Disney combined with Fox is certainly a force to be reckoned with, and investors are likely wondering whether it's worth buying shares of the company. Let's take a closer look at what the new Disney might look like, and whether its stock is a buy.[A water tower with The Walt Disney Company logo painted on it.
Box office dominance
Disney hasn't had much trouble winning at the box office in recent years with a string of comic-book adaptations, sequels, and live-action remakes that have consistently put up big box-office numbers. But Fox has some popular intellectual property in its portfolio as well, and it has seen success with its own Marvel films (X-Men universe) as well as more original films through its Fox Searchlight studios.
Disney and Fox have combined to take four out of the five top-grossing box-office films this year. Any other studio would be happy to have just one in the top five.
Disney is also quite adept at parlaying box-office hits into additional revenue through new theme park attractions, merchandising, and licensing. Adding Fox's portfolio into the mix gives it a whole new set of characters and films to build new products around.
Leverage in a declining industry
Disney and Fox own some of the most valuable cable networks in television. While Disney won't be acquiring Fox News or keeping the regional sports networks, the addition of FX and National Geographic will give Disney additional bargaining power when negotiating carriage fees with distributors.
That's particularly important in the television industry, where pay-TV providers continue to lose subscribers. Disney has been able to largely offset subscriber losses through annual rate increases. The company may be able to accelerate those rate increases by bringing more to the table.
What's more, the Fox acquisition gives Disney a controlling stake in Hulu, which offers Disney a way to bypass traditional distributors if it finds it necessary. Disney recently launched ESPN+ and plans to launch a Disney-branded streaming service next year, after existing content licensing deals expire. Both strategies offer ways for Disney to reach customers outside of the cable bundle, the latter strengthened by the Fox deal.
Disney's over-the-top capabilities could be another compelling reason for distributors to sign favorable terms with Disney. Otherwise, they could risk losing subscribers to Disney's OTT services.
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