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'FANG' Forces Rupert Murdoch's 21st Century Fox Sale Talk

'FANG' Forces Rupert Murdoch's 21st Century Fox Sale Talk
Denis Makarenko | Dreamstime

By    |   Sunday, 12 November 2017 11:00 AM

The possibility that the Walt Disney Co. will snap up parts of 21st Century Fox reportedly is a sign that Fox, the once-mighty media conglomerate that Rupert Murdoch built with a tireless zeal for acquisitions, may feel it can't compete in a world of Silicon Valley and telecom behemoths.

Reports that the two media companies had held talks in recent weeks sent Fox shares soaring amid an increasingly fractured media landscape — one in which must-stream entertainment is disrupting traditional ways of monetizing movies and shows — size still matters.

“The foray by Facebook, Amazon, Netflix and Google (FANG) into media and entertainment via online streaming and mobile programming is upending the movie and television distribution oligopoly that Murdoch has been a central player in for three decades,” the Australian Financial Review reported.

FANG is the acronym for four high-performing technology stocksin the market as of 2017: Facebook, Amazon, Netflix, and Google (owned by Alphabet, Inc.). The term was coined by CNBC's "Mad Money" host Jim Cramer.

Amazon is making movies and shows, Apple is getting into the content game, and Facebook is also making noise about challenging Hollywood. All have deep pockets.

"This is a deal that would dramatically transform the content landscape," Tuna Amobi, an analyst with CFRA Research, told Reuters. "The play for scale in terms of content may justify why Disney would want to do this."

Amobi notes that Disney is launching its own streaming entertainment service. If it wants to compete with Netflix and Amazon, both of which have a head start in terms of licensing content and building a user base, it helps to have access to Fox's films, as well as the programming it produces for the likes of the FX Networks and National Geographic TV.

The deal would not include the Fox Broadcasting Co. network, the Fox Television Stations unit, and the Fox Sports and Fox News operations, which would help the company avoid anti-trust opposition to a possible sale.

At the same time, Fox rival Time Warner (which Rupert Murdoch unsuccessfully tried to buy in 2014) is being gobbled up by AT&T. These companies don't have to make money the old fashioned way. They sell telephone and data services (in the case of AT&T) or household goods (in the case of Amazon). They want to use movies and shows to interest people in buying devices or sticking around their e-commerce platform. It's additive. That leaves Fox trying to compete by selling tickets to movies, licensing content, and selling advertising. Given that advertising revenues are shrinking and box office is hitting historic lows, it makes sense that Fox would be feeling the heat.

"The game has moved on to bigger players," Hal Vogel, a veteran media analyst, told Reuters. "They're feeling competitive pressure."

Indeed, the Australian Financial Review reported that Interviews with people who have worked for Murdoch, shareholders, industry participants and analysts, paint a picture of a billionaire executive chairman of 21st Century Fox and News Corporation who finds himself strategically stranded.

"It's surprising to see the Murdochs would be open to selling because they have typically been buyers," Brett Harriss, New York-based Gabelli and Company media and entertainment analyst, told the Australian Financial Review.

If Fox is motivated to join forces because of the digital barbarians at its gate, Disney CEO Bob Iger might be compelled to make a deal due to legacy-building.

While running Disney, Iger has built a reputation for big, company-transforming acquisitions. He's shelled out billions for the likes of Pixar, Lucasfilm, and Marvel, building the company into an entertainment conglomerate with few equals. Fox would be the biggest acquisition and the cap on a career at the top that's currently scheduled to end in 2019 when his contract is up.

"With Bob Iger's tenure coming to a close, there's a sense of urgency to do something significant," said Amobi. "It could be his swan song."

CNBC, which broke news of the talks, said the two sides are not currently in discussions. Still, the mere fact that Murdoch, so used to being buyer, not seller, would even entertain parting with vast swaths of his empire, is shocking. It might also be prescient.

"It could end up being a damn smart move," said Vogel. "He could be getting out when the going is good."

Meanwhile, Murdoch telephoned AT&T Inc Chief Executive Randall Stephenson twice in the last six months and talked about cable network CNN, sources briefed on the matter told Reuters on Friday.

According to one of the sources, the 86-year-old executive chairman of Twenty-First Century Fox Inc. offered to buy CNN in both conversations.

Another source said Murdoch had "zero interest" in owning CNN.

Representatives of Twenty-First Century Fox, AT&T and Time Warner, CNN's parent, declined comment.

CNN has become the focal point in antitrust approval of AT&T's $85.4 billion deal to buy Time Warner Inc, hatched in October 2016.

U.S. Department of Justice staff have recommended that AT&T sell either its DirecTV unit or Time Warner's Turner Broadcasting unit - which includes CNN - a government official told Reuters on Thursday, in order to gain antitrust approval.

On Thursday Stephenson said he had no interest in selling CNN and that he was ready to defend the deal in court if necessary.

According to one of the sources on Friday, Murdoch called Stephenson twice, unprompted, on May 16 and Aug. 8 and on both occasions asked if CNN was for sale. Stephenson replied both times that it was not, according to the source.

The fate of CNN has broader political significance. U.S. President Donald Trump has repeatedly attacked the network for its coverage of his campaign and his administration, while he has publicly praised Murdoch's Fox News.

In the run-up to last year's election he vowed that as president his Justice Department would block AT&T's purchase of Time Warner. He has not commented on the transaction since taking office in January.

Trump's comments have provoked concern that he may improperly influence the U.S. Department of Justice to block the deal. The White House has said Trump has not spoken to the attorney general about the matter.

Nevertheless, a group of eight Democratic U.S. senators on Friday wrote to Makan Delrahim, head of the Justice Department's antitrust division, urging the department "to oppose any attempt by the White House to interfere with antitrust law enforcement decisions, particularly for political reasons."

Delrahim said he had not had any contact with the White House or the attorney general on the matter, speaking at an event at the USC Gould School of Law in Los Angeles later in the day.

"I’ve got to keep my nose down and be a law enforcer and do what’s good and what I’ve committed to doing to the American people," said Delrahim.

But he appeared to voice doubts about AT&T's reasoning that the purchase of Time Warner would not result in a company with too much power because the combined company would have to compete with powerful new online rivals such as Amazon.com Inc , Netflix Inc and Facebook Inc.

Delrahim referred to a comment by former President Ronald Reagan that "the nine most terrifying words in the English language are: I'm from the government and I'm here to help."

"I’d say you should be equally terrified when someone in an incumbent company, whatever industry, comes to you and says I’m here to help you against the evils of Netflix, Amazon, Google and Facebook," said Delrahim. "Some of these pro-competitive comments and justifications remind me of that quote strongly."

It would not be the first time Murdoch has attempted to take control of CNN.

His Twenty-First Century Fox made an $80 billion offer for Time Warner in 2014 but abandoned the plan in the face of Time Warner's resistance. At that time, Fox had planned to divest CNN - which competes with Fox News - in order to avoid antitrust issues.

There is no law against a company owning two cable networks, but there is a Federal Communications Commission prohibition on owning two broadcast networks. A Fox deal with CNN could also raise antitrust concerns because of the market share that a combined company would have among cable news viewers.

"I have been called and asked if I would sell CNN by numerous people," Stephenson told the New York Times DealBook conference on Thursday. But he added: "Selling CNN makes no sense."

Fox has held talks in the last few weeks to sell most of its film and television assets to Walt Disney Co, CNBC reported this week, which would leave the company with its Fox News, sports programming and broadcasting stations. .

Twenty-First Century Fox would sell its stake in European satellite broadcaster Sky Plc in a deal with Disney, according to CNBC's report. Fox is trying to buy the 61 percent of Sky it does not already own but the bid is strongly opposed by some lawmakers and has been subject to lengthy regulatory scrutiny.

Time Warner shares closed up 4 percent at $90.60.

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The possibility that the Walt Disney Co. will snap up parts of 21st Century Fox reportedly is a sign that Fox, the once-mighty media conglomerate that Rupert Murdoch built with a tireless zeal for acquisitions, may feel it can't compete in a world of Silicon Valley and telecom behemoths.
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