A bidding war has emerged as Comcast, owner of NBC Universal, has openly said that it is considering, and is in advanced stages of preparing, an offer for the businesses that FOX has agreed to sell to Disney at US$52.4 billion stock deal.
The offer would be in all cash but does not include the Fox News Channel, Fox Business Network, Fox Broadcasting Company and certain other assets. This comes even after Comcast lost out on the deal last year.
According to USA today, while Comcast has not confirmed a number for the bid, earlier reports estimated that it to be about US$60 billion for Fox's studios, its one-third stake in Hulu, Fox's 22 regional sports networks and its stake in UK-based satellite TV and Internet provider Sky.
The burning question on everyone’s minds right now is why would a stable company with strong financials, be so eager to dish out top dollar to add on FOX to its portfolio?
Jeffrey Seah, partner at Mettle & Salt, and venture partner at INCUVEST and Quest Ventures said "Every player in the content creation and distribution business is searching for a global platform with the advent of OTT players of all forms, and the new mega and irregular players like Netflix, Amazon, Apple and Tencent. Fox presents an immediate upgrade in capability and market knowledge for both Disney and Comcast to that global reach. "
Sandeep Joseph, CEO of Ampersand Advisory said Fox offers a global presence, especially in fast growing markets such as India through Sky. Today, Comcast gets only 9% of its revenues from the US, and with Fox that could become 25%. As US market growth slows, growth has to come from abroad and Hollywood is seeing the same trend.
“For Disney, Fox represents an opportunity to deepen its sports offering and strengthen ESPN with Fox sports. It also opens up doors to own an even richer content library to counter heavyweights such as Netflix,” he said. Moreover, as cord cutting grows in the US, and consumer media consumption habits change, the market will continue to see more big deals that strive to insulate players from industry disruption.
Joseph added that Comcast’s offer is expected to be at a financial premium to Disney’s, and as such “Fox is in a good position either ways”.
The Comcast deal would be vertical integration while the Disney deal is horizontal.
"A content company such as Disney is probably better at understanding the content Fox has, but Comcast is keen to expand globally and wants Fox’s assets for that,” he said. Fox would hence be looking for the offer’s value, whether it is cash or stock (with cash having more immediate value) and whether the suitor will understand Fox and be able to manage the mega deal’s inevitable people and structure issues.
Nonetheless, the challenge for Fox is that while either suitor, Disney or Comcast, is offering a premium price, the risk is of the regulator not approving the deal. The AT&T and Time Warner deal too has been challenged by the Department of Justice on anti- trust monopoly grounds, and the verdict in June will be an indicator of whether the Comcast Fox deal will pass regulatory muster too.
Audrey Chong, chief investment officer, Magna Malaysia said in the race for content acquisition, Fox will be a strong add-on to the breadth of content offered by both parties.
Essentially, Fox should look at the strategic values that both parties can bring to the table and how these fit into Fox’s own ambitions and plans.While Disney is more established in the content space, commanding a wide genre of content that appeals to different segments universally, Comcast is the challenger brand between the bidders, being more US-centric with its strength built on data and technology.
“It remains to be seen where the shareholders’ direction lies once the formal bid is revealed. Aside from the capital injection, there is the US anti-trust regulations to be mindful of. Disney has included a breakup penalty worked into the offer, should this bid not pass the regulators, and Comcast has allegedly worked this into their terms as well. Which means that shareholders should see parity in compensation should the deal be broken up because of government regulation,” Chong added.
Adding on to the matter, Prashant Kumar, senior partner at Entropia explained that the "spectacular success of Netflix" coupled with Google and Amazon’s foray into entertainment industry has changed the fundamental rules of the game. These platforms are direct to consumers and direct to producers thus allowing minimum margin leakage.
“They are truly global platforms with no intermediaries allowing tremendous agility. Informed by their customer data based recommendation capabilities, they have totally reset customer expectations. And to top it all, now they are making massive investments into original IP taking the battle to the home turf of the traditional players,” he said.
As such, consolidation is one way to ramp up their IP assets, monetise them better via more diversification, get better margin leverage as well as streamline their cost structures. Kumar added that Fox should ideally look out “primarily for maximum price” and “which of the suitors has a better war plan against the barbarians at the gates to be able to deploy its assets with max synergy and leverage”.
Kumar thinks that the ultimate intent both Disney and probably Comcast have is to move aggressively into Netflix model.
“I do not see more than two global majors remaining from among the traditional giants. Chances are that ultimately it’s going to be a five cornered fight - Netflix, Amazon, Google, Disney and Comcast,” he added.