Disney is Becoming the ‘Walmart of Hollywood’

Walt Disney Co.’s deal with 21st Century Fox Inc. will transform Hollywood’s most successful studio into an even more powerful force, potentially pressuring rivals to consolidate, squeezing theater chains and furthering the industry trend of blockbusters and sequels.

Disney will acquire Fox’s studio, cable channels such as FX and National Geographic, and international assets in a deal valued at $52.4 billion, the companies said Thursday. The deal can be completed in 12 to 18 months if regulators approve it, Disney said.

“Disney is becoming the Walmart of Hollywood: huge and dominant,” said Barton Crockett, a media analyst at B. Riley FBR. “That’s going to have a big influence up and down the supply chain.”

This is the first major consolidation in Hollywood since Comcast Corp. swallowed Universal Pictures in 2011. With Fox and Disney under one corporate roof, the top six studios will shrink to five.

Comcast, which bought DreamWorks Animation last year, may feel it must buy another studio to stay competitive. Meanwhile, smaller independent studios, like Lions Gate Entertainment Corp. and Metro-Goldwyn-Mayer, or larger entities such as Viacom Inc.’s Paramount Pictures, could face more pressure to sell.

Getting bigger would give studios more content and intellectual property, while cutting costs, helping them create movies that dominate the weekend box office, Crockett said.

Fox would give Disney even more leverage in negotiations with theater chains, like AMC Entertainment Holdings Inc., which have been undergoing their own wave of consolidation. Disney asked some theaters for a greater share of ticket sales for big films like “Star Wars,” according to a person familiar with the situation. Usually the revenue is evenly split but on very popular films, Disney can claim more than 60 percent.

Disney could try the same tactic again with Fox’s popular film franchises like “Avatar,” which has four big-budget sequels in the works. Disney and Fox combined for 40 percent of ticket sales in 2016 in the U.S and Canada, according to researcher Box Office Mojo.

“We would expect Disney’s increased scale to be a meaningful negative to exhibitors,” Rich Greenfield, an analyst at BTIG, wrote in a note Wednesday. AMC shares are down more than 50 percent so far this year.

A Disney-Fox tie-up would follow years of growing concentration at the box office, with most ticket sales going to a smaller number of movies. Last year, the top 10 films accounted for 34 percent of the total, up from a historical average of about 28 percent, according to Doug Creutz, an analyst at Cowen & Co.

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SOURCE: Bloomberg, Gerry Smith and Anousha Sakoui