Why Murdoch may sell Fox units to Comcast, Disney or Verizon

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Rupert Murdoch in London with sons James, right, and Lachlan, on March 5, 2016. The 86-year-old tycoon and his sons appear willing to sell some of their prized 21st Century Fox media assets.

After a lifetime building a media empire, Rupert Murdoch has to decide whether the changes roiling the industry are so daunting that he must tear his creation apart.
Murdoch’s 21st Century Fox Inc. owns a movie and TV studio, a U.S. broadcast network, a stake in Europe’s biggest satellite provider and cable channels such as FX and Star India — and it’s still dwarfed by Walt Disney Co. and Comcast Corp. Viewers are abandoning traditional pay TV in droves, putting pressure on Big Media to get even bigger to survive.
That’s why Murdoch, 86, is entertaining the idea of selling some of his assets after decades of amassing TV and film properties. Disney, Comcast and Verizon Communications Inc. have expressed interest in Fox’s studio, the Sky Plc satellite stake and cable networks, according to people familiar with the matter. Fox would be left with properties including Fox News, the Fox broadcast network and perhaps sports channels, depending on the deal, the people said. Those assets are some of Fox’s most profitable, and Fox News, the most-watched cable news network, is especially close to Murdoch’s heart.
“Fox has to decide: Are they in for the long haul or not?” said Brian Wieser, an analyst at Pivotal Research.
Steven Cahall, an analyst at RBC Capital Markets, valued the assets Disney sought at more than $20 billion. The remaining company would be worth about $46 billion, assuming it keeps all of the debt, he said.
Fox may ultimately decide to turn away its many suitors, Wieser said. Ever since the news emerged of Disney’s interest in the assets last week, Fox executives have remained adamant that the company has what it needs to navigate the media industry’s turmoil. “We’ve got a great set of brands and a great set of assets that we really like,” Chief Executive Officer James Murdoch, Rupert’s son, said on a Nov. 8 conference call.
Murdoch hasn’t decided whether to actually sell anything, but either way the talks help set a valuation for Fox’s brands and potentially change the market’s perception of his willingness to part with major parts of the business, a person familiar with the situation said. Fox’s shares have risen 17 percent since news of the Disney talks emerged.
But mightier companies than Fox have been struggling. The biggest cable and satellite providers lost more than 400,000 subscribers last quarter alone, even when including gains from their online-only packages, according to Leichtman Research Group. Disney, home of ESPN and the Disney Channel, is investing aggressively in streaming-video services in the next two years to compete with Netflix.
“The margin pressure on TV is just starting,” said Laura Martin, an analyst at Needham & Co. “Fox correctly has come to the conclusion that you need to be bigger to compete with the entrance of the large internet companies like Apple and Amazon to the content business.”
At the box office, meanwhile, sales are down 4.9 percent this year in North America, raising concerns among movie studios that audiences are tiring of big-budget blockbuster fare.
Fox is also awaiting approval in the U.K. to acquire full control of Sky, a deal that has been held up by regulators. Lachlan Murdoch, executive chairman of Fox and another son of Rupert, told shareholders at its annual meeting Wednesday that it expects the deal to close in the middle of 2018. If Fox sells its Sky stake instead, the buyer could be required to make an offer for full control of the satellite provider as well.
Shares of Sky added 2.8 percent to 928.50 pence at 8:58 a.m. in London after rising as much as 3.3 percent for their biggest gain since June.
Disney’s talks with Fox have cooled off, according to people familiar with the matter, though it’s possible they could reignite. An acquisition would give Disney Chief Executive Officer Bob Iger even more iconic characters, such as the X-Men and the Simpsons, to make movies and TV shows for online streaming, adding to a stable that includes Star Wars and Marvel comics. The Sky stake and Star India would greatly expand Disney’s reach abroad. And Disney could acquire Fox’s stake in U.S. streaming-video provider Hulu to double its ownership to 60 percent.
Comcast, the biggest U.S. cable provider, is also a 30 percent owner of Hulu, and could also benefit from Fox’s international properties. The company has been adding film and TV assets since acquiring NBCUniversal in 2011, ensuring it has a hand in both programming and distribution. It acquired DreamWorks Animation SKG Inc. in 2016 for $3.8 billion and bought a minority stake in Steven Spielberg’s Amblin Partners earlier this year.
Universal Pictures, Comcast’s film and TV studio, has top franchises such as “The Fast and the Furious,” Illumination Entertainment animated films such as “Minions” and Jason Blum’s horror movies, like the hit “Get Out.”
A deal with Fox would vault Verizon into the entertainment business, where top wireless rival AT&T Inc. has also been attempting to venture with the acquisition of Fox competitor Time Warner Inc. The AT&T transaction has been awaiting approval by the U.S. Justice Department, where antitrust officials are concerned about consolidation in the media industry — worries that could also weigh on any potential Fox deal. But the chance to get so many programming assets may prove irresistible.
“Content is paramount to operating a really robust service that will stand out from the crowd,” said Robin Diedrich, an analyst at Edward Jones. “Having their library, and the studio that can produce TV shows and films, would go a long way to complement a Comcast or Disney and give Verizon, which doesn’t have those, a way to enter that game.”

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