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Winning Fox’s bidding war is just the beginning



How to bid for

21st Century Fox
& # 39; s


FOX 1.34%

has escalated, the margin of error to manage and extract value from them is shrinking.

Disney
& # 39; s


DIS 1.18%

last offer of $ 71.3 billion in cash and shares is a 36% premium to its original offer of $ 52.4 billion. The price can go up even more if

Comcast


CMCSA -0.06%

returns with an offer in the range of $ 90 billion.

Is it worth the cost, even for such scarce assets?

The market already seems uncomfortable every time the price increases; but the agreement will be evaluated for several years, and its success will only be clarified in the future, depending on what the buyer does with the assets. Even so, a higher price increases the barrier by the value that the buyer, either Disney or Comcast, will have to extract to justify the cost.

The integration of the assets will be a massive company that will only be more challenging due to the interruptions of the industry and fast -changing consumption habits. The buyer will present under his umbrella the Fox film and television studio, the US cable networks. UU And the regional sports networks, international assets such as Sky and Star India and the third part of Fox in the Hulu streaming service. (Disney has agreed to divest itself of regional sports networks to comply with regulatory approval).

What could go wrong?

"The biggest risk is to change the habits of consumers and to what extent an inherited business can pivot without seeing a degradation in its economy", says

John Janedis,

a media analyst at Jefferies LLC.

As Disney intends to launch two new streaming services, one for adults and one for children, and put all its content – including the Fox library – on its own platforms, it will terminate its license agreements. with other distributors like

Netflix
.

That will mean losing a large source of income. The recovery of that loss will depend on the ability of the company to attract subscribers to the new platforms.

Meanwhile, the winner of the bidding war will also have control of Hulu, another platform to manage. (Comcast and Disney each currently have a 30% stake, but acquiring Fox's share will increase that percentage up to 60%). Owning a "disruptor" along with inherited assets prone to interruptions brings unique challenges.

Then there is the question of how much media consumption habits can change in the next 10 or 15 years. Thinking that many years is an instructive exercise on how quickly seemingly impregnable franchises can stumble while upstarts ascend.

For the time being, consensus holds that migration to transmission is likely to accelerate, especially when Amazon,

Apple

and others increase their content expense. To this will be added the desire of consumers to watch videos in an environment without advertising. As Netflix increases its spending, driving Hollywood talent away from the legacy media, the struggle for dominance will become fierce.

Even with a much smaller offer, making a mistake would be bad enough. This agreement has much more serious consequences. Those who buy Fox's assets at a very high price can count on one thing: they have very little security margin.

.


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