The blockbuster deal reached on December 14 between the Walt Disney Company and Rupert Murdoch’s 21st Century Fox shook up the entertainment world and ended months of speculation about an acquisition deal between the two media giants.
The deal, an all-stock transaction estimated to be worth $52.4 billion, saw Walt Disney buy the most valuable assets of 21st Century Fox. The Disney-Fox Deal is one of the biggest of the year and will have a big effect on Disney’s stock price.
Digital is Disrupting the Entertainment Industry
The deal confirmed rumors that Rupert Murdoch was concerned his media company wasn’t strong enough to compete with digital mediums like Netflix. It also brought into question how smaller media companies can compete with digital moving forward.
“The scramble to bulk up is likely to force medium-sized players to strike their own deals out of concern that they need to grow or get left behind as tech giants like Netflix (NTFLX) gain more power in Hollywood,” read one analysis from December 21.
The deal also confirms the Walt Disney Company firmly acknowledges that the future of television and movies is going to be online. In an effort to keep up with the Joneses, Disney has already announced its intention to introduce two streaming services before 2020.
“With this deal and the wealth of movies, TV shows and sports programming it provides, the company [Disney] will now have the muscle to challenge Netflix, Apple, Amazon, Google and Facebook in the fast-growing realm of online video,” columnist Brooks Barnes wrote in the New York Times.
Disney-Fox Deal Will Alter the Stock Market
As part of the mega deal, the Walt Disney Company will acquire Fox’s movie and TV production company, Star India, as well as a 39 percent stake in its European broadcaster, Sky. In addition, Disney will now own and control several of Fox’s paid TV channels including FX and National Geographic.
Disney is not getting all of Fox’s treasures, however, as Rupert Murdoch will keep control of the ever-popular, widely-watched Fox News channel, the Fox broadcast network in the U.S., and the FS1 Sports network.
The agreement, which is still subject to the approval of antitrust regulators, could make Walt Disney’s stock (DIS) a game-changer in 2018.
“Combined with Disney’s rich library of content and its own standalone streaming efforts, Disney’s revenue growth forecast from its future streaming media services seem discounted. And this now makes Disney stock one of the better bargains in the media space,” notes stock market analyst Richard Saintvilus.
Saintvilus also points out that currently, the Walt Disney Company’s 2018 revenue and earnings estimates are still low, which means the market has not accurately priced the company’s ability and willingness to successfully adapt its business to changing market conditions.
In light of the massive tax cuts approved by the House and Senate on December 19 and the Walt Disney Company’s purchase of most of 21st Century Fox, Disney’s stock should be looked at as a bargain. In fact, following the Disney-Fox deal, Disney stock jumped 6.75% for the week of December 15, prompting Investor’s Business Daily to upgrade Disney’s stock to the “buy” range.
As television and movie watching slowly moves online, it will be worth watching closely as two of the biggest players on the media market battle for primacy. It looks like Disney has struck the first blow, as with last week’s Disney-Fox acquisition, its chief competitor (Netflix) will be forced to remove its Star Wars and Marvel content from its platform and rely even more on its own programming to compete.
The Disney-Fox deal has 2018 set to be a pivotal year for media and entertainment stocks.