Fox-Disney Deal Scrutiny Could Focus on Streaming

Walt Disney Co.’s planned $52.4 billion purchase of 21st Century Fox’s major content assets could face antitrust analysis of the streaming market that includes Hulu LLC and Netflix Inc., practitioners told Bloomberg Law.

The parties’ leverage over streaming content could hurt rival distributors, advertising buyers, other content providers, and consumers. In sports, efforts by Hulu and Amazon.com to stream events like Thursday Night Football could upend the traditional way that regulators look at TV programming mergers.

Disney and Fox say that they need to consolidate to compete in a market where digital content providers are growing in power.

The future is based on streaming content, and there are well-capitalized players in that market like Netflix and Amazon. In that case, “your best bet is to have as much content as you possibly can,” Paul Verna, principal video analyst at eMarkerter Inc., told Bloomberg Law.

Disney’s current stake in Hulu combined with Fox’s holdings would give Disney a majority stake in Hulu once the deal closes. Disney CEO Robert Iger said Disney plans to stream its adult content, like the shows from the ABC and FX networks, over Hulu. He also touted two additional streaming services Disney intends to launch — one for sports and one for family programming — in an investor Q&A.

Iger announced earlier in 2017 that Disney is pulling its movies from Netflix and will offer them over its own streaming services.

Sports Is Streaming

Sports is “the mainstay of pay-TV programming,” and it has also entered the streaming market, said Verna. Amazon signed a deal with the NFL to stream Thursday night football games, and some aggregators like Hulu are signing up other premium sports.

Now that streaming content providers can compete with cable for some sports viewers, “that has changed the equation for a lot of people” who can now consider cutting the cord, he told Bloomberg Law.

Not Like AT&T-Time Warner

The Disney-Fox transaction is a “horizontal” deal between two direct competitors, unlike AT&T Inc.’s $85.4 billion merger with Time Warner Inc., which the Justice Department challenged in November.

Horizontal deals traditionally draw more antitrust scrutiny because they remove a competitor from any market where the two merging parties overlap. Disney-Fox would reduce the number of major movie studios from six to five and combine premium sports content and other prime properties from each company.

There have been no announcements of a timeline for the review by U.S. regulators or the parties.

The deal also faces scrutiny in overseas markets, particularly in the U.K. Fox’s proposed acquisition of Sky PLC is currently under review by U.K. regulators. The EU would also weigh in if Sky winds up changing hands.

The Mouse That Roared

A combined Fox and Disney would have a formidable portfolio that could raise competition questions. Disney owns ESPN, and Fox has an extensive portfolio of regional sports networks. Each company owns a full-fledged movie studio. Each owns important cable stations.

“The plan is to take the best of both companies and put them together,” Iger told investors on Dec. 14.

Advocates are already worried about Disney-Fox having too much control over content. Even without the Fox assets, “Disney owns the ABC Broadcast Network, and they own ESPN. Those are to must-have parts of the existing cable bundle,” Phillip Berenbroick, senior policy counsel for media watchdog Public Knowledge, told Bloomberg Law.

The combination of two of the most powerful U.S. content creators could “increase the costs that programming distributors have to pay for the must-have Disney content,” he said.

Democrats in Congress are also asking questions. “Disney will gain more than 300 channels, 22 regional sports networks, control over Hulu, and a significant portion of Roku,” said Rep. David Cicilline (D-R.I.), ranking member on the House Judiciary Committee’s antitrust subcommittee, in a December statement.

“Disney’s proposed purchase of 21st Century Fox threatens to put control of TV, movie, and news content into the hands of a single media giant,” Cicilline said.

— With assistance from Alexei Alexis.