Is Disney set to buy a big slice of 21st Century Fox?

The two companies are said to have been discussing the possibility of the Walt Disney Co buying the majority of 21st Century Fox.

Industry insiders say the talks have been taking place over the last few weeks. While there is no absolute certainty they will lead to a firm deal, the possibility seems increasingly likely.

The most likely scenario is that Disney would purchase Fox’s TV and film studios, alongside other assets. It would put the company in a much stronger position as it prepares to launch its streaming service, set to take on Netflix. As it stands, it can only focus on Disney and Pixar-branded shows and movies, alongside Star Wars and Marvel content. However, although Disney owns Marvel, Fox has rights to some of its characters. A deal could also see the reuniting of superheroes.

If Disney were to acquire the film franchises for films like Planet of the Apes, Kingsman, Alien, and The Revenant, it could help attract more adult audiences to the mega brand. Also, thanks to its networks and its 39 percent ownership of Sky, Fox has significant exposure to markets such as the UK, Germany and Italy.

It’s estimated that the Fox film studio is worth about $8.2 billion. All the assets Disney desires, which include National Geographic, FX cable channels and some international channels, could be worth around $20 billion.

The benefits for Disney are more obvious, but what about Fox? The company has made it clear in the past that ‘scale for scale’s sake’ is not something in which they’re interested.

“Rupert Murdoch has big plans. He doesn’t want a smaller media company,” says Mike Kelly, CEO of Kelly Newman Ventures in an article in The Hollywood Reporter. “They’re thinking differently. We’re going from a linear to a digital world so those catalogues are tons more valuable, so why not monetize them right now? Bottom line: All media companies are trying to future-proof their businesses. They’ve got to be creative.”

Fox would retain its news and sports TV operations. These include Fox News, Fox Business Network and Fox Sports 1 cable channels. The Murdoch-controlled conglomerate would also keep its broadcast network and TV stations. Co-executive chairman Lachlan Murdoch has previously hinted that Fox might well focus more on sports via FS1 and news. “The scale and health of our sports and news broadcasting businesses continue to be a differentiator for us with over half of the company’s advertising revenues earned in these areas,” he said in May during an earnings call.

Fox is said to believe that a more tightly focused group of news and sport properties would be more effective in the current marketplace. It also recognises that the media landscape has shifted in recent years. Giants such as Facebook, Google, Amazon and Netflix are transforming the way media is consumed. They also dominate the distribution of digital video content.

It requires a vast scale to be able to compete in this market – something Disney has, but 21st Century Fox does not. James Murdoch has recently had a lot to say about the hyper-competition of the digital age, suggesting that something big could be on the cards.

Talks are said to have been intermittent and there has been no official statement from either side.

However the rumour of the huge strategic transaction has delighted Wall Street. Fox shares surged up nearly ten percent yesterday, while Disney added two percent on the day.

CNN Money provide further coverage here.

Meanwhile Bloomberg reports that talks are dead.

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