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Is Disney's Counter Bid Paving the Way for Media Consolidation?

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On Jun 20, The Walt Disney Company (DIS - Free Report) in a not-so-surprising move sweetened its bid to acquire Twenty-First Century Fox, Inc.’s (FOXA - Free Report) assets, surpassing Comcast Corporation’s (CMCSA - Free Report) all-cash offer of $65 billion made last week.

The latest development has certainly taken the media acquisition war to a new level. And in doing so, it definitely has paved the way for consolidation in the industry, at a time when online streaming giants like Netflix, Inc. (NFLX - Free Report) and Amazon.com, Inc. (AMZN - Free Report) are fast invading its space and changing the entire ballgame.

As the mouse and the peacock continue their chase to catch the fox, it won’t come as a surprise if Comcast too in the coming days raises its bid. And amid all this drama, one person — Rupert Murdoch — is only getting richer.  

Disney Replies to Comcast’s Challenge

Fox on Wednesday accepted Disney’s fresh offer of $71.3 billion to acquire its film and television assets. The new offer is not only $18.9 billion higher that its first bid made in December, but also $6.3 billion more than Comcast’s  all-cash offer of $65 billion made last week.

The new bid has definitely put Disney back in the reckoning. Fox too has been more inclined toward Disney, as the deal has more regulatory advantage, with greater opportunity in terms of approval compared to Comcast.

Interestingly, after placing a $52.4 billion offer to buy out Fox, Disney in Dec 2017 had said that it was a “definitive agreement.” The scenario started changing in May when Comcast said that it will make a counter bid to acquire Fox’s assets.

However, Comcast was waiting for the all-crucial judgment on AT&T Inc.’s (T - Free Report) $85 billion bid to acquire Time Warner Inc. after the Justice Department had sued to block the merger. Comcast finally placed an official bid on Jun 13, a day after a federal judge cleared the way, allowing AT&T to acquire Time Warner.

Streaming Giants Intensify the Convergence War

It now won’t come as a surprise if Comcast makes a fresh bid in a tryst to derail Disney. Fox definitely is an important buy, as acquiring Fox means a lucrative portfolio comprising its film studios, a group of cable networks that include FX, National Geographic Channel and Star India, alongside a one-third stake in Hulu and 22 regional sports networks.

However, the bigger is the growing competition from streaming giants. Broadcasters have realized that tech companies with their digital content are giving them a run for their money. Acquiring Fox means it will create a new mass that will allow both Disney and Comcast to take on streaming giants like Amazon, Netflix and YouTube.

Expanding International Footprint

Broadcasters are trying to expand their international presence and acquisition seems to be the best weapon. The recent judgment in favor of AT&T will allow the mobile-phone giant to directly compete with the likes of Netflix and Amazon. At the same time, it will also allow the AT&T to create fair competition among cable operators and increase the cost of visual entertainment, thus consolidating the entire media ballgame.

Similarly, Disney, which has been struggling to make its presence felt in India, will get the Star India network in its arsenal if the Fox deal falls through. Understandably, the acquisition war is a survival strategy. Amazon and Netflix are taking the game away from traditional broadcasters, with television becoming almost obsolete. Amazon has a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Summing Up

Disney may have thrown the challenge back at Comcast but the bigger story definitely is the growing footprint of streaming giants. This has made traditional broadcasters and film studios struggle and expand their international presence through acquisitions; and penetrating the streaming space seems the only way to survive.

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