Disney's Fox Deal Faces U.S. Antitrust Officials That Sued AT&T
Walt Disney Co.’s deal to buy a chunk of 21st Century Fox Inc. will need approval from U.S. antitrust officials.
(Bloomberg) -- Walt Disney Co.’s deal to buy a chunk of 21st Century Fox Inc. will need approval from U.S. antitrust officials who are sure to scrutinize a tie-up that concentrates Hollywood movie-making and sports broadcasting.
The acquisition would make Disney the No. 1 studio owner, with more than a third of the market, and give it control over Fox’s FX cable channel. It would also put Fox’s regional sports networks under the same roof as Disney’s ESPN.
Whether control over all that content could give Disney the power to harm rivals will be a key question for a Justice Department fresh off a legal challenge to AT&T Inc.’s planned takeover of Time Warner Inc., a case based on concerns about the phone giant’s ownership of the media company’s programming.
“They’d have enormous power in the entertainment and production sphere,” Gene Kimmelman, the head of Washington policy group Public Knowledge, said of Disney. “When you have too much content tied together, it really does create a market power problem in a transaction.”
Disney will owe Fox a $2.5 billion breakup fee if it’s unable to get regulatory approval for the deal, according to a filing Thursday. If either company abandons the deal for other reasons, it owes the other $1.53 billion.
By acquiring more TV assets, Disney could put pressure on pay-TV companies to buy a bigger bundle of programming, said Kimmelman. That would harm competition from online distributors like Dish Network Corp.’s Sling TV, which is only interested in providing a limited number of channels, he said.
Disney is already considered by pay-TV distributors as “undroppable,” according to Rich Greenfield, an analyst at BTIG. Adding regional sports networks and FX would give Disney even greater leverage over pay-TV companies and make it tougher for new online distributors to get off the ground, he said.
“Imagine the local market power Disney would command in a market such as New York,” Greenfield wrote in a note this week. “Disney would control the ABC affiliate that has the NBA finals and the Oscars, the YES Network, and ESPN/ESPN2.” YES carries New York Yankees games.
Still, Disney isn’t getting marquee Fox properties Fox News and Fox Sports. While it will own FX -- the home of acclaimed shows such as “The Americans” and “Atlanta” -- that’s not the same kind of high-value programming at issue in AT&T’s takeover of Time Warner, said George Hay, an economist at Cornell University who studies antitrust and competition.
“I don’t see FX as being anywhere near the kind of gem as CNN or HBO,” Hay said.
Based on market-share figures published by Box Office Mojo, the movie-studio market isn’t currently concentrated under the Justice Department’s merger guidelines. The Fox deal would make it “moderately concentrated” and raise potential antitrust concerns.
Still, Disney’s control over Fox’s movie studio shouldn’t be a problem, according to Hay. The combination will still leave a number of other competitors in the market, including Time Warner’s Warner Bros. and Comcast Corp.’s Universal Pictures.
“How important will the studio be?” said Hay. “The clout you carry when you have these old lots isn’t what it was 20 years ago or even 10 years ago.”
European antitrust regulators would also scrutinize the combination, in part because Disney will buy Fox’s stake in Sky Plc, the satellite-TV provider with customers in five countries. While Disney’s ownership of Sky would be smiled upon, winning approvals for the broader deal with Fox will be tougher, said Alice Enders, head of research at Enders Analysis in London. Antitrust authorities in the U.S. and Europe will look at whether Disney’s clout could let it extract higher payouts at the box office.
The European Commission’s ongoing pay-TV investigation makes competition concerns there more likely, she added. Sky is currently being probed by EU antitrust regulators over pay-TV clauses with Hollywood studios, including Disney, that may restrict sales across Europe.
--With assistance from Todd Shields and Rebecca Penty
To contact the reporter on this story: David McLaughlin in Washington at dmclaughlin9@bloomberg.net.
To contact the editors responsible for this story: Sara Forden at sforden@bloomberg.net, Crayton Harrison
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