As Disney’s acquisition of 20th Century Fox moves slowly towards government approval, what does it mean for the rest of the major movie studios?
By Jeffrey Cole
For much of the past 20 years, Rupert Murdoch has been the most powerful person in the media business. Indeed, he has earned that title. Astonishingly, over the past three years, before our very eyes, he has become a small player.
It’s not that Murdoch became smaller: it’s that others around him who are circling the media business — Amazon, Facebook, Google and Apple — have become very big players with valuations many times that of Murdoch’s companies, and with far more money to invest in the future. As I pointed out in an earlier column about sports — and this also applies to entertainment — if Amazon wants to buy leading content, then who will outbid Jeff Bezos, the richest man in the world?
This has not come as a surprise to Murdoch (little catches him off guard). Realizing that Fox is not big or powerful enough to compete with new entrants into his business, in 2014 he made an unsuccessful bid to buy Time-Warner. That was the Murdoch that we had come to know and respect: he was competing by acquisition in order to make Fox bigger than ever. When he couldn’t get Time-Warner, there was great interest in what would be his next target.
Thus it came as a shock to almost everyone when at the end of last year Murdoch threw in the towel and acknowledged that he was too small to compete with Silicon Valley, Netflix, and the Chinese. Rather than acquiring as he had all his life, he sold most of his signature assets. While keeping Fox News, Sports, and the broadcast networks, Murdoch sold his film and television studios, international operations, and cable networks to Disney.
If the deal goes through, the Simpsons will belong to the same company as Mickey Mouse!
Traditional movie studios consolidating; new players arriving
For most of their history, the major studios have been reasonably well matched. Each year there would be different leaders, but they divided up the film and television pie relatively well. Today, massive new players are changing all the rules. We forecast that $17 billion will be spent on original programming by players that were not in the content businesses only a few years ago (Netflix, Amazon, Hulu, Apple, and Facebook).
Out of the six studios, only three will be beefed up and ready to compete into the next generation. A new game of movie studio musical chairs has begun. Where it ends, nobody knows.
Although the Justice Department has held up the AT&T/Time Warner deal, ultimately, after passing through some hoops and perhaps divesting some assets (not CNN as the President might like) it will likely go through. Ever since it was announced in October of 2016, I have said that when the deal goes through, it will forever change the studio system and the production and distribution of entertainment.
As AT&T adds Warner Bros., HBO, and Turner Broadcasting to its current array of companies, including one of the two biggest mobile companies in America along with DirecTV, U-Verse and more, there will be three Super Studios.
In addition to AT&T Time-Warner, there will be the Walt Disney Company with its studios, ABC Broadcast Network, theme parks, cruise lines, and retail stores. There will also be NBC Universal Comcast. Those three names say it all.
Out of the six studios — Warner Bros., Sony (Columbia), Disney, Universal, Paramount, and Fox — only three will be beefed up and ready to compete into the next generation.
Of the remaining studios, neither Paramount nor Sony are big enough to compete with the other three, let alone the new Silicon Valley and Chinese entrants to the entertainment industry. They cannot stand alone much longer and will have to seek partners, mergers, or acquisitions.
Paramount has had a long string of bad luck and poor leadership that has held it back. For many years it barely seemed to be in the movie business, moving forward only with projects with low risk and therefore less potential to become big hits.
Last year, Paramount put Jim Gianopulos — a seasoned studio executive who wants to make major motion pictures — in charge of the studio. When Viacom, the company that owns Paramount, split in two (CBS became a separate company) it kept some of the best assets. Paramount stayed with Viacom, as did the extraordinarily valuable cable networks including MTV, Nickelodeon, and Comedy Central.
For most of their history, the major studios have been reasonably well matched. Today, massive new players are changing all the rules. We forecast that $17 billion will be spent on original programming by players that were not in the content businesses only a few years ago (Netflix, Amazon, Hulu, Apple and Facebook).
Viacom and CBS were both controlled by Sumner Redstone, the ailing 94-year mogul. Today, his daughter Shari Redstone, has control over the companies, and she clearly realizes that neither can compete with the new players by themselves, so she will seek a reunification of CBS and Viacom sometime in the next few months. The looming question is whether a recombined CBS and Viacom will be big enough, and the answer is clearly no. But it is a good beginning. More moves will have to follow quickly.
Sony also isn’t big enough to continue to stand alone. While owned by one of the world’s great electronics company (which has recovered from its own slump), Sony cannot compete on its own with the new players moving into content creation. It will have to grow or (and this is more likely), be being acquired by another player.
While the Hollywood studios have seen corporate owners come and go (Coca-Cola, Matsushita, Seagrams, Vivendi, Gulf & Western, and others), they have been relatively stable competitors. But if the Disney-Fox deal goes through, then six studios will become five. Both Paramount and Sony are likely next acquisitions, and the acquirers will probably be technology companies.
Amazon has been successful building its own studio rather than buying one, so I don’t expect that it will try to acquire Paramount or Sony. Instead, look for Facebook, Google and Apple in the United States, as well as Tencent, Baidu and Alibaba in China, to circle the two surviving independent studios.
A new game of movie studio musical chairs has begun. Where it ends, nobody knows.
Jeffrey Cole is the founder and director of The Center for the Digital Future at USC Annenberg.
January 25, 2018