Giant juggernaut

The long-anticipated $71-billionacquisition will put the X-Men, Homer Simpson, the Avengers, BuzzLightyear, Kylo Ren and the gang from Avatar under the same roof, givingthe Burbank company an unprecedented share of film and televisionfranchises.The deal, expected to close in the coming days, wouldboost Disney’s share of the domestic box office to at least 40 percentand reinforce its stronghold in toys, theme parks and cruise lines. TheMouse House will have an unrivalled say over when and how movies arereleased.“Basically, they become the 800-pound gorilla in the medialandscape,” said Lloyd Greif, chief executive of LA investment bankGreif & Co. “It gives Disney even greater clout from a streamingstandpoint and even greater clout from an exhibitor standpoint.”Disney’sambitions have taken on a new urgency with the development of itsupcoming streaming service, Disney+, set to launch late this year, andits increased ownership of Hulu, both of which will pose a challenge toNetflix. All these moves have wide-ranging implications for the variousstakeholders in entertainment, including movie theatres, streaming videocompanies, talent agencies and pay-TV operators.“What you have hereis the makings of a behemoth in every sense of that word,” said TunaAmobi, a media industry analyst with CFRA. “It’s hard to think that thisdeal gives them more leverage than they already have, but it does.”Someindustry insiders are just now coming to terms with the likely falloutof the historic merger, which reduces the number of major studios fromsix to five overnight.“I don’t think the industry has remotelydigested what that’s going to do to the pulse and culture of theindustry,” said one producer, who requested anonymity to allow him tospeak candidly without fear of reprisals.Theatre anxietyWitha greater share of box office receipts, Disney could pressure theatreowners to fork over a larger portion of the box office for its films.Disney already receives more than 60 percent of box office receipts forits biggest movies, including the Avengers and Star Wars pictures.That’s higher than the typical 50 percent split for movies, and havingmore franchises will improve Disney’s already formidable negotiatingposition.Cinema chains depend on movies like the upcoming Star Wars,Toy Story and Frozen sequels to fill seats, and denying those moviesscreens is not an option at a time when attendance is under long-termpressure from TV, streaming and video games. Admissions rose 5 percentto 1.3 billion in the US and Canada last year but was still downslightly from 2016. However, to the surprise of some cinema operators,the US Department of Justice approved the merger last year with nomention of how its clout could impact exhibitors.“This isunquestionably bad for the theatre companies,” said Doug Creutz, a mediaand entertainment industry analyst with Cowen & Co. “Disney hasbeen dominant, and they will dominate more now.”Disney and thetheatres have come to blows before. With the release of 2015’s Avengers:Age of Ultron, the company’s demands on exhibitors provoked a rareresponse from the National Association of Theatre Owners, whichrepresents the exhibition industry. In 2013, AMC stopped advance ticketsales for Iron Man 3 during a dispute over revenue splits.Anxietyhas been tempered by the belief that Disney will avoid extracting termsso draconian that they draw the notice of regulators. Some exhibitorsargue that they will benefit from Disney having a greater share of thebox office, because the company has a strong track record of producingpopular entertainment. Theatres should make up ground lost on box officeby generating more revenue from concessions.“Obviously, it’s anindustry-changing event,” said Adam Aron, CEO of AMC Entertainment. “Butwe think it’s an event that will be good for consumers, good fortheatres and good for movie makers.”Eric Wold, an entertainmentanalyst with B. Riley FBR, said he would be “surprised if they push uprates across the board for everything. If Disney’s going to put itsmarketing muscle and theme parks behind new titles, maybe that’s worthpaying for. You’d rather pay 65 percent for a billion-dollar film than50 percent for a $100-million film.”But privately, industryexecutives caution against wishful thinking. Some theatres worry thatthe number of movies released theatrically will shrink dramatically oncethe Fox deal closes. Disney focuses almost exclusively on expensiveproductions that draw huge global audiences, and Fox’s more midlevelfilms may be scrapped.Then there’s the looming spectre of Disney+,which will feature original Disney content that bypasses theatres. Theadvent of Disney’s streaming offering and the continued rise of Netflixcould accelerate the push by studios to collapse the traditional 90-daygap between a movie’s theatrical release and its availability for homeviewing. While theatres have long protested any changes to so-calledwindowing, fearing damage to their business model, the proliferation ofstreaming services makes the decline of theatrical exclusivity all butinevitable.A blow for Netflix?Los Gatos, California-basedNetflix has used its debt-financed war chest to create a jaw-droppingamount of film and TV content, tightening its grip on the viewing publicby amassing more than 140 million global subscribers. It flexed itspower recently by raising prices by $1 to $2 a month.But Disney isabout to mount a serious challenge to Netflix’s streaming dominance withthe launch of Disney+, which it is expected to preview for investors atan April meeting.Disney hasn’t revealed its pricing plan but hasslowly unveiled details, saying it will include a live-action seriesstarring Diego Luna that will take place before the events of Rogue One:A Star Wars Story, along with a Marvel show about Loki, the populartrickster figure from Thor played by Tom Hiddleston. The service willinclude movies and shows from five brands: Disney, Pixar, Marvel, StarWars and Fox’s National Geographic.“These guys are and have been anIP [intellectual property] juggernaut,” said Rick Kay, head of MUFG’sMedia, Telecom & Sports Finance practice. “Now you’ve got greatercapabilities, greater breadth, wider talent pool and even biggerlibraries in Disney’s hands. This will help feed their offerings and beattraction points for subscribers.”Analysts say Disney’s entry intothe streaming wars could slow Netflix’s growth. Disney is also pullingits movies from Netflix, a blow for the company that has benefited frombeing the streaming home of films such as Black Panther. A streamingservice with Disney family content may be a no-brainer investment forparents of kids who watch Disney and Pixar movies.Disney has alsosaid it will boost investment in programming for Hulu, one of Netflix’sbiggest competitors. Disney will own 60 percent of Hulu after itacquires Fox’s 30 percent stake in the Santa Monica streamer as part ofthe deal. Disney is expected to bolster Hulu with edgier Fox programmingfrom channels such as FX Networks.“The leg up Disney and 20thCentury Fox have over the newer streamers is they have a historicalknowledge of the television business, and they have been more open tobeing creative than ever before,” said Kevin Crotty, head of TV lit fortalent agency ICM Partners.But Netflix executives insist they’re notworried. The company recently said it faces more screen-timecompetition from online video game Fortnite than other streamingservices.“We compete so broadly with all of these differentproviders that any one provider entering only makes a difference on themargin,” said Netflix CEO Reed Hastings in a recent video call withanalysts.The consolidation of thestudios will also have ramifications for talent agencies. Having fivemajor film companies instead of six — and fewer theatrical films in theindustry — means Disney will be able to extract better deal terms fromtalent agencies trying to get their filmmaker and actor clients jobs inits shows and movies, industry executives said. Unions such as theWriters Guild of America, which opposed the deal, could also feelpressure.Agencies are waiting to see how Disney’s purchase of Foxalters its TV strategy. Famously vertically integrated Disney hastraditionally made shows that air mostly on networks it owns, includingABC and Freeform. Fox has been more open to producing shows for othernetworks, creating competition that boosts revenues for agencies. That’sless likely to happen under Disney.“When competition goes down,you’ve got to think those fees are going to change,” said one producerwho asked to remain anonymous to protect relationships.But agenciesare taking solace that overall job opportunities for talent areincreasing because of growing players such as Netflix, Amazon and Applelooking to buy shows and movies for their platforms. The battle fortalent has led to some blockbuster producer deals, including those forShonda Rhimes and Ryan Murphy at Netflix. Agents also are counting onDisney and other traditional players — such as AT&T-ownedWarnerMedia — to invest heavily in productions to fill their ownstreaming services with new content.“I know there’s been a lot ofconcern, with people saying we’re losing a studio, and that’s going tohurt 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 tosucceed and lots of money to be made.”How to adapt?The combination of Disney and Fox will affect other studios on multiple fronts.Smallerstudios like Lionsgate, Metro-Goldwyn-Mayer Studios, Sony Pictures andParamount Pictures increasingly look like minor-league players, and manyof those companies may eventually sell to a content-hungry tech giantor mobile phone carrier.Some distributors have already tried todownsize, or even rethink their strategies, to adapt to the rapidlychanging industry in which midbudget comedies, adult dramas andthrillers struggle to compete with franchise films released by Disney.Lionsgate recently cut jobs, while CBS Corp. is folding its modestmovies unit into its larger entertainment business to focus on makingcontent for streaming.—Los Angeles Times/TNS