Friday, 15 December 2017

Disney announced its $52.4 million plan to buy many of 21st Century Fox’s entertainment assets on Thursday, in a move that many are calling the precursor to a coming war with Netflix.


Netflix investors seemed to shrug off the implications of the Disney-Fox deal, with shares of the company trading up 2.37% at $192.38 after it was announced.


As various interested buyers circled 21st Century Fox, Disney stood out because of its video streaming service, which is set to launch in 2019. Disney previously said it would pull its content from Netflix to start its own streaming service. Adding 21st Century Fox’s assets to its content lineup could make it a real competitor to Netflix.


Disney is buying many of Fox’s entertainment assets, including its movie studio, which brings in a lot of new intellectual property to the company. The rest of the industry is like to follow suit, through mergers and acquisitions, in order to offer their widest range of content possible.


With its acquisition of 21st Century Fox, Disney will bump its ownership stake in Hulu to 60%. And while Disney certainly wins if it collects revenues from both companies, it’s much more cost effective to have a single one. The real trick, though, will be convincing Comcast, which owns a 30% stake in Hulu, analysts said.


Using Hulu as the home for all things Disney would give the company a huge head start, rather than building an audience from scratch. The service stopped giving subscriber numbers last year, but is estimated to have between 12 million and 16 million paid users.


The draw of a service with Disney movies and original programming is strong—and could draw people away from established services, includingNetflix, Amazon, and even Hulu. And that could be enough to convince Comcast to go along.


“We believe this is simply not possible without Comcast’s consent and we see no reason why Comcast would want to enable Disney to have a more successful streaming service that hampers the legacy bundle that is vital to Comcast,” said BTIG Analyst Richard Greenfield..


Disney could also attempt to buy out the Hulu shares owned by Comcast and Time Warner  to gain full control of the service (perhaps striking licensing deals with either or both to ensure the current programming slate remains the same). Hulu, after all, has been a money loser for years, with nine month losses in 2017 totaling $560 million—69% worse than the same period in 2016. And Comcast investors would welcome the extra income.


It is, of course, possible also that Disney could offer a bundle of Hulu with its own service. Or regulators could force the company to divest itself of Hulu as part of the Fox  merger.


Whatever the case, it’s certainly unlikely that the streaming service will look the same in the next 12-24 months.


Netflix shares are up 50.88% this year.

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