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Comcast Might Thwart Disney-Fox Deal: Media ETFs in Focus

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Per several media reports, U.S. cable operator Comcast Corp (CMCSA - Free Report) could disrupt the  Disney-Fox deal inked in December. Per the deal, Twenty-First Century Fox (FOXA - Free Report) agreed to sell its entertainment assets to The Walt Disney Company (DIS - Free Report) for $52.4 billion.

This is especially true given that Comcast is exploring financing options to make a hostile all-cash bid of as much as $60 billion to snap up those assets itself, outbidding Disney’s offer, if the United States regulators approve AT&T's (T - Free Report) acquisition of Time Warner (TWX - Free Report) in June.

Acquisition of Fox would boost the competitive position of both Comcast and Disney and pose a significant threat to growing digital rivals like Netflix (NFLX - Free Report) and Amazon.com (AMZN - Free Report) (read: ETFs to Buy on Netflix's Blockbuster Q1 Earnings).

Why Comcast Wants to Buy Fox?

Lower cable subscriptions in the wake of surging demand for online services have compelled Comcast to look for new avenues of growth. In particular, streaming bundles such as AT&T's DirecTV Now and Google's (GOOGL - Free Report) YouTube TV pose major threat to Comcast’s cable business. The purchase of Fox could bulk up Comcast’s portfolio of films and TV shows and help in luring more Internet and cable subscribers. It also gives the company a majority stake in Hulu as CMCSA already owns a sizable chunk of it.

The deal would add to what Comcast already has within NBCUniversal, which includes channels like Bravo and E!, as well as Universal Pictures film library. As such, Comcast could become the biggest player in Hollywood by acquiring Fox.

A Quick Look at the Disney-Fox Deal

Fox would bolster Disney's streaming and television content. The House of Mouse, which is home to Lucasfilm (the “Star Wars” movies), Marvel ( “Avengers”) and Pixar (“Toy Story”) as well as the Disney brands, will own Fox’s film production businesses including Twentieth Century Fox, Fox Searchlight and Fox 2000. This would bring “X-Men”, “Fantastic Four” and “Deadpool” rights back into the Marvel fold and add “Avatar” — the highest grossing movie in history — to Disney’s family of franchises (read: Disney-Fox Deal to Change Media Industry: ETF in Focus).

Disney will acquire the Fox film studio with hit TV series including This Is Us, Modern Family, and The Simpsons, regional sports networks and entertainment cable channels like National Geographic, FX Networks, Fox Sports Regional Networks, as well as international networks like Star India, a controlling stake in Hulu, and a 39% stake of European satellite provider, Sky.

The Disney-Fox merger is yet to receive regulatory approval and is expected to be completed in late 2018 or early-to-mid 2019.

Market Impact

The battle to acquire Fox could transform the entire media industry, putting media ETFs in focus. Below we have highlighted a couple of them:

PowerShares Dynamic Media Portfolio (PBS - Free Report)

PBS is the only pure play fund providing exposure to media stocks under one roof. It seeks to offer capital appreciation by investing in companies that are selected on a variety of investment merit criteria, including price momentum, earnings momentum, quality, management action and value by tracking the Dynamic Media Intellidex Index. This approach results in the basket of 29 stocks with an expense ratio of 0.63%. Fox takes the third spot with a 5.4% share. The product has often been overlooked by investors as depicted by AUM of $47.2 million and average daily volume of 18,000 shares. It has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook (see: all the Consumer Discretionary ETFs here).

iShares Evolved U.S. Media and Entertainment ETF (IEME - Free Report)

This newly launched actively managed ETF has accumulated $4.8 million in its asset base since Mar 21. It offers exposure to 75 media and entertainment stocks with DIS, FOXA and CMCSA making up for more than 5% share each. It charges 18 bps in annual fees and trades in paltry volume of 2,000 shares.

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