DOJ Appealing Judge’s Approval of AT&T’s Acquisition of Time Warner

In a surprise, the Justice Department is set to appeal a recent federal judge’s decision greenlighting AT&T’s $85 billion acquisition of Time Warner, including Warner Bros., Turner and HBO.

In a court document filed July 12, the DOJ appears to be acting on its initial disappointment last month after U.S. District Court Judge Richard Leon ruled the government had failed to meet its burden to establish that the merger was anti-competitive and would hurt consumers.

Some critics contend much of government’s resolve around thwarting the deal revolved around President Donald Trump’s public dislike of CNN, which is owned and operated by Turner. During the 2016 campaign, Trump argued the transaction would be bad for consumers.

While the DOJ had no objection to the closing of the merger following Leon’s decision, it still left open the possibility of a future appeal.

Regardless, repercussions to the DOJ decision could impact Comcast and Disney’s attempt to purchase 20thCentury Fox Film and other 21stCentury Fox assets, including U.K. satellite TV operator Sky.

Indeed, Comcast’s $65 billion offer for Fox assets and separate $34 billion bid for Sky hinged upon Leon’s decision and the DOJ’s subsequent response.

News of the appeal sent AT&T shares down 1% in after-market trading.

 

Changes at Disney Accelerate as New Digital Streaming Service, Fox Acquisition Loom

Walt Disney Co. is shuffling executives and shuttering animation division Disneytoon Studios, based in Glendale, as it sets up for major changes at the company.

Disney is in the final stages of a possible acquisition of Fox, with shareholders scheduled to vote on the merger July 27. The company is also planning to bow a Disney streaming service next year to compete with the likes of Netflix and Amazon Prime.

Last week, the company placed film marketing president Ricky Strauss in charge of content and marketing for its streaming service. He will handle original film and TV series for the new service. Strauss reports to Kevin Mayer, installed in March as head of Disney’s direct-to-consumer unit. Among Mayer’s duties are leading the ESPN+ streaming service launched this year and the company’s stake in Hulu. Asad Ayaz will take over Strauss’s former role as studio marketing president. Also, theatrical distribution chief Cathleen Taff was upped to president from EVP.

Last week was also a fadeout for Disneytoon Studios, which was known for direct-to-video sequels to The Little Mermaid, Mulan and other Disney classics; the “Fairies” DTV series featuring the Tinker Bell character; and theatrical forays such as Planes: Fire and Rescue.

“After much consideration, we have made the decision to end production activity and close Disneytoon Studios,” a Disney spokesperson said in a statement. The closure, first reported by Indiewire, is expected to result in the loss of an estimated 75 staff positions.

Animation veteran John Lasseter, who spearheaded Disneytoon Studios, was replaced by Pete Docter and Jennifer Lee on the creative team this month after acknowledging a pattern of inappropriate conduct with employees.

Fox/Disney Cite Hulu in Arguments Against Comcast Bid

NEWS ANALYSIS — Apparently, 21st Century Fox and The Walt Disney Co. really don’t want Comcast to buy the former’s 20th Century Film and British satellite TV operator Sky businesses no matter how many billions the cabler puts on the table.

Fox, which is run by Rupert Murdoch and his son Lachlan — in a regulatory filing — said Comcast’s $65 billion all-cash offer faces too many regulatory hurdles. Instead, it believes Disney’s competing $71 billion cash/stock bid poses fewer risks.

“While a potential Disney transaction was likely to receive required regulatory approvals and ultimately be consummated, a strategic transaction with Comcast continued to carry higher regulatory risk leading to the possibility of significant delay in the receipt of merger consideration as well as the risk of an inability to consummate the transactions,” the company said in the filing.

However, Comcast made its offer for Fox the day after a federal judge rejected similar antitrust issues and ruled in favor of AT&T’s $85 billion merger with Time Warner.

Included in the competing Disney/Comcast offers is controlling interest in Hulu, the money-losing SVOD service and adjunct online TV platform. Both Disney and Comcast would have 60% control of Hulu should either consummate the deal. Currently each company (along with Fox) has a 30% stake, with AT&T’s WarnerMedia owning 10%.

Hulu was a key issue to regulators when Comcast acquired NBC Universal in 2011. The DOJ at the time worried so much that Comcast could thwart rollout of over-the-top video that it mandated the company “relinquish its management rights in Hulu,” among other provisions. It also ordered Comcast make NBC Universal content available to Hulu “that is comparable” to the programming Hulu obtains from Disney and News Corp. (now 21st Century Fox).

Indeed, in a June 20 investor call, Disney CEO Bob Iger reiterated those concerns.

“What is also clear to us is that in the vertical concentration issues that I’ve talked about, this is a great concern to the DOJ,” said Iger.

With the OTT video ecosystem no longer in its infancy (hello, Netflix and Amazon Prime Video!), and Disney planning to roll out its own branded SVOD service in 2019, Fox contends regulators would have fewer issues with Disney controlling Hulu.

Which is precisely why the issue is moot, according to Rich Greenfield, media analyst with BTIG Research.

“Given that Hulu has been dwarfed by Netflix and Amazon on the SVOD front and trails well-behind other virtual MVPDs such as Sling and DirecTV Now, we find it difficult to imagine why greater Hulu ownership by Comcast would concern the DOJ in 2018,” Greenfield wrote in a June 26 note.

The analyst believes Comcast not only has the financial resources to top Disney’s offer, but smoother regulatory path as well.

“We continue to believe that if the DOJ is worried about reduced competition and higher consumer prices, with less choice in bundles, Disney/Fox is far more concerning than Comcast/Fox,” Greenfield wrote.

 

Iger: Disney Has Smoother Path Than Comcast Closing Fox Acquisition

NEWS ANALYSIS — When it comes to mega corporate mergers, regulatory muster is just as important as money.

Speaking (along with CFO Christine McCarthy) June 20 on the analysts call to discuss Disney’s enhanced $71.3 billion offer for 20th Century Fox Film, CEO Bob Iger said he believes his company has more insight with federal regulators than rival Comcast, which has a competing $61 billion offer on the table for Fox and British satellite TV operator Sky Plc., among other assets.

“We have a much better opportunity in terms of approval and the timing of that approval than Comcast does in this case,” said Iger. “We are confident that we have a clear and timely path to approval.”

Iger cites the six months already invested by Disney with Fox involving the media company’s initial $52 billion bid for the Rupert Murdoch-owned media giant. He also downplayed Comcast’s concerns that control of entertainment content was at the heart of government’s failed antitrust lawsuit in the recently completed AT&T/Time Warner deal.

“It’s simply an apples to oranges comparison to what the Justice Department was considering when considering the AT&T acquisition of Time Warner,” Iger said. “We have a much greater appreciation for the potential that these assets represent to us, to our strategy today and to the strategy we intend to deploy long-term. We’ve been extremely impressed with the talent we’ve been engaging with at Fox.”

Iger said internal management changes (upping Kevin Mayer and Bob Chapek’s duties) at Disney were done in part to absorb Fox and Sky — the latter Europe’s largest satellite operator with more than 10 million subscribers — while greenlighting over-the-top video initiatives.

“Direct-to-consumer distribution has become an even more compelling proposition in the six months since we announced the [initial Fox] deal,” Iger said. “Clearly the consumer is voting, loudly, that these new platforms are very compelling from a consumer experience and consumer value perspective.”

CFO McCarthy projects $2 billion in cost synergies (i.e. job cuts) and lower debt with the transactions by 2021.

“We’re very comfortable with this level of [debt-to-earnings] leverage,” said McCarthy. “We’ve always said we would be willing to deploy our balance sheet to advance our strategic objectives.”

 

U.K. Cultural Secretary Ups Sky Ownership Requirements, Including $2 Billion Fiscal Support

Owning British satellite TV operator Sky Plc just got a lot more expensive.

The British government June 19 laid out additional requirements to the ongoing £15 billion equity stake sale of Sky to 21stCentury Fox, which is turn is being coveted by The Walt Disney Co. and Comcast in separate acquisition bids.

At issue is the financial and editorial independence of Sky News, one of the largest news channels in the United Kingdom.

Matt Hancock, U.K. Cultural Secretary, disclosed that Disney had agreed to operate and maintain an editorially independent Sky News branded news service for 15 years rather than 10 years. It also agreed to not sell Sky News for 15 years without the consent of the government.

Disney and Fox also agreed to increase annual Sky News funding by £100 million ($132 million) – which amounts to nearly $2 billion over the course of the agreement.

“In my view, these revised undertakings meet the criteria that I set out to the House on 5 June and will help to ensure that Sky News remains financially viable over the long term; is able to operate as a major UK-based news provider; and is able to take its editorial decisions independently, free from any potential outside influence,” Hancock said in a statement.

Public input on the proposed merger is open until July 4.

Comcast Offers $65 Billion for Fox

Comcast Corp. has submitted a $65 billion cash bid for 21st Century Fox film and television assets,  a day after a federal judge dismissed competitive concerns and ruled that AT&T’s $85 billion acquisition of Time Warner may proceed.

Comcast’s bid is significantly higher than Walt Disney Co.’s $52.4 billion offer. However, a key difference between the offers is that Disney’s involved a stock swap that would give the Fox shareholders about a 25% stake in Disney going forward. Rupert Murdoch, chairman of 21st Century Fox, reportedly favored the stock transaction over Comcast’s one-time buyout offer because it limits tax liabilities in the short term, in addition to the potential for future earnings on the stock.

In a letter to the Fox board, Comcast Chairman and Chief Executive Brian Roberts said, “We are also highly confident that our proposed transaction will obtain all necessary regulatory approvals in a timely manner and that our transaction is as or more likely to receive regulatory approval than the Disney transaction.”

Comcast already owns NBC Universal. The telecom last month said it planned to make an all-cash offer for the Fox studio and networks, but would wait until a court ruling on the AT&T-Time Warner merger.

Philadelphia-based Comcast also said it would pay Disney the $1.525 billion  fee owed in the event of its Fox deal falling through.

Fox shareholders are slated to vote July 10 on the Disney merger, but Comcast said it wants a deal before that.

Fox assets that are on the table include the 20th Century Fox movie and TV studios, as well as the FX and National Geographic channels; Fox’s 22 regional sports networks; its interests in U.K. satellite TV and Internet provider Sky; and a one-third stake in Hulu, which is currently owned by Comcast, Disney and Fox, each with a 30% interest.

A Disney acquisition of Fox would also return the movie and distribution rights to films based on properties Disney now owns, such as Marvel Comics’ X-Men and Fantastic Four, paving the way for their inclusion in Disney’s lucrative Marvel Cinematic Universe. Fox also owns the perpetual distribution rights to the original Star Wars. In addition, Disney recently expanded its Florida-based Animal Kingdom theme park to include a themed-area based on James Cameron’s “Avatar” franchise, which is Fox IP.

Industry observers expect Disney to make a counter-offer for the Fox assets, which could involve an updated bid that includes a mix of stock and cash.

Dish Network Owner Eyeing U.K. Satellite TV Market?

NEWS ANALYSIS — On the heels of 21st Century Fox, the Walt Disney Co. and Comcast collectively coveting U.K. satellite TV operator Sky, Denver-based EchoStar Corp. is also gazing across the pond.

Headed by Charlie Ergen, majority owner of Dish Network, EchoStar reportedly made an offer for Inmarsat, a London-based satellite telecommunications company with more than $1.4 billion in revenue in 2017.

While Inmarsat’s stock price jumped 14% following the undisclosed financial offer, the company considered it below its market value and rejected it.

“It very significantly undervalued Inmarsat and its stand-alone prospects,” the company said in a June 8 statement. “The board remains highly confident in the independent strategy and prospects of Inmarsat.”

Unlike Disney, Fox and Comcast’s interests in Sky’s 10 million pay-TV subscribers, Ergen is more interested in Inmarsat’s radio spectrum portfolio.

As media distribution increasingly becomes wireless, spectrum plays a key role in how that distribution channel works. Most major industries rely on wireless technologies that depend on spectrum access to function, including cellular, broadcast and satellite.

In the United States, regulatory responsibility for the radio spectrum is divided between the Federal Communications Commission (FCC), and the National Telecommunications and Information Administration (NTIA).

In 2017, Ergen reportedly spent $6.2 billion acquiring spectrum rights in government auctions – second only to T-Mobile. Dish reportedly owns about $35 billion worth of spectrum rights in the U.S., despite not yet operating a wireless network – as do Verizon, AT&T, T-Mobile, Sprint and Comcast.

Cellular distribution was one of the reasons Dish acquired the bankrupt Blockbuster Video chain in 2011. It had hoped to use the video store’s retail footprint to jumpstart branded and third-party mobile devices. That strategy stalled in 2013 when Dish shuttered the remaining Blockbuster-owned stores.

In 2015, Dish Launched Sling TV, the industry’s first online TV service. With more than 2 million subscribers, Sling TV represents Dish’s future as traditional linear TV declines.

With AT&T launching DirecTV Now, Charter operating Spectrum TV Plus, and Disney bowing ESPN+, Ergen has voiced interest in launching a wireless network by 2020 to better accommodate Sling TV to mobile consumers.

A year ago, Comcast did just that bowing Xfinity Mobile – a wireless service targeting the cabler’s 25 million broadband subscribers.

“Wireless is hyper competitive,” Dave Watson, CEO of Comcast Cable, said last year.“We will measure our success very differently than other wireless carriers. It will be designed to support the core cable business.”

Indeed, Ergen has similar designs involving Dish Network, and could license his spectrum portfolio or use it as leverage to entice merger and acquisition offers from third parties. Last December, Ergen stepped down as CEO of Dish to focus on wireless. Maybe that will include revisiting the Inmarsat offer.

U.K. Government Approves Fox, Comcast’s Competing Sky Bids

The British government June 5 officially removed regulatory objections to 21st Century Fox’s $15.5 billion bid to acquire shares of satellite TV operator Sky it doesn’t already own. It also cleared the way for a rival $31 billion bid by Comcast for control of Sky.

U.K. Cultural Secretary Matt Hancock told Parliament the Comcast offer did not raise public interest concerns, adding, “I can confirm today that I will not be issuing an intervention notice.”

Comcast, like Fox, has agreed to guarantee editorial independence for Sky News with a 1o-year financial support commitment.

Regardless of whether Fox outbids Comcast for Sky, it has agreed to sell 20th Century Fox Film — which includes Sky — to The Walt Disney Co. for $52 billion in a primarily stock transaction. Comcast is contemplating a separate $61 billion cash offer for 20th Century Fox, which also includes 20th Century Fox Home Entertainment.

Fox corporate, which is controlled by Rupert Murdoch and his son Lachlan, issued a statement lauding the U.K. government’s decision.

“[Fox] welcomes today’s announcement by the Secretary of State for Digital, Culture, Media and Sport that … has cleared [our] proposed acquisition of the remaining shares in Sky on broadcasting standards, as recommended by the Competition and Markets Authority (“CMA”),” said the media company.

Sky, in a statement, said the Fox’s decision to support editorial independence for its news division provided a “good starting point” to overcome the adverse public interest effects of the proposed merger.

It also applauded Parliament’s approval of Comcast rival offer.

“The Independent Directors of Sky are mindful of their fiduciary duties and remain focused on maximizing value for Sky shareholders,” said the company.

Netflix Worth More Than Comcast, Disney on Wall Street

Thanks to a record stock price, subscription streaming video behemoth Netflix quietly ended May 23 with a market value exceeding Comcast for the first time.

The same Comcast that owns NBC Universal, DreamWorks Animation and wants to own 20th Century Fox Film and British satellite TV operator Sky.

Netflix ended the day with market capitalization of $149 billion, which bested Comcast’s $147 billion market cap. Netflix opened May 24 up to $151.8 billion, which passed Disney’s $151.7 billion market cap.

With more than 125 million subscribers globally, Netflix continues to grow. The service expects to add 6.2 million subs in the second quarter ending June 30.

The service also continues to expand its creative product with the bow of “Dear White People,” “The Break with Michelle Wolf” on May 27, and announcement of future projects with former President Barack Obama and First Lady Michelle Obama.

The latter drew some pushback on social media, with several subscribers saying on Twitter they would cancel their service, according to Fortune.

Apparently, President Obama’s desire to “cultivate and curate the talented, inspiring, creative voices who are able to promote greater empathy and understanding between peoples and help them share their stories with the entire world,” being an affront to some.

Chief content officer Ted Sarandos said the Obamas are “uniquely positioned to discover and highlight stories of people who make a difference in their communities and strive to change the world for the better.”

And Wall Street agrees — for now.

Comcast Prepping Superior Offer for Fox

The Walt Disney Co. and 21st Century Fox may think they have a $52.4 million merger agreement to split off 20th Century Fox Film locked up, but Comcast is hedging shareholders will follow the money.

Comcast May 23 issued a statement that it is finalizing an all-cash (reportedly $60 billion) offer for Fox that bests Disney’s stock-based offer.

“In view of the recent filings with the U.S. Securities and Exchange Commission by The Walt Disney Company and Twenty-First Century Fox, Inc. in preparation for their upcoming shareholder meetings to consider the acquisition of Fox by Disney, Comcast Corporation confirms that it is considering, and is in advanced stages of preparing, an offer for the businesses that Fox has agreed to sell to Disney (which do not include the Fox News Channel, Fox Business Network, Fox Broadcasting Company and certain other assets),” Comcast said in the statement.

Comcast also has a separate $31 billion offer on the table for British satellite TV operator Sky that trumps Fox’s $15 billion bid for outstanding shares of Sky it doesn’t already own.

“The structure and terms of any offer by Comcast, including with respect to both the spin-off of “New Fox” and the regulatory risk provisions and the related termination fee, would be at least as favorable to Fox shareholders as the Disney offer,” said the cable giant.

Comcast reiterated that no final decision has been made, but that “at this point” the work to finance the all-cash offer and make the key regulatory filings is “well advanced.”