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2017-12-14 14:42:02
Disney Makes $52.4 Billion Deal for 21st Century Fox in Big Bet on Streaming

LOS ANGELES — The Walt Disney Company said on Thursday that it had reached a deal to buy most of the assets of 21st Century Fox, the conglomerate controlled by Rupert Murdoch, in an all-stock transaction valued at roughly $52.4 billion.

While the agreement is subject to the approval of antitrust regulators — and the Justice Department recently moved to block a big media company from becoming even bigger — the once unthinkable acquisition promises to reshape Hollywood and Silicon Valley. It is the biggest counterattack from a traditional media company against the tech giants that have aggressively moved into the entertainment business.

Disney now has enough muscle to become a true competitor to Netflix, Apple, Amazon, Google and Facebook in the fast-growing realm of online video.

At the same time, the agreement means that one of moviedom’s most celebrated studios, 20th Century Fox, will be downsized, with some operations folded into Walt Disney Studios or refocused to make films designed for online distribution. Founded in 1935, the Fox studio championed Marilyn Monroe, produced classics like “The Sound of Music,” released the first “Star Wars” movie and, more recently, turned “Avatar” into the biggest ticket-seller of all time.

But lately, like most of Hollywood, 20th Century Fox has struggled to keep pace with the changing way younger audiences view content — namely on an internet-connected device. Disney said it expected the acquisition to yield “at least” $2 billion in total cost savings.

To complete the integration, a legacy-defining task, Robert A. Iger, Disney’s chairman and chief executive, agreed to renew his contract for a fourth time, delaying retirement from July 2019 to the end of 2021. Mr. Murdoch asked Mr. Iger to stay as a condition of the deal, which was valued at $66.1 billion including debt.

“We’re honored and grateful that Rupert Murdoch has entrusted us with the future of businesses he spent a lifetime building,” Mr. Iger said in a statement.

Not included in the acquisition: Fox News, the Fox broadcast network and the FS1 sports cable channel. Mr. Murdoch said he would spin those businesses and a handful of other properties, including the 20th Century Fox lot in Hollywood, which Disney is not buying, into a newly listed company.

“I know a lot of people are wondering, ‘Why did the Murdochs come to such a momentous decision?’” Mr. Murdoch said on a conference call with investors. “Are we retreating? Absolutely not. We are pivoting at a pivotal moment.”

Mr. Murdoch’s eldest son, Lachlan, 21st Century Fox’s executive chairman, added that the move was “about returning to our roots as a lean, aggressive challenger brand” that would be “focused at the beginning on must-watch news and live sports.”

There has been speculation in Hollywood that Mr. Murdoch’s other son, James, who is chief executive of 21st Century Fox, would join Disney in a senior role. Mr. Iger told investors on a conference call that has not yet been decided. “He will be integral to helping us integrate these companies over the next number of months,” Mr. Iger said. “Over that time, he and I will continue to discuss whether there is a role for him here or not.”

The Murdochs declined an interview request.

Disney, which owns ABC and ESPN, hopes 21st Century will supercharge its plans to introduce two Netflix-style streaming services. The company’s first major streaming effort, ESPN Plus, will arrive in the spring. A second and still unnamed offering, built around the company’s Disney, Marvel, Lucasfilm and Pixar brands, will roll out late next year. Rounding out its streaming portfolio will be Hulu, the already established service that focuses on older viewers with programming that includes ABC shows.

Mr. Iger is buying 21st Century Fox’s minority stake in Hulu, resulting in majority control of the streaming service by Disney, which previously owned 30 percent. Comcast and Time Warner also have stakes in Hulu.

“We’re going to launch big, and we’re going to launch hot,” Mr. Iger said in September when announcing Disney’s streaming strategy. At the time, it could have been viewed as old-fashioned exaggeration.

Not anymore.

Disney is purchasing the Fox television studio, which has 36 series in production, including “The Simpsons,” “Homeland,” “This Is Us” and “Modern Family.” Disney’s significantly smaller TV factory, ABC Studios, has delivered series of inconsistent quality and lost its biggest hitmaker in August when the “Grey’s Anatomy” producer Shonda Rhimes decamped for Netflix.

To augment ESPN Plus, Disney is adding 21st Century Fox’s chain of 22 regional cable networks dedicated to sports, including the YES Network, which carries New York Yankees games.

As part of the deal, Disney will also get the FX and National Geographic cable networks, and stakes in two behemoth overseas television-service providers, Sky of Britain and Star of India. That component of the deal would seem to contradict Disney’s push to lessen its reliance on traditional television, a business built on third-party cable subscriptions that is now in decline as people turn to streaming services for home entertainment.

But those assets serve another one of Mr. Iger’s strategic goals: making Disney more of an international player. Disney has major operations in Europe, Japan and China, where it opened Shanghai Disneyland last year. But most of Disney’s profit still comes from the United States, where ESPN dominates, despite recent struggles, and annual attendance at Walt Disney World in Florida and the Disneyland Resort in California totals 162 million people.

Since taking over as Disney’s chief executive in 2005, Mr. Iger has greatly expanded Disney’s theme park operations, opening in Shanghai against all odds and nearly tripling the size of Disney Cruise Line. Walt Disney Studios, bolstered by Mr. Iger’s acquisitions of Pixar, Lucasfilm and Marvel, has become Hollywood’s runaway leader.

But pulling off the acquisition of 21st Century Fox dwarfs those deals and will create complex integration challenges. Some executives who work at Fox’s studio offices in Los Angeles have been complaining bitterly about the prospect of Disney cost-cutting.

The Disney-Fox merger also comes as the Justice Department fights AT&T’s $85.4 billion acquisition of Time Warner in court. Mr. Iger acknowledged that antitrust regulators will heavily scrutinize Disney’s purchase but expressed confidence about winning their approval.

“If they look at it from a consumer point of view they should quickly conclude that the aim of this combination is to create more high-quality product for consumers around the world and to deliver it in more innovative, more compelling ways,” Mr. Iger said.