Abstract

This case describes the acquisition of 21st Century Fox by the Walt Disney Company and the
subsequent launch by Disney of three streaming channels to compete with Netflix.

The Entertainment Industry

History.

The movie industry as a whole grew significantly (see Exhibit 1), with box office sales of
US$23.1 billion in 2005, US$31.6 billion in 2010 and US$38.7 billion in 2018, a slight decline
from the historical record of 2018, with the US representing more than 24% of the worldwide
box office of 2019.

Exhibit 1. Box Office revenue in US$ billions

Despite growing figures and record profits, traditional movies are being challenged by a potential
substitute industry. Since the first decade of the 21st century, the steady growth of the internet
has influenced the supply of entertainment.

In fact, in this period, a new concept of media service has started to appear as categorized by the
US Federal Communication Commission: over-the-top (OTT) services.

The stable demand for online entertainment is also testified by piracy. Worldwide, it has been
estimated that illegal online access to movies costs this sector a loss of US$37 billion. In 2022 it
is expected to increase by 72% and reach a total market loss of US$51 billion.

Given the attractive figures, giants such as Fox, Amazon, Apple, and WarnerMedia have decided
to position themselves in the sector, creating synergies with their already established businesses.
At the same time, Bob Iger, Disney’s President since 2000 and CEO since 2005, was tasked with
figuring out a way to do the same.
In this case, the first part is an introduction to The Walt Disney Company. It is followed by
descriptions of the leading competitors and the analysis of The Walt Disney Company’s strategic
moves.

The Walt Disney Company

History.

The Walt Disney Studios, formerly the Disney Brothers Cartoon Studio in 1923, was founded in
1926 by Walt Disney and his brother, Roy. The siblings performed parallel tasks: Walt was the
creator, and Roy, the manager. Alice’s Wonderland was imagined by Walt Disney and triggered
the success of his company.

After a tough start, he created a new character, Mickey Mouse, which has been the mascot of the
company since 1928. He succeeded in making cartoons accessible by serving a niche. The
company managed to impose itself through merchandising – they put the image of Mickey
Mouse on pencil tablets, books, and newspaper comic strips.

The changes accompanied the success of the studio, Disney created the storyboard, the
multiplane camera, the first sound cartoon (Steamboat Willie, which is still used as the opening
scene in every Disney movie), then the first colored full-length cartoon with Snow White and the
Seven Dwarfs in 1937, and the first stereo cartoon, Fantasia in 1940. The same year, to sustain
the growth of Walt Disney Company, the company issued its first stock.

Walt Disney created the world’s first theme park – Disneyland, in 1955 in California, and later
expanding to Florida (1971) and Tokyo (1983).

The 80s were a difficult period for Disney, due to the decreasing audience, and the fierce
competition with Spielberg and Lucas’s movies. The company decided to launch The Disney
Channel in 1983, allowing it to address a new market segment. Three years later, Walt Disney
Studio’s name changed to The Walt Disney Company. The first Disney Store opened a year
later, a further step in diversification. The success continued with animated films in movie
theatres, television, and VCR.

Since the 90s, Disney has followed a strategy of acquisition – it first acquired the American
entertainment company Miramax in 1993. The company diversified its business with the Disney
Stores, the acquisition of the California Angels baseball team, and Capital Cities/ABC in 1996.

In 2005, Bob Iger became CEO and built a strategy on three fundamental pillars: “generating the
best creative content possible, fostering innovation and utilizing the latest technology, and
expanding into new markets around the world.” To reach this goal, he decided to acquire –
among other minor acquisitions: Pixar Animation Studios in 2006, Marvel Entertainment in
2009, Lucasfilm in 2012, Bamtech in 2017, and 21st Century Fox in 2019.
Twenty-First Century Fox, Inc.

Twenty-First Century Fox, Inc., doing business as 21st Century Fox (21CF), was an American
multinational mass media corporation that was based in Midtown Manhattan, New York City. It
was one of the two companies formed from the 2013 spin-off of the publishing assets of News
Corporation, as founded by Rupert Murdoch in 1980.

21st Century Fox was the legal successor to News Corporation dealing primarily in the film and
television industries. It was the United States' fourth-largest media conglomerate until its
acquisition by The Walt Disney Company in 2019. The other company, the present-day News
Corporation, holds Murdoch's print interests and other media assets in Australia (both owned by
him and his family via a family trust with 39% interest in each). Murdoch was co-executive
chairman, while his sons Lachlan Murdoch and James Murdoch were co-executive chairman and
CEO, respectively.

What is Aqusition?

 An acquisition occurs when one company buys most or all of another company's shares.
 If a firm buys more than 50% of a target company's shares, it effectively gains control of
that company.
 An acquisition is often friendly, while a takeover can be hostile; a merger creates a brand
new entity from two separate companies.

Why Make an Acquisition?

Companies acquire other companies for various reasons. They may seek economies of scale,
diversification, greater market share, increased synergy, cost reductions, or new niche offerings.
Other reasons for acquisitions include those listed below.

 As a Way to Enter a Foreign Market

If a company wants to expand its operations to another country, buying an existing

company in that country could be the easiest way to enter a foreign market. The
purchased business will already have its own personnel, a brand name, and other
intangible assets, which could help to ensure that the acquiring company will start off in a
new market with a solid base.

 As a Growth Strategy

Perhaps a company met with physical or logistical constraints or depleted its resources. If
a company is encumbered in this way, then it's often sounder to acquire another firm than
to expand its own. Such a company might look for promising young companies to
acquire and incorporate into its revenue stream as a new way to profit.
  To Reduce Excess Capacity and Decrease Competition

If there is too much competition or supply, companies may look to acquisitions to reduce
excess capacity, eliminate the competition, and focus on the most productive providers.

 To Gain New Technology

Sometimes it can be more cost-efficient for a company to purchase another company that
already has implemented a new technology successfully than to spend the time and
money to develop the new technology itself.

Acquisition of 21st Century Fox by Disney

The acquisition of 21st Century Fox by Disney took place on March 20, 2019. Among other key
assets, the acquisition of 21st Century Fox by Disney included the 20th Century Fox film and
television studios, U.S. cable/satellite channels such as FX, Fox Networks Group, a 73% stake in
National Geographic Partners, Indian television broadcaster Star India, and a 30% stake in Hulu.
Immediately preceding the acquisition, 21st Century Fox spun off the Fox Broadcasting
Company, Fox Television Stations, Fox News Channel, Fox Business, FS1, FS2, Fox Deportes,
and the Big Ten Network into the newly-formed Fox Corporation.