Giant juggernaut

The long-anticipated $71-billion acquisition will put the X-Men, Homer Simpson, the Avengers, Buzz Lightyear, Kylo Ren and the gang from Avatar under the same roof, giving the Burbank company an unprecedented share of film and television franchises.
The deal, expected to close in the coming days, would boost Disney’s share of the domestic box office to at least 40 percent and reinforce its stronghold in toys, theme parks and cruise lines. The Mouse House will have an unrivalled say over when and how movies are released.
“Basically, they become the 800-pound gorilla in the media landscape,” said Lloyd Greif, chief executive of LA investment bank Greif & Co. “It gives Disney even greater clout from a streaming standpoint and even greater clout from an exhibitor standpoint.”
Disney’s ambitions have taken on a new urgency with the development of its upcoming streaming service, Disney+, set to launch late this year, and its increased ownership of Hulu, both of which will pose a challenge to Netflix. All these moves have wide-ranging implications for the various stakeholders in entertainment, including movie theatres, streaming video companies, talent agencies and pay-TV operators.
“What you have here is the makings of a behemoth in every sense of that word,” said Tuna Amobi, a media industry analyst with CFRA. “It’s hard to think that this deal gives them more leverage than they already have, but it does.”
Some industry insiders are just now coming to terms with the likely fallout of the historic merger, which reduces the number of major studios from six to five overnight.
“I don’t think the industry has remotely digested what that’s going to do to the pulse and culture of the industry,” said one producer, who requested anonymity to allow him to speak candidly without fear of reprisals.

Theatre anxiety
With a greater share of box office receipts, Disney could pressure theatre owners to fork over a larger portion of the box office for its films. Disney already receives more than 60 percent of box office receipts for its biggest movies, including the Avengers and Star Wars pictures. That’s higher than the typical 50 percent split for movies, and having more franchises will improve Disney’s already formidable negotiating position.
Cinema chains depend on movies like the upcoming Star Wars, Toy Story and Frozen sequels to fill seats, and denying those movies screens is not an option at a time when attendance is under long-term pressure from TV, streaming and video games. Admissions rose 5 percent to 1.3 billion in the US and Canada last year but was still down slightly from 2016. However, to the surprise of some cinema operators, the US Department of Justice approved the merger last year with no mention of how its clout could impact exhibitors.
“This is unquestionably bad for the theatre companies,” said Doug Creutz, a media and entertainment industry analyst with Cowen & Co. “Disney has been dominant, and they will dominate more now.”
Disney and the theatres have come to blows before. With the release of 2015’s Avengers: Age of Ultron, the company’s demands on exhibitors provoked a rare response from the National Association of Theatre Owners, which represents the exhibition industry. In 2013, AMC stopped advance ticket sales for Iron Man 3 during a dispute over revenue splits.
Anxiety has been tempered by the belief that Disney will avoid extracting terms so draconian that they draw the notice of regulators. Some exhibitors argue that they will benefit from Disney having a greater share of the box office, because the company has a strong track record of producing popular entertainment. Theatres should make up ground lost on box office by generating more revenue from concessions.
“Obviously, it’s an industry-changing event,” said Adam Aron, CEO of AMC Entertainment. “But we think it’s an event that will be good for consumers, good for theatres and good for movie makers.”
Eric Wold, an entertainment analyst with B. Riley FBR, said he would be “surprised if they push up rates across the board for everything. If Disney’s going to put its marketing muscle and theme parks behind new titles, maybe that’s worth paying for. You’d rather pay 65 percent for a billion-dollar film than 50 percent for a $100-million film.”
But privately, industry executives caution against wishful thinking. Some theatres worry that the number of movies released theatrically will shrink dramatically once the Fox deal closes. Disney focuses almost exclusively on expensive productions that draw huge global audiences, and Fox’s more midlevel films may be scrapped.
Then there’s the looming spectre of Disney+, which will feature original Disney content that bypasses theatres. The advent of Disney’s streaming offering and the continued rise of Netflix could accelerate the push by studios to collapse the traditional 90-day gap between a movie’s theatrical release and its availability for home viewing. While theatres have long protested any changes to so-called windowing, fearing damage to their business model, the proliferation of streaming services makes the decline of theatrical exclusivity all but inevitable.

A blow for Netflix?
Los Gatos, California-based Netflix has used its debt-financed war chest to create a jaw-dropping amount of film and TV content, tightening its grip on the viewing public by amassing more than 140 million global subscribers. It flexed its power recently by raising prices by $1 to $2 a month.
But Disney is about to mount a serious challenge to Netflix’s streaming dominance with the launch of Disney+, which it is expected to preview for investors at an April meeting.
Disney hasn’t revealed its pricing plan but has slowly unveiled details, saying it will include a live-action series starring Diego Luna that will take place before the events of Rogue One: A Star Wars Story, along with a Marvel show about Loki, the popular trickster figure from Thor played by Tom Hiddleston. The service will include movies and shows from five brands: Disney, Pixar, Marvel, Star Wars and Fox’s National Geographic.
“These guys are and have been an IP [intellectual property] juggernaut,” said Rick Kay, head of MUFG’s Media, Telecom & Sports Finance practice. “Now you’ve got greater capabilities, greater breadth, wider talent pool and even bigger libraries in Disney’s hands. This will help feed their offerings and be attraction points for subscribers.”
Analysts say Disney’s entry into the streaming wars could slow Netflix’s growth. Disney is also pulling its movies from Netflix, a blow for the company that has benefited from being the streaming home of films such as Black Panther. A streaming service with Disney family content may be a no-brainer investment for parents of kids who watch Disney and Pixar movies.
Disney has also said it will boost investment in programming for Hulu, one of Netflix’s biggest competitors. Disney will own 60 percent of Hulu after it acquires Fox’s 30 percent stake in the Santa Monica streamer as part of the deal. Disney is expected to bolster Hulu with edgier Fox programming from channels such as FX Networks.
“The leg up Disney and 20th Century Fox have over the newer streamers is they have a historical knowledge of the television business, and they have been more open to being creative than ever before,” said Kevin Crotty, head of TV lit for talent agency ICM Partners.
But Netflix executives insist they’re not worried. The company recently said it faces more screen-time competition from online video game Fortnite than other streaming services.
“We compete so broadly with all of these different providers that any one provider entering only makes a difference on the margin,” said Netflix CEO Reed Hastings in a recent video call with analysts.
The consolidation of the studios will also have ramifications for talent agencies. Having five major film companies instead of six — and fewer theatrical films in the industry — means Disney will be able to extract better deal terms from talent agencies trying to get their filmmaker and actor clients jobs in its shows and movies, industry executives said. Unions such as the Writers Guild of America, which opposed the deal, could also feel pressure.
Agencies are waiting to see how Disney’s purchase of Fox alters its TV strategy. Famously vertically integrated Disney has traditionally made shows that air mostly on networks it owns, including ABC and Freeform. Fox has been more open to producing shows for other networks, creating competition that boosts revenues for agencies. That’s less likely to happen under Disney.
“When competition goes down, you’ve got to think those fees are going to change,” said one producer who asked to remain anonymous to protect relationships.
But agencies are taking solace that overall job opportunities for talent are increasing because of growing players such as Netflix, Amazon and Apple looking to buy shows and movies for their platforms. The battle for talent has led to some blockbuster producer deals, including those for Shonda Rhimes and Ryan Murphy at Netflix. Agents also are counting on Disney and other traditional players — such as AT&T-owned WarnerMedia — to invest heavily in productions to fill their own streaming services with new content.
“I know there’s been a lot of concern, with people saying we’re losing a studio, and that’s going to hurt our business,” said ICM’s Crotty. “I don’t look at it that way. There’s going to be more distribution platforms at the end of the day. There are real deals for showrunners. There are many opportunities to succeed and lots of money to be made.”

How to adapt?
The combination of Disney and Fox will affect other studios on multiple fronts.
Smaller studios like Lionsgate, Metro-Goldwyn-Mayer Studios, Sony Pictures and Paramount Pictures increasingly look like minor-league players, and many of those companies may eventually sell to a content-hungry tech giant or mobile phone carrier.
Some distributors have already tried to downsize, or even rethink their strategies, to adapt to the rapidly changing industry in which midbudget comedies, adult dramas and thrillers struggle to compete with franchise films released by Disney. Lionsgate recently cut jobs, while CBS Corp. is folding its modest movies unit into its larger entertainment business to focus on making content for streaming.—Los Angeles Times/TNS