By Christopher Palmeri, Anousha Sakoui, and Bloomberg
March 20, 2019

Walt Disney Co. completed its $71 billion acquisition of 21st Century Fox Inc.’s entertainments assets, and now must get to the task of squeezing out promised cost savings, an effort that will lead to thousands of firings in the film and TV business.

With the deal, Disney takes over a portfolio that includes the 104-year-old 20th Century Fox studio, the FX and National Geographic cable networks, and an additional 30 percent of Hulu, the online video service. To make the deal work financially and support the company’s costly efforts to compete with Netflix Inc., Chief Executive Officer Bob Iger has promised $2 billion in cost savings, a commitment that all but assures epic job cuts.

In a note to employees Wednesday, Iger said management has spent the past year studying how to integrate the companies and that the process would be “an evolution,” with some businesses affected more than others.

“I wish I could tell you that the hardest part is behind us,” he wrote. “We’re committed to moving as quickly as possible to provide clarity regarding how your role may be impacted.”

The deal is one of the most dramatic in the current wave of entertainment-industry mergers, shrinking the number of major Hollywood studios to five from six and putting the irreverent Homer Simpson and “Family Guy” in the same stable of cartoon characters as Mickey Mouse and Donald Duck. The closing follows a nearly two-year effort that included a bidding war and regulatory compromises from Brussels to Brasilia.

Underscoring the looming human cost, Disney is taking on 15,400 Fox employees, while the smaller new Fox Corp. will keep about 7,000. Last August, executives at Burbank, California-based Disney said they’ll achieve their targeted savings over two years, with the U.S. operations bearing the brunt early on. The Hollywood Reporter said last month that 4,000 jobs will be lost.

“You can anticipate more domestic at the front end, just because of regulatory issues outside of the U.S.,” Chief Financial Officer Christine McCarthy said on the August call. In other words, it will be easier to cut workers at home first.

Already the largest entertainment company in the world, Disney emerges with more clout to negotiate everything from the fees it gets from cable TV operators to the share of ticket revenue at movie theaters. The sale represents the end of an era for Rupert Murdoch, the 88-year-old media mogul who steered the Fox studio for nearly four decades.

Under the terms of the deal, Fox shareholders will receive $38 a share in cash or Disney stock. They also get stock in the new Fox, led by Murdoch’s older son Lachlan. That company will continue to operate Fox News, the Fox broadcast network and Fox Sports 1. It will be focused on news and sports — live programming that is seen as less vulnerable to viewer losses in a streaming age — and also plans to ramp up its production of scripted shows designed to appeal to a broad demographic.

Iger’s Gamble

At its heart, the merger marks a huge bet that Iger can establish a direct connection to consumers, sell them multiple monthly subscriptions to watch Disney programs and upend the traditional model in which network owners collect fees for their content from pay-TV operators.

Last April, Disney launched ESPN+, a $5-a-month sports streaming service that has already passed 2 million subscribers. Hulu, in which Disney acquires majority control, will be focused on more adult-oriented fare, such as that produced by Fox’s FX network and its Oscar-winning Fox Searchlight film studio. Later this year, the company will introduce Disney+, a family-focused streaming service that Iger has said will be the home of all of the classic Disney films, as well as original content.

Video Focus

Much as Iger built Disney’s film studio into the industry leader by acquiring Pixar’s animation, Marvel Entertainment’s superheroes and Lucasfilm’s “Star Wars” series, the Fox acquisition will bring new characters and franchises. Disney’s CEO said at the March 7 annual meeting, for example, that a sequel to Fox’s “Avatar,” the top-grossing movie in history, will be delivered in late 2020.

Iger has said he plans to continue to operate 20th Century Fox, Fox Searchlight and other film labels, many of which release the kind of R-rated films that Disney previously stayed away from.

Disney’s new assets also include the powerhouse Fox TV studio, responsible for hits such as “Homeland” on Showtime, “This Is Us” on NBC and “Empire” on the Fox network. Personnel decisions over the past few months reflect a virtual Fox takeover of Disney’s TV business, with Fox President Peter Rice overseeing the combined company’s entertainment channels and TV studio chief Dana Walden leading production. FX’s John Landgraf continues in his role.

High Costs

Iger’s gamble is far from a sure thing. In addition to the cost of starting, marketing and running new streaming services, Disney is giving up revenue it could have made by selling its movies and TV shows to rivals. A deal with Netflix expired last year, for example, and Disney has said revenue lost from licensing content will cut operating income by $150 million this year.

The Fox deal, which was first officially announced in December 2017, led to a bidding war with Comcast Corp. Disney warded off its rival suitor, but had to pay about 36 percent more for Fox under new terms announced last June. Comcast, meanwhile, won Fox’s stake in the Sky Plc and ultimately took over satellite TV service in Europe.

To win the blessing of regulators, Disney agreed to sell 22 Fox regional sports networks in the U.S., its half of the A&E channels in Europe and Fox’s sports network in Brazil.

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