using domestic box office, a combination of Fox and Disney theatrical output (two of the six majors) scores a potentially troubling HHI."
But others suggest regulators would come to the conclusion that enough competition would remain. "The proposed transaction will undoubtedly feature heightened levels of concentration in some parts of the industry, especially the theatrical market, but generally leaves a significant number of big players beyond the enlarged Disney," argues Pivotal Research Group analyst Brian Wieser.
Adds Wieser: "While last year's box-office data indicated the two companies' theatrical releases accounted for around 40 percent of U.S. box office (and around 28 percent of the international market outside of the U.S.), U.S. theatrical revenues accounted for only $11 billion of consumer spending out of a market for premium video (including pay TV, streaming services, DVD/Blu-Ray purchases and rentals) of around $140 billion of consumer spending in the United States alone."
Dec. 14, 11 a.m. Updated with comments by Iger made during a media call.