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The Disney-Fox Merger: What's The Trickle-Down Effect For Consumers?

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© 2017 Bloomberg Finance LP

When mega-corporations merge, questions as to how such dealings will impact the consumer immediately begin to swirl. The last 18-plus months have certainly included a fair share of speculation in regards to how the much-anticipated Disney-Fox merger will affect entertainment lovers the world over.

The Walt Disney Company confirmed in December 2017 that it would acquire 21st Century Fox for what was originally set to be an astounding $52.4 billion in one of the biggest deals the entertainment industry had ever seen. At the time, the deal valued the 21st Century Fox assets in the transaction at $66.1 billion, including $13.7 billion in Fox debt ($28 a share). The enterprise value of the deal at the time was $69 billion. Apparently, the price went up, but what's a few billion in a deal of this magnitude?

The all-stock transaction was set to include Twentieth Century Fox movie and TV studios, most of its cable networks and international assets. Not included in the deal from the get-go were the Fox network and Fox News. Disney’s $71.3 billion mega-acquisition of 21st Century Fox was finally made official on March 20.

There have been some high-profile names attaching themselves to the deal, including hip-hop artist and actor Ice Cube and billionaire founder of Alex and Ani jewelry Carolyn Rafaelian. The duo are teaming up to bid $10 billion for a piece of the pie with financial backing from investment bank Macquarie Group and private equity firm Centerbridge Partners. Specifically, they want to snap up 21 of Fox's regional sports networks.

As queried at the time of the merger's original announcement, to present day as things unfold, a question still remains: How will this affect the consumer? The answer, according to analysts, is that the impact will be very big over time. What remains to be seen is whether or not it will be positive, or negative. The answer to that depends on who you ask.

In addition to consumers being impacted, employees on both sides always fear layoffs. Though there has already been a threat to Disney TV staffers, Walt Disney Television chairman Peter Rice downplayed talk of massive layoffs. As for the everyday consumer, here's what you should know.

The Upside To The Consumer:

"Everyone thinks mergers are bad for the consumer, but actually I feel this is going to be incredibly pro-consumer," says Jeff Greenfield, co-founder and COO of attribution analytics company C3 Metrics. "We're living in a world today where so much information is readily available at our fingertips. It's truly a great time to be a consumer."

Greenfield points out a couple of ways in which this is the case, and he used Monday's announcement in Cupertino of the long-awaited launch of Apple TV+ video subscription service due this fall, as an example. A main focus of the Disney-Fox merger is Disney’s upcoming direct-to-consumer streaming service expected later this year, so Apple's timing is interesting indeed.

Apple's new service, which will be available via an updated version of its TV app that's already on millions of devices, is offering a few options for entertainment seekers, as well as news junkies and gamers. In addition to its new TV streaming service, it's also offering a premium news service, Apple News+. Consumers will pay $9.99 a month for access to more than 300 magazines, which will split revenue 50-50 with the publishers. Apple will certainly have a competitive edge with the 1.4 billion devices it already has in the hands of consumers worldwide, but Greenfield sees an edge Disney still has over the market.

"Consumers have been paying for a lot of things they didn't need, or want, for years," says Greenfield, adding that even with this pick-and-choose option, there's still too much of a "wasted bundle" there. "For instance, with Apple News+, the consumer is getting $8,000 in magazines a year for $120 but this is still an un-curated bundle. What Disney has done, and what's going to happen and what's already happening in the streaming world, is there's a far-too-big multitude of choices for the consumer."

He makes a valid point. Who can absorb all the content that's made available to us? "I have free entertainment at my fingertips all day. There are free news sites, blogs and all sorts of free content consumers can watch and absorb on their commutes and during working hours," he explains. "When I get home at night, I have two hours or so to watch what I want. So, the question is, who am I going to watch? For me, it's all about who offers the best deal, family-friendly options and my sports?"

Disney, according to Greenfield, has a huge advantage with this acquisition. "Even though Netflix is creating a ton of content, as is Amazon, neither are able to make a library as massive as Disney's. They simply don't have the same size back-library. No one can rival Disney's, which means Disney can immediately come in and compete and likely get every family in America to sign on."

The Downside To The Consumer:  

"In general, these deals aren't for the consumer's benefit. I can't think of a single time that two media companies merged and suddenly started offering lower prices," says eMarketer's principal analyst, video, Paul Verna.

He points to the merger between mega-giants AT&T and Time Warner as a cautionary tale. "As far as consumer value, the way things go, it's not about saving people money, or giving people more choices. It's more about companies trying to gain market share by consolidating their portfolios. In this particular case, they didn't promise lower prices, but they did promise consumer value. And yet, they just raised the prices for DirecTV Now."

When it comes to the sheer number of standalone direct-to-consumer providers that have been launched, or announced since then, Verna says it puts the deal in a unique light. "It's now in a context where more and more big media companies are deciding to fight the battle on their own turf, holding onto content instead of licensing it out to other distributors. It will take a while to play out."

Verna also points out that it's hard to imagine a world in which consumers will have to go to all these different outlets to get their entertainment. "The key thing to ask is if consumers have to pay for each one of these individually, with each costing between say $10 and $20, how much will this end up costing the average person?"

Though these may be good offers individually, on the whole, getting your entertainment fix could get very expensive. Verna does feel, however, that the idea of a bundle is still valid in terms of a package deal. "I think the idea of individual subscriptions for every one of these content providers probably isn't going to work in the long run. People aren't going to support six to eight of them, maybe two or three. I think the consumer will eventually push for more a la carte choices."

In Conclusion: 

“The bottom line is that consumers care about cost, convenience and quality,” said Paul Dergarabedian, senior media analyst at Comscore, when the terms of the deal were originally announced. “If the deal enables people to have an even greater array of entertainment options for a lower cost, that's a good thing. However, a byproduct of consolidation is that it can often create a fragmented marketplace with audiences scrambling to figure out which streaming service or platform best serves their needs.”

Dergarabedian stands by his original comments, adding, “What will ultimately benefit consumers the most is the combination of the best of what Fox brings to the table (edgier fare, innovative marketing and a talent-centric ethos) with Disney’s enormous global footprint, brand equity and an ever-growing content based ecosystem on screens both big and small.”