Disney-Fox deal expected to get close antitrust scrutiny

Disney Fox
The Walt Disney Co. logo appears on a screen above the floor of the New York Stock Exchange. Disney is buying a large part of the Murdoch family's 21st Century Fox in a $52.4 billion deal, announced Dec. 14, including film and television studios, cable and international TV businesses as it tries to meet competition from technology companies in the entertainment business.

Walt Disney Co.’s proposed takeover of 21st Century Fox is likely to raise thorny regulatory concerns at a time when the Justice Department has been putting media mergers and acquisitions under the microscope.

Disney’s $52.4 billion stock deal to acquire parts of Fox would create an unprecedented entertainment colossus and could trigger antitrust concerns because it would erase one of the six major Hollywood studios and fortify Disney’s dominance in sports broadcasting.

Disney, which owns ESPN, would take over 22 regional sports channels under the deal, including the YES Network. The acquisition would not include Fox’s FS1 and FS2 sports channels, but the deal still could give Disney more leverage with cable and satellite distributors.

“Any increase in Disney sports programming will be extremely problematic and will get intense scrutiny” from antitrust regulators, said David Balto, an antitrust lawyer and former policy director at the Federal Trade Commission.

In addition, Disney would take control of the online streaming service Hulu by acquiring a 60 percent stake, which would give it a huge presence in the emerging digital media market.

“Given the size of the acquisition, it will raise eyebrows in Washington,” said Gene Del Vecchio, a marketing professor at the University of Southern California Marshall School of Business.

“Will it reduce options for consumers or increase prices?” Del Vecchio said. “Will it give Disney undue power? Power not only in terms of consumer choices and prices, but power for the back end of their business — theater owners, etc.”

The Justice Department has already sued to block another big media deal — AT&T’s proposed $85 billion purchase of the media company Time Warner Inc., which includes CNN, HBO, TNT, and Warner Bros. Studio.

President Trump criticized that deal a year ago on the campaign trail, saying, “It’s too much power in the hands of too few.”

But Disney is expected to argue that it needs to bulk up its entertainment assets to compete with video and other entertainment inroads being made by such companies as Google, Facebook, Amazon, and Netflix. The deal appears designed to bolster Disney’s plans to launch its own streaming services in the next two years.

Prominent media executives have lamented a shift in power in their marketplace and Washington’s seeming willingness to allow technology companies to steamroll traditional providers.

But it’s unclear whether the growth of Netflix, Amazon, and others is enough to let Disney clear its antitrust hurdles with Fox, said Scott Martin, an antitrust lawyer with the law firm Hausfeld.

“It’s an argument people will make, but it’s almost too early to tell,” Martin said. “It has a lot more weight than it did five years ago, but it depends on how much credence you put in it.”

Regulators might view Disney’s taking control of Hulu via the Fox deal “as a positive development insofar as it makes Hulu more competitive” with Netflix and other streaming services, Martin said.

The Disney-Fox deal would be a classic “horizontal” transaction because the two companies are direct competitors. The proposed union would eliminate a competitor from the market, and the Justice Department has long been wary of such deals.

Nearly three years ago, the Justice Department was gearing up to block Comcast Corp.’s proposed takeover of another cable company, Time Warner Cable (formerly part of Time Warner Inc.). The government frowned on that proposed acquisition even though the two companies served separate geographic regions.

Comcast withdrew its offer in light of the government’s opposition. Time Warner Cable was eventually acquired by the much smaller Charter Communications.

The AT&T-Time Warner deal is known as a “vertical” transaction because the two companies generally do not directly compete against each other, and historically the government has approved such deals.

But the Justice Department veered from that course last month when it sued AT&T over its Time Warner deal. The government hasn’t successfully blocked a vertical merger or acquisition since the Carter administration.