Case 21

Walt Disney,
21st Century Fox, and
the Challenge of New
Media*
On July 19th, 2018, Comcast Inc. withdrew from the battle to acquire Rupert
Murdoch's 21st Century Fox, leaving the field clear for the Walt Disney Company.
Disney's initial bid of $54 bn. (plus the assumption of Fox's debt of $14 bn.) had
been accepted by 21st Century Fox on December 14, 2017. However, a higher bid
from Comcast had thrown the deal into doubt and was only resolved when
Disney raised its bid to $71 bn., making the deal worth $85 bn.

For Disney's CEO, Bob Iger, the acquisition would reinforce Disney's position as
America's leading entertainment provider. For 87‐year‐old Rupert Murdoch—
Fox's controlling shareholder—it signaled his intention to dissolve the
multimedia empire that had been his life's work. For both companies, it was an
acknowledgement of the technological changes that were sweeping the media
sector, in particular, the potential for video streaming to undermine existing
channels for distributing video entertainment: these included cinemas, broadcast
TV, cable TV, satellite TV, and DVDs. These changes had been highlighted by the
rise of Netflix and the entry of technology giants such as Amazon, Alphabet,
Apple, Facebook, and Microsoft into the market for video‐based entertainment.

A major motivation for the deal—according to Disney's CEO, Bob Iger—was to

bolster Disney's efforts to adapt to these changes occurring in video
entertainment. During 2018–19, Disney intended to rapidly build its presence in
OTT (“over‐the‐top”) video streaming: the direct provision of video content to
consumers via Internet connection. Yet, Fox's businesses were more “old media”
than “new media”: its main involvement in OTT was its 30% stake in Hulu; its
Internet streaming service, Hotstar; and Sky's OTT service in Europe (Fox held a
39% controlling stake in Sky). For the most part, therefore, the acquisition would
augment Disney's existing businesses in movie and TV production, cable
channels, and broadcasting, while also adding Sky's European satellite
broadcasting network (another distribution channel threatened by video
streaming). Figure 1 shows the main businesses of the two companies. The
Appendix shows their financial performance.

FIGURE 1 The media businesses of Walt Disney and 21st Century Fox
Given the size of the acquisitions—far bigger than any other of Disney's many
acquisitions in recent decades—and the sustained top management efforts that
would be required to integrate Fox into Disney's vast entertainment empire—
industry observers were divided over the wisdom of the deal for Disney. Would
the acquisition reinforce Disney's efforts to address the technological and
competitive challenges of the new era, or would it hamper Disney's efforts to
transition to new modes of entertainment distribution?
Walt Disney Company

Walt Disney began making cartoon movies in 1920. His breakthrough came in
1928 with Steamboat Willie, which launched Mickey Mouse. Disney's transition
from cartoon shorts to full‐length animated movies produced a string of
international hits: Snow White (1937), Cinderella (1950), Sleeping Beauty (1959), 101
Dalmatians (1961), and Jungle Book (1967). These provided the basis for
diversification into live action movies (Davy Crockett, 1955; Mary Poppins, 1964; The
Love Bug, 1968), TV production, film distribution, theme parks (Disneyland, 1955;
Walt Disney World, 1967), and a lucrative licensing business.
Under the leadership of Michael Eisner (CEO 1984–2005), Disney became
America's biggest studio in terms of movie releases, expanded its productions for
TV, and revitalized animation—its animated movies included Little
Mermaid (1989), Beauty and the Beast (1991), and Lion King (1998). Disney also grew
internationally with the opening of Disneyland theme parks in Tokyo (1983),
Paris (1992), and Hong Kong (2005)—Disneyland Shanghai followed in 2016.
Walt's preference for control and self‐sufficiency was reflected in his company's
vertically‐integrated approach to building the business. Early on, Disney had
taken control over the distribution of its films to cinemas. As new distribution
channels for video content emerged, Disney forward integrated into them. These
included video cassettes and DVDs, TV syndication, and cable TV (the Disney
Channel). Disney also sought to exploit its characters and movie themes through
books, video games, live theaters, and retail stores.

Much of Disney's vertical integration was through acquisition. The takeover of

ABC in 1995 gave Disney ownership of one of America's big‐3 TV networks as well
as establishing Disney as America's leading cable provider of sports through
ESPN. In building the intellectual property to support its animated productions,
Disney acquired the Star Wars and Marvel characters, and the Muppets. Other
acquisitions extended Disney's technical capabilities into computer‐generated
animation (Pixar), video games (Playdom, Rocket Pack, and Tapulous), and video
streaming (BAMTECH, Maker Studios). Table 1 shows Disney's biggest
acquisitions.
TABLE 1Walt Disney Company main acquisitions 1995–2017

Acquired company Activities Consideration Year

ABC TV broadcast and cable $19.0bn. 1995

 Acquired company Activities Consideration Year

networks

Fox Family Worldwide Cable TV channels $5.3bn. 2001

Muppets Acquired from Jim Henshaw Not known 2004

Company

Pixar Animation Animated productions $7.4bn. 2006

Studios

Marvel Entertainment Characters and film $3.8bn. 2009

production

Playdom Video games $0.8 bn. 2010

Lucasfilm Studios and movie library $4.1B 2012

A&E Television Cable channels $3.0bn. 2013

Network (50%)

Maker Studios YouTube video content $0.5bn. 2014

BAMTECH Media Video streaming technology $1.6bn. 2017

21st Century Fox Movie and TV production and $66.1bn. 2018a

distribution

Note:
aIn July 2018 the acquisition was awaiting approval from the Dept. of Justice.
Disney's acquisitions attracted mixed reviews. Prior to its bid for Fox, Disney's
biggest acquisition was ABC—one of America's leading TV networks and the
owner of several cable TV channels and local TV stations. The acquisition was
criticized over the dubious benefits of vertical integration between studio
production and TV broadcasting, and the declining audience for network
broadcasting. Four years after the takeover, the Economist declared it “a disaster”1
—while acknowledging that the sports channel ESPN had proved to be an
unexpected goldmine for Disney. In addition, some smaller acquisitions failed to
prosper—for example, after making several acquisitions, Disney had abandoned
video game development. However, for its other major acquisitions, Disney has
demonstrated sound judgment in assessing its potential to add value to its target
companies and effectiveness in integrating them within its organization and
infusing them with the Disney culture. In the case of Pixar, Marvel, and
Lucasfilm, Disney was perceived as having overpaid for its acquisitions—yet, its
subsequent success with these characters and movie franchises, both in
developing new blockbuster movies and generating further revenue streams
from its theme parks, stores, and licensing—points to its effectiveness in using its
diversified business model to exploit synergies. Figure 2 shows the Disney’s
organizational structure and span of its businesses.

FIGURE 2 Walt Disney Company: Organizational structure, April 2018

The acquisition of Marvel in 2009 had a massive impact on Disney's revenues and
profits. According to the Financial Times, Marvel's 5000 characters, ranging from
The Incredible Hulk to Ant‐Man, “gave Disney access to a demographic that had
previously been hard to reach—teenage boys—and a library of storylines and
characters that lent themselves to sequels and spin‐offs. They all had “franchise”
potential and, so far, each release … has hit the mark.”2
A key part of Disney's acquisition effectiveness results from an astute assessment
of the resources and capabilities that its acquired companies possess and their
value‐adding potential. This has required careful nurturing of the acquired
resources—especially, the human ones. With Pixar, Disney appointed the Pixar
management team to run its entire animation business and replaced its existing
development process with that used by Pixar. Sustaining the capabilities of
acquired companies requires respecting the people and the culture of the
acquired companies. At Pixar, the acquisition was preceded by a premerger
agreement protecting the rights of Pixar employees and the creative culture of
Pixar—commitments that were honored once the acquisition had been
completed. Disney was also willing to ignore conventional wisdom on mergers
and acquisitions. Bob Iger stated: “There is an assumption in the corporate world
that you need to integrate swiftly. My philosophy is exactly the opposite. You
need to be respectful and patient.”3
Under its successive CEOs, Michael Eisner and Bob Iger, Disney honed a
systematized and integrated approach to exploit its creative content. At the heart
of this system were movies. In the case of Frozen, Disney's blockbuster hit of 2013,
the $1.8 bn. in box office revenues were only the starting point for a cascade of
revenue‐generating activities including music, DVDs, streaming, sequels (Frozen
II will be released in 2019), theme park attractions, theatrical performances
(Frozen on Ice, Frozen the Musical), and consumer product licensing. Bob Iger is
reported to have told the Disney board: “As animation goes, so goes our company.
A hit animated film is a big wave, and the ripples go down to every part of our
business—from characters in a parade, to music, to parks, to video games, TV,
internet, consumer products. If I don't have wave makers, the company is not
going to succeed.”4
21st Century Fox

21st Century Fox, based in New York City, was established in 2013 when Rupert
Murdoch's News Corporation decided to separate its newspapers from its other
media interests following the phone‐hacking scandal in the UK, which had
severely damaged the reputation of News Corp.
At the core of the 21st Century Fox group was 20th Century Fox, the movie
production company that Rupert Murdoch had acquired in 1984 and became the
foundation for creating Fox Broadcasting Network, the Fox News channel, and
other US‐based entertainment and media businesses. When 21st Century Fox was
spun off from News Corp., it included News Corp's non‐newspaper businesses
outside the US, notably its Star TV group in Asia and Endemol Shine in Europe.

Fox's successful movie franchises include Avatar, Wolverine, Deadpool, Alien,

and Planet of the Apes—each of which has generated a series of sequels. Its most
successful TV productions are X‐Files and The Simpsons.5
Fox's assets also included a 39% stake in Sky plc—a European operator of satellite
television providers and pay channels in the UK and Ireland, Austria, Germany,
and Italy. Sky was one of Murdoch's most successful and profitable start‐up
ventures that used its sports channel, Sky Sports, as its key weapon to penetrate
TV markets in several European countries.

Changes within the Media and Entertainment Sector

The market for video entertainment had traditionally been segmented into home
and out‐of‐home viewing: the home segment traditionally comprised television,
while the out‐of‐home, cinema.

In both segments, the Hollywood studios play a central role. The big‐6 Hollywood
studios—Disney, Warner Brothers, Universal, 20th Century Fox, Columbia
Pictures, and Paramount—accounted for an average of 77% of US box office
takings since 2000, and they lead the world movie‐making industry. In addition,
they are major producers of shows for television. Despite changes in their
ownership and the entry of new production companies, the big‐6 have dominated
Hollywood for the past four decades. Table 2 shows their US market shares.
TABLE 2Market shares of US box office takings by studio (%)
Source: www.boxofficemojo.com.

2017 2016 2015 2014 2013 2012

Disney 21.8 26.3 19.8 14.9 14.9 13.9

Warner Brothers 18.4 16.7 13.9 14.4 16.2 14.9

 2017 2016 2015 2014 2013 2012

Universal 13.8 12.4 21.3 10.3 12.4 11.9

20th Century Fox 12.0 12.9 11.3 16.5 9.2 9.2

Sony/Columbia 9.6 8.0 8.4 11.6 9.9 16.1

Paramount 4.8 7.7 5.9 9.7 8.4 8.2

Lionsgate 8.0 5.8 5.9 6.8 9.3 11.1

Ever since the advent of television, the demise of the cinema had been predicted.
Yet, despite declining cinema attendance, box office revenues had been relatively
stable in America and growing worldwide (see Figure 3).
FIGURE 3 Global box office revenues ($ bn.)
Source: MPAA Annual Reports.
However, the economics of movie production had changed: all the industry's
profits were generated by a few blockbusters. By 2017, 27% of box office revenues
were generated by the top‐grossing 1% of movies, double what it had been 20
years earlier.

If movie production and distribution were havens for stability, technology had
made home entertainment an arena of perpetual turbulence. The once‐dominant
major networks—ABC, CBS, and NBC (joined in 1986 by the Fox Broadcast
Network)—had been disrupted by cable TV, satellite TV, video cassette recorders,
and DVDs, and—most recently—the Internet. Each technological wave brought
new competitors. Cable TV saw the rise of Comcast, Liberty Media, and Viacom,
while the advent of the Internet allowed telecom providers such as AT&T and
Verizon to offer online video.
The potential for Internet distribution of video entertainment also encouraged
the entry of digital technology companies into the sector. These included giants
such as Apple, Alphabet, Microsoft, and Amazon, as well start‐up enterprises.
Most prominent has been Netflix, which began a mail order service for DVDs and
then became a world leader in subscription‐based video streaming. At the end of
March 2018, it had 125 million subscribers worldwide. Netflix is a major
distributor of both Disney and Fox movies and TV shows, and in April 2018 had a
market capitalization $142 bn., compared to Disney's $151 bn. Figure 4 shows the
rise of subscription‐based video streaming relative to both cable TV and satellite
TV.
FIGURE 4 Global pay TV and online video subscriptions (millions)
Source: MPAA
Initially, it appeared that the Internet would lead to the end of “mass
entertainment”: the ability to serve niche market segments and specialist tastes
would cause broadcasting to be replaced by “narrowcasting.” However, the
“blockbuster effect”—the propensity for audiences to converge around the same
products—appears to dominate specialist preferences. For example, Spotify and
YouTube each offer many millions of products, yet user interest concentrates on a
tiny fraction. Netflix has about 6000 movies and TV series available to US
subscribers, but viewing has concentrated around a few wildly popular
series: House of Cards, The Crown, Orange is the New Black.6
Although Netflix is the global leader in OTT, the field is becoming increasingly
crowded. In the US and in some Europe countries, Amazon's Prime service is
second in terms of subscriptions, followed by Hulu, HBO Go and Now, and Sony's
PlayStation Vue. In addition, there are a number of nonsubscription services
including Alphabet's YouTube and Google Play, mainly targeting mobile devices.
During 2018, Apple was developing original content in anticipation of the launch
of its streaming service.
The arrival of new players into video distribution was accompanied by a surge of
mergers and acquisitions. Some of these were horizontal—notably the merging of
cable providers into just three dominant providers: Comcast, Charter, and AT&T.
Others were vertical between production companies and distribution companies:
the Disney‐ABC and AOL‐Time Warner mergers were among the first of these, the
most recent was that between AT&T and Time Warner. These vertical mergers
raise important issues for antitrust authorities—including the reduced
opportunities for specialist production companies to distribute their own content,
and the reduced access to content for specialized distribution companies.7 Table
3 shows the biggest mergers and acquisitions in the media and entertainment
sector.
TABLE 3Biggest media mergers and acquisitions in the US

Acquirer Acquired company Consideration Year

AOL Time Warner $162 bn. 2000

AT&T Time Warner $108.7 bn. 2016a

Walt Disney Co. 21st Century Fox $85 bn. 2017

Comcast AT&T Broadband $72 bn. 2011

Charter Communications Time Warner Cable $65.5 bn. 2016

Viacom CBS $35.6 bn. 1999

Walt Disney Co. ABC $19.0 bn. 1995

Clear Channel AMFM $16.0 bn. 1999

Note:
aIn July 2018, the acquisition was awaiting court approval.
The main beneficiaries of these mergers and acquisitions appear to be the
shareholders of the acquired companies. Media acquisitions tend to be motivated
less by strategic logic, and more by the empire‐building urges of media moguls
such as John Malone (Liberty Media), Sumner Redstone (Viacom), and Brian
Roberts (Comcast). For the owners of telecom and cable companies—essentially
utility businesses—there is also the glamour of owning movie studios. The
inflated acquisition prices for media companies has resulted in intensive
acquirers accumulating large amounts of goodwill on their balance sheets,
thereby depressing their rates of return. For example, during 2015–17, the
average return on capital employed was 3.6% for AT&T, 4.2% for Liberty Media,
9.2% for Comcast, and 12.9% for Viacom.8 Table 4 shows the leading companies in
the US media and telecom sector.
TABLE 4Leading companies in the US telecommunication services, broadcasting, and cable industries
Source: Forbes “The World's Biggest Public Companies” (2017).

Sales Profits Assets Market value

Company
($bn.) ($bn.) ($bn.) ($bn.)

AT&T 163.8 13.0 403.8 249.3 

Verizon Communications 126.0 13.1 244.2 198.4 

Comcast 80.4 8.7 180.5 193.5 

Walt Disney 54.9 9.0 91.6 178  

Time Warner 29.3 3.9 66 76.2 

Charter Communications 29.0 3.5 153.2 101.6 

21st Century Fox 28.1 3.1 49.2 57.5 

Liberty Global 20.0 1.7 68.7 31.2 

CenturyLink 17.5 0.6 47.0 13.4 

DISH Network 15.1 1.4 28.2 29.1 

 Sales Profits Assets Market value
Company
($bn.) ($bn.) ($bn.) ($bn.)

CBS 13.2 1.3 24.2 29.5 

Viacom 12.7 1.4 23.3 18.0 

Live Nation Entertainment 8.4 (0.1) 6.8 6.4 

Level 3 Communications 8.2 0.7 24.9 21.1 

Discovery Communications 6.5 1.2 15.8 16.8 

Rationale for the Merger

Fox's Motives

For 21st Century Fox, the decision to sell to Disney seemed straightforward: “old
media” companies were threatened by “new media” companies. “From a strategic
point of view this is the right [time to sell],” Mr. Murdoch said in an interview
with the Financial Times. “We are living in an age of enormous
disruption.”9 Although content would be in demand, whatever changes occurred
within distribution, the general opinion of industry experts was that, unlike
Disney, Fox lacked the size, scope, and bargaining power needed to adapt to the
changes reshaping the sector. According to one banker: “Companies in the middle
risk getting squeezed in their economics by the very large guys unless they can
figure out their comparative advantage.”10
There was also the issue of family succession. It had been widely assumed that
Rupert Murdoch's empire building had been driven by the goal of creating a
media dynasty. His four marriages yielded six children, but his relationships with
his adult children had been fraught. His two sons led 21st Century Fox—Lachlan
as co‐chairman (with Rupert) and James as CEO (James was also chairman of Sky
plc). In April 2018, it appeared that Lachlan would manage Fox's remaining news
and sports businesses, while James might take up an executive position with
Disney.

Rupert Murdoch was ambivalent about his future business activities: “Are we
retreating? Absolutely not,” he said. “We are pivoting at a pivotal moment.”
Rupert and Lachlan Murdoch would continue to run the remaining Fox assets—
including the Fox News channel—which will be spun off to Fox shareholders as a
new company. The spin‐off would be “a growth company” centered on live news
and sport. “Those of you who know me know that I am a news man with a
competitive spirit,” said Murdoch.11 Press speculation suggested that that new
company might be a vehicle for renewed acquisitions.
Disney's Motives

For Disney, the acquisition was viewed as being entirely consistent with the
company's strategic trajectory. At a Morgan Stanley conference in February 2018,
Bob Iger outlined three strategic objectives for Disney and pointed to how the
acquisition of Fox would contribute to each:

We've been a company that has emphasized … the value of high‐quality, branded
entertainment. And the acquisitions of Pixar, Marvel, and Lucasfilm/Star Wars,
obviously were a reflection of that core strategy. [Fox] gives us a larger portfolio of
high‐quality branded content. When you think about FX, … about National
Geographic, about a number of the franchises that Fox has created, including their
Marvel franchises and Avatar, and other product, we believe that this fits
beautifully into a strategy to continue to invest in entertainment, particularly in a
world that seems to be growing in terms of its appetite to consume entertainment.

Secondly, we've been talking a lot about using technology to reach consumers in
more modern, more efficient, and effective ways. That certainly has changed
significantly. When I talk about a dynamic marketplace, I think it's most evident in
how people access entertainment, how they consume entertainment, and this
acquisition gives us the ability not only to have essentially more product, more
intellectual property, but to bring it to the consumer in more compelling ways and
ways we think the consumer wants their entertainment more and more. The Star
and Sky assets and the Hulu assets give us an opportunity to do that.

And then lastly, we've talked a lot about wanting to grow our company globally.  …
This gives us the ability to have a far more global footprint and to diversify the
company's interest from a geographic perspective.12
Iger also emphasized that the acquisition was not just about adding Fox's existing
businesses:

[I]t comes with the people that operate those businesses and the experience that
they have. … If you look at what they've done, as for instance, in India, … they have
expertise that our company will take full advantage of. And our intention … is
creating a structure of the company that is aimed at basically being more modern
and aimed at  integrating these assets in a far more effective way—one of the things
we want to do is we want to look across our company and share best practices.
Many—particularly as it relates to distribution—of those best practices will come
from the people and the assets that we are acquiring here.13
Iger acknowledged that many of the businesses that Disney was acquiring were
cable channels, but he looked beyond their existing distribution modes:

[W]e've looked at channels less as channels and more as brands … what's more
important to us is the quality of the brand and intellectual property that fits under
that brand umbrella. And our intention is to—as the world shifts in terms of
distribution and consumption we talked about earlier—is to migrate those brands
and those products in the more modern direction from a distribution and
consumption perspective … What we've tried to do is design a company that is
capable of thriving in a fully disrupted world, or a world that doesn't look anything
like the media world that we currently live in.14
During the early months of 2018, Disney's initiatives to establish itself in OTT
moved into a higher gear. In March, Disney created a new division to house
direct‐to‐consumer and international businesses. The new division would
comprise its forthcoming streaming services in the US and abroad, global
advertising sales for ESPN, ABC, and other Disney‐owned channels and, once the
Fox merger was consummated, Fox's streaming services and Hulu. The division
would be led by Kevin Mayer, Disney's much‐admired chief strategy officer and
architect of the acquisitions of Pixar, Lucasfilm, and Marvel.

In April 2018, Disney launched its ESPN+ subscription streaming service offering
a vast array of live sports events and a range of add‐on, interactive services.
However, its major effort was developing the streaming service it will launch in
2019, which will carry the full range of Disney content. Once this service is
launched, Disney will no longer offer its content to Netflix and other third‐party
streaming services.
Among the design parameters that Iger outlined for Disney's new streaming
service were the following: it would be tailored for viewing on mobile devices, it
would permit binge viewing, and it would offer the flexibility of short
subscription periods. It would be launched, first, in the US, then rolled out
internationally. In terms of content, it would allow exclusive access to Disney's
new movies, access to Disney and Fox's vast studio libraries, some 5000 episodes
of Disney TV series, and several specially created TV series. In terms of Disney's
position vis‐à‐vis Netflix, Disney would emphasize quality over variety: “We are
going to be in the business of less volume but more branded product—so Marvel,
Star Wars, Pixar, Disney as part of that. Those brands are in enough demand and
will have enough quality that we believe it will enable us to take a product to
market with less volume.”15
The Debate over the Merger

Commentary on the acquisition revealed one area of consensus: for Rupert

Murdoch, the sale of 21st Century Fox to Disney was a sound decision.

However, in relation to Disney, opinions were divided.

The majority of investment analysts and investment bloggers were positive on

the benefits of the merger to Disney citing the following:

 Disney's potential for an increased flow of “tentpole” movie releases with the
themes and characters obtained from Fox;
 Cost savings from Disney's increased scale;
 The boost to Disney's proposed streaming service that would result from Fox's
back catalog and Fox's ability to contribute to the creation of new content; and
 The benefit of Fox and Sky's international presence—especially, in Asia and
Europe.
The stock market was generally supportive of Disney's move. Between November
4, 2017, when talks between Disney and Fox were first reported, and December
19, three business days after the merger announcement, Disney's share rose from
$98.37 to $111.80.

Others were critical, pointing to the following:

 Disney was acquiring businesses that were in their initial phases of long‐term
decline. According to one investment analyst: “Buying Fox and Sky cements
Disney in the past, because it adds networks that are tied to the legacy
 ecosystem.”16 In the past, bundling multiple cable channels in a package to sell
to cable operators improved bargaining power, but as users are increasingly
“cutting the cable,” that strategy will yield diminishing returns.
 Netflix and Amazon’s early‐mover advantage in video streaming, their buzz‐
generating content, and superb technology makes it difficult for Disney to
make inroads into their user base.
 The merger's greatest potential for value creation would probably be from
combining the two companies' studios. However, their combined market share
of about 34% might well alarm the Department of Justice, causing it to
mandate divestments.
Summer 2018

In June 2018, Comcast Corp.—America's biggest cable company and owner of TV

and movie giant, NBC Universal—joined the fray with a $65 bn. bid for 21st
Century Fox. In the following week, Disney responded by upping its bid for Fox's
assets from $52 bn. to $71 bn.—with the assumption of Fox's debt, Disney would
be paying $85 bn. It also received confirmation from the Department of Justice
that the US government would not challenge the merger. Comcast's decision on
July 19 to walk away was widely attributed to its weaker balance sheet—if
Comcast sought to outbid Disney, it risked losing its investment‐grade rating for
its debt.

However, Comcast was not giving up on its growth ambitions—just shifting the
focus of its attention. One of 21st Century Fox's “crown jewels” was its ownership
of 39% of the equity of Sky, the UK‐based satellite broadcaster and broadband
provider. For several years, 21st Century Fox had attempted to acquire the
remaining 61% of Sky. However, in April 2018, Comcast announced a $22 bn. bid
for Sky, about 16% higher than Fox's bid. The bidding war between Fox and
Comcast was resolved on September 22, 2018 when Comcast's offer of $40 bn. for
Sky was accepted by the British regulator. It was widely assumed l that Disney
and Comcast would then do a deal in which Disney traded Fox's 39% stake in Sky
for Comcast's 30% stake in Hulu (together with a cash transfer to make up for
different values of the two shareholdings).17
APPENDIX

TABLE A1Walt Disney Company: Financial data, $ millions

 (Year ended September 30) 2017 2016 2015 2014 2013

Revenues 55,137 55,63 52,465 48,81 45,041

2 3

Net income 9366 9790 8852 8004 6636

Total assets 95,789 92,03 88,182 84,14 81,197

3 1

Long‐term obligations 26,710 24,18 19,142 18,57 17,293

9 3

Disney shareholders' equity 41,315 43,26 44,525 44,95 45,429

5 8

Net cash from operating 12,343 13,13 11,385 10,14 9,495

activities 6 8

Net cash from investing activities (4111) (5758) (4245) (3345) (4676)

TABLE A221st Century Fox: Financial data, $ millions

(Year ended June 30) 2017 2016 2015 2014 2013

Revenues 28,500 27,32 28,987 31,86 27,675

6 7

Net income 2952 2755 8306 4514 7097

Total assets 50,724 48,19 49,868 54,62 50,785

 (Year ended June 30) 2017 2016 2015 2014 2013

3 8

Debt 19,913 19,55 18,868 18,89 16,299

3 3

Shareholders' equity 15,722 13,66 17,220 17,41 16,998

1 8

Net cash from operating 3785 3048 3617 2964 3002

activities

Net cash from investing activities (752) (1638) 6736 (935) 86

Notes

* This case was prepared by Robert M. Grant. ©2019 Robert M. Grant.1. “Two Sharks in a
Fishbowl,” Economist (November 18, 2017).2. “Disney: Let It Grow,” Financial Times (May 22,
2015).3. M. Reeves, J. Harnoss, and R. Bergman, “Using M&A to Increase Your Capacity for
Growth,” Harvard Business Review (July 13, 2016).4. W. Isaacson, Steve Jobs (Simon &
Schuster, 2011): 239.5. Although Disney had acquired Marvel Entertainment and its
portfolio of characters, Fox had licensing agreements for6. “Winner Takes
All,” Economist (February 11, 2017).7. “AT&T and Time Warner: Dropped
Connection,” Economist (November 11, 2017).8. “A Deal That Donald
Dislikes,” Economist (November 18, 2017).9. “Rupert Murdoch and the Disruption of a
Dynasty,” Financial Times (December 15, 2017).10. https://www.ft.com/content/efa4c728‐
0a50‐11e8‐839d‐41ca06376bf2, accessed April 19, 2018.11. “Disney to Buy 21st Century
Fox Assets in $66bn Deal,” Financial Times (December 14, 2017).12. The Walt Disney
Company at the Morgan Stanley Technology, Media & Telecom Conference (Walt Disney
Co., February 26, 2018). [Transcript]: 3–4.13. Ibid: 4–5.14. Ibid: 5.15. Ibid: 8.16.
https://www.bloomberg.com/view/articles/2017‐12‐14/disney‐will‐rue‐its‐merger‐with‐
fox, accessed April 22, 2018.17. “Comcast carries off Sky,” Economist (September 28, 2018)

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