The past week saw significant M&A news for one of stocks on my US Portfolio – the Walt Disney Company (NYSE: DIS) is paying approximately 52.4 billion in a all stock deal for most of 21st Century Fox’s (NASDAQ: FOXA) entertainment assets. With such a massive deal, I find it an appropriate time to re-evaluate my position on Disney, starting from the basics:
Why did I invest in Walt Disney?
Simply put, I’m semi fan boy for Disney content. Their IP is almost unparalleled in the entertainment business, with the big name brands like Marvel Studios (Marvel Comics content), Lucasfilm (Star Wars Franchise) and Pixar (Iconic animated films like Up, Wall-E and Ratatouille). Their Walt Disney Studio animation and live actions films are no slouch too, with unexpected gems like Frozen and the latest Beauty and the Beast iteration. You have some of the world’s best storytellers at Disney and almost any film they produce has that stamp of quality on them (Except for films like The Lone Ranger).
What most people don’t know is that their main revenue driver comes from ownership of the sports network ESPN. Being a sports fan myself, ESPN is also an attractive property to me, as live sports is the only part of the cable TV network that is more resistant to cord-cutting, driven by NetFlix and other direct-to-customer platforms.
Lastly, I loved the way that Disney was set up as a entertainment ecosystem. Any original IP they come up with or purchase can get tremendous eyeballs and interest through movies, which in turn flows into and drives interest in their theme parks, digital media and licensing business. Think about Star Wars and Marvel themed Disneyland sections and you get what I mean.
How does this acquisition synergise with Disney’s existing businesses?
The biggest draw of this deal is that it further enhances Disney’s position as content kings and moves along its efforts to create its own direct-to-consumer service. The deal involves Fox’s iconic 20th Century Fox studio, certain TV assets like regional sports networks and Fox’s stake in Hulu, a direct-to-consumer streaming service. Some of the iconic properties that Disney will get as follows:
- Marvel properties that were sold to Fox previously:
- The X-Men
- The Fantastic Four
- Avatar, the highest grossing film of all time, and its upcoming sequels
- The Simpsons
From a fanboy perspective, it’s certainly exciting for the MCU to finally see X-Men versus Avengers kind of crossovers. The Fantastic Four certainly needs Disney’s midas touch considering the dodgy history Fox have had with those movies, with 2015’s horrendous reboot of the Fantastic Four.
The deal also significantly adds to the content Disney could offer over its streaming service. The regional sports networks could also add to the ESPN OTT offering as well, making Disney to be more well positioned against technology rivals like NetFlix, Apple and Facebook in terms of content.
The only potential wrench in the works is that antitrust regulators might block the otherwise sensible and fantastic deal for Disney.
CEO Bob Iger succinctly outlines the main benefits of this deal in the video below:
Did Disney overpay for Fox’s assets? Probably. But I have no doubt the powerful combination of the 2 entities will only add to Disney’s already impressive array of content assets and put them in better stead against their digital competitors. Whether they can take on Silicon Valley remains to be seen, but boy are they going to put up a fight going forward. I’ll hold on to the stock with bated breath to see the outcome.
Thanks for reading.