In a deal that has been rumored for weeks, Disney will be buying the entertainment operations of Twenty-First Century Fox. It’s a deal that will leave the Murdoch organization owning just the Fox news and sports operations. A big question is what happens to Fox’s rights to broadcast NFL games under a multi-year arrangement with the league. It seems Fox will keep those rights, though surely essential details are spelled out in the fine print of the respective contracts.
This is a deal that looks eerily familiar to me after years of following the banking industry. When a bank has a mostly solid business but its future is in doubt because of a series of strategic mistakes, something that sometimes happens is that the bank is split in two. The good assets are put in one bank, often a new bank created just for that purpose, and the bad assets in another. This strategy eliminates the risk that a further decline in the bad assets will drag the good assets into a future business failure.
“Bad bank” might seem a strange description for the new, smaller Fox broadcasting business, but the deal will probably not close until the second half of 2019, and by then it might look like it is just in time. The broad underlying trend at issue is the downward trend in cable television. Already cable reaches more viewers who are retired or hospitalized than ones who hold jobs. Fast-forward a few years, and the number of cable viewers who are distinctly below retirement age will not be enough to support television industry in its current form. Fox News is aging worse than cable in general and would have to make a drastic change in its approach to make the leap to the Internet. At the same time that it faces this difficult transition, Fox News faces large potential liabilities from its fake news and abuse of employees. The Disney deal separates those weaknesses from the fundamentally sound entertainment properties. There is no problem with getting the films and entertainment series into future Internet distribution channels.
For Disney, the Fox deal is mainly about getting the Star Wars franchise under one roof. The rest of the assets just happen to line up well with Disney’s existing operations. In a statement, Disney says the combination will lead to billions of dollars in cost savings, and I don’t think that’s an exaggeration.
Tomorrow is the last business day before the week before Christmas. With the holiday season occupying people’s attention, the remainder of the year is a news hole, a time for businesses to make announcements that they want the broader public to overlook. I don’t think it’s a coincidence that the Disney deal is being announced today. There is no way to hide a TV business deal as large as this, with so many more details to be worked out over the coming year, but the two companies minimize attention by making the announcement now. The nationwide release of Star Wars: The Last Jedi tomorrow will further obscure this story. I am sure there will be many more announcements made in the coming week so that they can go relatively unnoticed, especially having to do with this kind of restructuring or where the focus is on a similar large-scale problem in a business. In business terms, this is a good time to talk about bad news.