As Disney swallows Fox, a new era dawns for Hollywood

FILE – In this Tuesday, May 7, 2013, file photo, an entrance to a parking garage at 20th Century-Fox studios, an entity owned by News Corporation, is seen in Los Angeles. Disney announced Thursday, Dec. 14, 2017, that it is buying a large part of Fox, but the Fox studio lot in Los Angeles will remain with the Murdoch family. (AP Photo/Reed Saxon, File)

NEW YORK (AP) — After years of tremors, the earthquake that had long been predicted finally shook Hollywood.
Disney’s deal to purchase most of 21st Century Fox ends the era of the “Big Six” major movie studios, toppling one of the industry’s most famed studios and dramatically redrawing the Hollywood map.

Disney’s move — to pay $52.4 billion in stock for Fox assets — has countless reverberations. But by effectively absorbing Fox’s film studio, 20th Century Fox, Disney has rapidly accelerated the industry contraction that many considered inevitable in an era of flat-lining ticket sales and new streaming competitors like Netflix, Amazon and Apple.

The Big Six are now the Big Five — and the mightiest of them all has just been supersized.

The Disney deal hasn’t just made 20th Century Fox’s 3,200 employees anxious about their future within Disney. It’s sent shockwaves through an industry that has until now bent under the pressures of the new digital landscape, but not broken. Now, Hollywood as an industry is quite literally shrinking.

“The strongest will get stronger and the weaker will fall off or merge with other entities,” said Exhibitor Relations analyst Jeff Bock. “The future is right now and it’s pretty obvious what’s going on.”

Many analysts consider further consolidation simply a matter of time. Before Rupert Murdoch earlier this fall began shopping Fox, most expected the first studio to fall would be either Viacom’s Paramount Pictures (5 percent of the market) or Sony Pictures (8.8 percent), both of which have struggled in recent years and replaced their chief executives. Lionsgate and CBS are also frequent sources of speculation.

Fox is bigger, though. Founded in 1935 by the merger of Twentieth Century Pictures and Fox Films, 20th Century Fox is the home of “The Sound of Music,” the original “Star Wars” and the highest grossing film of all-time, “Avatar.” The studio has generally ranked either third or fourth in market share. This year, it’s fourth with 12.3 percent, following the market-leader Disney, Warner Bros. and Universal.

Fox isn’t necessarily disappearing. Disney will lease its fabled Los Angeles lot for the next seven years. But 20th Century Fox will be folded into Walt Disney Studios. Its movie-making operations will be reduced and likely restructured.

As a studio, Disney is already based on several distinct silos of brands: Disney, Marvel, Pixar and Lucasfilm. Its strength in intellectual properties — especially “Star Wars” and its library of animation classics — has made the studio dominant. In a conference call with investors Thursday, Disney chief executive Robert Iger suggested Fox may function similarly as a label within Disney.

“We have not only respected the culture of those organizations but respected and appreciated the talent that came with those acquisitions,” Iger said.

Before it sold a ticket for “Star Wars: The Last Jedi,” Disney already has three of the top six movies of the year: “Beauty and the Beast,” ”Guardians of the Galaxy, Vol. 2″ and “Thor: Ragnarok.” It has used its might to enforce more onerous terms with theaters on films like “The Last Jedi.” Disney is requiring many theater operators to share a higher percentage — 65 percent — of ticket sales. The film is expected to come close to grossing $500 million worldwide this weekend.

The combination of sensibilities between Disney and Fox, has intrigued others. Though it’s easy to see the planned quartet of “Avatar” movies under a Disney banner (“Avatar” already has a place in Disney theme parks), many of Fox’s franchises, including “X-Men” and “The Kingsman,” are well off-brand for the family-friendly Disney. It hasn’t released an R-rated movie in four years.

“Time to uncork that explosive sexual tension between Deadpool and Mickey Mouse,” Ryan Reynolds tweeted after earlier reports of the Disney-Fox deal.

Disney, which sold Miramax Pictures in 2005, has lacked other kinds of films, too. Fox’s specialty label, Fox Searchlight, is among the industry’s art-house leaders. Two Searchlight films — “The Shape of Water” and “Three Billboards Outside Ebbing, Missouri” — along with Fox’s “The Post” have made the studio the leading company of this year’s awards season, at least with the Golden Globes and Screen Actors Guild Awards.

Iger voiced his support for maintaining those businesses. “We like being in the business of making quality movies,” said Iger. “We fully intend to stay in those businesses.”

The deal also, perhaps crucially, gives Disney the extensive Fox library for Disney’s planned streaming service, set to debut in 2019. Disney is now better armed to compete against deep-pocketed digital competitors. Netflix has said it will spend up to $8 billion on original content next year.

“It’s really a battle about the future of streaming,” said Peter Labuza, a film historian and researcher at the University of Southern California. “Disney needs all this material outside of its own brand which now is its own Disney product, Lucasfilm, Pixar. But this can fill in a lot of the space in a streaming site that can compete with, essentially, Netflix.”

That’s a component of the deal that will strike fear in the hearts of exhibitors. Disney has pursued an almost completely event-movie strategy (it’s releasing only eight movies this year), and it’s expected to cut back Fox’s theatrical slate. That’s reason for concern for already struggling theater owners. Box office revenues were up just 1 percent last year, and are expected to slide this year.

“They can’t be pleased,” said Bock of exhibitors. “Less product just means less revenue in their minds.”

But Disney has also, up until now, been a staunch defender of the traditional theatrical window. For that reason, as well as its reputation for quality, the world’s largest theater chain, AMC, hasn’t sounded any alarms over the purchase. Last week on CNBC, Adam Aron, AMC chief executive, applauded Disney’s track record. “AMC has made a lot of money partnering with Disney studios,” he said.

Whichever direction Disney chooses to go, it will have the sway — with approximately 40 percent market share — to set the course for the entire industry.

Hollywood may have shrunk into not the Big Five, but the Big One. MKH

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