Hollywood on collision course with Netflix and Amazon

Disney’s bid for Fox highlights the power plays in the entertainment industry.

Fox’s bid for Sky, where Sarah-Jane Mee presents its news channel’s breakfast show, is under scrutiny.

Three months ago, Bob Iger rolled the dice. After years of pocketing juicy licensing fees from Netflix, Disney’s veteran boss decided to freeze out the Silicon Valley interloper.

From the start of 2019, Disney’s catalogue of hit movies — from classics such as the Jungle Book and Bambi to the Toy Story franchise — will no longer be shown on Netflix. Instead, the Hollywood studio will sell its own internet movie service direct to viewers.

Weeks after this bold decision, he made an even more audacious bid to repel Silicon Valley’s remorseless advance onto his turf. In an attempt to bolster Disney’s content library, Iger, 66, tabled a bid for rival 21st Century Fox’s film and TV studios and cable channels, including its 39% stake in British pay-TV giant Sky.

The talks, which foundered, came to light early last week, sending tremors through the media industry.

Days later there was further upheaval when American watchdogs cast a pall over another media mega deal — AT&T was told its $95bn (£72bn) takeover of Time Warner would be approved only if the telecoms giant offloaded the CNN cable news network. Its dreams of creating a communications and media colossus have suffered a severe, perhaps fatal, blow.

The deal-making frenzy is a response to the rise of big tech into big players in Tinseltown. In recent years, content owners such as Fox and Disney have raked in billions from the likes of Netflix and Amazon Prime by renting their shows to the highest bidder. But the streaming services have turned the tables on Hollywood. They are pumping huge sums into their own high-end productions. In March, Amazon walked away with three Oscars, including two gongs for Manchester by the Sea; Netflix won best short documentary.

The budgets and creative freedom offered by the upstarts have helped to lure top directors and actors from cinemas and the TV screen. Netflix splurged £100m on The Crown, while Amazon, has committed a reputed £200m to The Grand Tour.

If stars are quitting the small screen in droves, so too are consumers. In America, in particular, millions of viewers are “cutting the cord” — cancelling cable subscriptions in favour of cheaper internet services. The exodus threatens to choke off the income streams that have long sustained film production. Media and telecoms stalwarts are fighting back — by marrying programme making with distribution. AT&T wants to stuff its cable network with Time Warner’s back catalogue, which includes HBO series such as Game of Thrones, and Warner Brothers productions such as Dunkirk.

Disney, meanwhile, has spent more than $2.5bn for a majority stake in BAMTech — a New York streaming start-up. Iger’s plan is to use its know-how to sign up tens of millions of subscribers in the US and beyond. BAMTech will also power a streaming version of ESPN, its popular American sports channels, which launches next year.

However, having a whizzy new app is no guarantee of success — even for the owner of Star Wars and Marvel studios. Iger wants to bulk up, fearing that it may not be long before Netflix catches up. During this year and next, the streaming giant plans to spend some $14bn on original productions.

For Disney, taking a bite out of Fox — whose co-chairman Rupert Murdoch chairs The Sunday Times’s ultimate owner News Corp — would fill its new streaming service with an abundance of new content, including the Homeland TV series and the Alien and Planet of the Apes franchises.

Disney is reported to have discussed buying Fox’s movie and television studios and its cable entertainment interests, including the National Geographic and FX channels. These businesses alone are worth more than $20bn, according to analysts at RBC. Disney also floated the idea of buying its overseas TV interests, including its Asian pay-TV business Star and its £6bn chunk of Sky.

Under this scenario, Fox’s main assets would be reduced to lucrative US sports channels and the Fox News service. These are viewed as much more resilient to the changing tides, compared to its production businesses.

The talks between Fox and Disney are not live, but could restart at any time, sources said. Were discussions to resume, Fox’s bid for the 61% of Sky is unlikely to be derailed. Analysts said it would be hard, under UK takeover rules, for Fox to walk away now. Moreover, if Disney buys Fox’s Sky stake, it would be obliged to make a bid for the whole company.

Last week Fox co-chairman Lachlan Murdoch, who is Rupert’s elder son, declined to comment on the talks. However, he insisted that the company “has the required scale” to thrive. After Fox’s failed bid to acquire Time Warner in 2014, some analysts questioned whether it is big enough to thrive on its own. Despite Lachlan’s protestations, media bankers said that last week’s revelations had put Fox’s movie and TV businesses “in play”. There is an array of potential buyers, including cable giant Comcast and AT&T, if its bid for Time Warner is thwarted.

The landscape is shifting rapidly, and it may not be long before Silicon Valley joins the takeover fray. Apple is a perennial potential bidder on the media rumour mill, with Netflix and Disney seen as possible targets.

It’s a promising plotline in search of an ending.