Back to top
Read MoreHide Full Article

If all goes well, you may be lucky enough to witness the Marvel’s first family and its beloved mutants rubbing shoulders with the Earth’s mightiest heroes, as they join forces to fend off threats that can obliterate Earth-616.

Yes, you heard it right. Speculation is rife in the market that The Walt Disney Company (DIS - Free Report) has emerged as a strong contender in the race to acquire some properties of Twenty-First Century Fox, Inc. (FOXA - Free Report) . The deal, which according to industry experts is valued at approximately $60 billion, is likely to take shape as early next week, per media reports.

Per sources, Comcast (CMCSA - Free Report) has been also exploring options to have a piece of 21st Century Fox’s media empire but its the owner of Pixar, Marvel and Lucasfilm that may have the last laugh. Market analysts believe that it would not be of herculean task to get a nod of U.S. antitrust regulators. However, some fear that the deal might face regulatory hurdles, as observed in the case of AT&T's (T - Free Report) deal to buy Time Warner (TWX - Free Report) .

What the Deal Means for Disney?

Keeping aside the antitrust issues for the time being, let’s analyze what the deal could mean for Disney, at least on a qualitative basis as of now.

The deal could be a bout of fresh air to Disney, which for quite some time now has been jostling in the fast changing media landscape, where rise in streaming and cord cutting have become two faces of the coin. The only possible way out is either you make yourself bigger or get eaten by a bigger fish, or you shrink to focus on core profitable operations.

Disney is treading on the right path in its quest to strengthen arms. The accord would give the Mouse House a hold on Fox's regional sports networks (excluding flagship broadcast network, Fox News and the cable sports networks FS1 and FS2), National Geographic cable channels, movie studios, the Star network in India along with a stake in the British broadcaster Sky and video-streaming service Hulu.

No wonder, the buyout of these assets would considerably enhance the media mogul’s bargaining power with Cable TV providers, increase affiliate fees, provide a fresh lease of life to ESPN and create cost synergies. Further, the addition of Fox's rich library of movies and TV series would greatly enhance Disney’s prospects in the streaming service. The deal if finalized is also likely to extend the contract of CEO Bob Iger, slated to retire in July 2019, for a smooth integration of Fox’s assets into Disney.

An Introspection

Of late, Disney’s ESPN has been a hot topic in the media industry, which has been grappling with declining subscriber count and higher programming costs. We noted that most of the media companies are failing to cope with cord cutting as consumers are unwilling to pay for large bundles of channels.

To overcome this, ESPN has sealed a number of deals with new platform owners, mostly over-the-top. The company had earlier stated that mobile apps are going to play an important role in the future of media, and ESPN is rightly on the way of taking the advantage of the trend with wide range of apps.

Disney also plans to launch its own streaming services — one for Disney and Pixar brands, and another for ESPN followers. The company had earlier stated that it will terminate distribution agreement with Netflix (NFLX - Free Report) for subscription streaming of the new movies starting in 2019.

The company will start online streaming services for ESPN sports in early 2018, and its branded direct-to-consumer streaming service in 2019 will carry Disney movies as well as TV shows. Further, blockbuster movies will ensure great business for its Consumer Products division as demand for merchandise associated with blockbusters movies usually skyrockets. Also, addition of these popular themes to Parks & Resorts is likely to increase footfall.

Wrapping Up

Technological advancement is playing a major role in how people prefer to watch their favorite programs now days, and with new entertainment products and services available traditional media players are losing competitive leverage. Disney to an extent has been the victim of the same.

Nevertheless, the company is taking steps to be become more in sync with the contemporary. The acquisition of BAMTech, the video streaming and data analytics company, can be cited as one of the examples in that direction. Further, a deal with Fox would consolidate its position in the movie business as well as sports broadcasting.

In the past three months, shares of this Zacks Rank #3 (Hold) have gained 8.7%, outperforming the industry’s growth of 2.1%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Zacks' Hidden Trades

While we share many recommendations and ideas with the public, certain moves are hidden from everyone but selected members of our portfolio services. Would you like to peek behind the curtain today and view them?

Starting now, for the next month, I invite you to follow all Zacks' private buys and sells in real time from value to momentum...from stocks under $10 to ETF to option movers...from insider trades to companies that are about to report positive earnings surprises (we've called them with 80%+ accuracy). You can even look inside portfolios so exclusive that they are normally closed to new investors.

Click here for Zacks' secret trade>>

More from Zacks Analyst Blog

You May Like