Disney-Fox Deal Could Falter - Is Hulu The Key Piece?

Although the Department of Justice surprisingly has given early approval to the Walt Disney deal to buy about half of 21st Century Fox, there is still a long way to go -- especially with competing bidder Comcast Corp. still in the hunt.

Kannan Venkateshwar, media analyst of Barclays Capital, believes litigation over the Fox assets will slow the deal’s completion. “The grounds for litigation could be Fox's board not considering Comcast's offer and therefore, not performing its fiduciary duties." That is especially true if Comcast comes up with a meaningfully higher cash bid than Disney's, she notes.

The DOJ’s approval comes just six months after the deal was announced. Venkateshwar says Disney expected a much longer 12-month to 18-month review process.

The wild card here, according to Venkateshwar and other analysts, is that President Donald Trump publicly congratulated Fox executive chairman Rupert Murdoch when the deal was originally announced with Disney.



Since the deal was first announced in December 2017, Comcast has announced a higher bid for Fox, which in turn forced Disney to raised its offer -- now to $71.3 billion in stock and cash. The DOJ approval of the deal is contingent upon Disney selling off Fox’s 22 regional sports networks.

While many believe much of the growth of Fox’s acquiring businesses is with its international operations, Venkateshwar also believes a key element
is Hulu, a growing Netflix competitor -- but not in the way Disney considers its future. (Hulu’s current ownership is Fox, Disney, and Comcast each having a 30% interest with WarnerMedia -- formerly Time Warner -- having 10% stake.)

“We believe Disney’s stated goal of having at least two separate brands for scripted content, Hulu and Disney’s new OTT service... in essence demonstrates a decades-old world view.” 

Venkateshwar says Netflix has successfully proven that its viewers seek and consume content in different ways. For example, he says 75% of Netflix content viewership is what Netflix recommends to users.

“If Disney goes to market with a demand pull-based approach, whereby all content that it has access to is made available on Hulu, it would offer a real alternative to Netflix. While there isn’t enough focus on these issues yet, given the distraction from the deal, these issues are not trivial.”

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