Disney’s Fox acquisition extends the “arms race” for premium content: Canaccord Genuity

This morning, The Walt Disney Company announced it had reached a deal to buy Rupert Murdoch’s 21st Century Fox in an all-stock transaction worth approximately $52.4-billion.

“Disney now has enough muscle to become a true competitor to Netflix, Apple, Amazon, Google and Facebook in the fast-growing realm of online video,” New York Times writer Brook Barnes commented.

“The acquisition of this stellar collection of businesses from 21st Century Fox reflects the increasing consumer demand for a rich diversity of entertainment experiences that are more compelling, accessible and convenient than ever before,” Disney CEO Robert Iger said. “We’re honored and grateful that Rupert Murdoch has entrusted us with the future of businesses he spent a lifetime building, and we’re excited about this extraordinary opportunity to significantly increase our portfolio of well-loved franchises and branded content to greatly enhance our growing direct-to-consumer offerings. The deal will also substantially expand our international reach, allowing us to offer world-class storytelling and innovative distribution platforms to more consumers in key markets around the world.”

Galappatthige, noting that Disney already has plans to launch direct-to-consumer platforms for ESPN and it owns family content, suspects that the company is eyeing the successes of Netflix and Amazon “with a degree of frustration”. In a research update to clients today, the analyst said this development escalates the content “arms race”

“In our view, all of this further promotes and extends the ongoing arms race for premium content,” he says. “On one hand, SVOD platforms are accelerating programming budgets to compete and we are seeing an array of new entrants to OTT Video (e.g. FB, Apple, TMUS). On the other hand, the major media conglomerates are beefing up their content to set themselves up for successful DTC offerings. We believe these trends continue to support premium content providers like Entertainment One and Lions Gate. Not only do these trends boost demand for their key brands and productions, they potentially make them acquisition targets.”

Galappatthige said the move by Disney could have ripple effects in Canada.

“While this does not directly impact the Canadian BDUs (broadcast distribution undertakings) we believe that content costs for Canadian broadcasters could experience some inflation as a result of ongoing consolidation in the space, which can find its way to higher programming costs for Canadian distributors as well,” the analyst says.