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The Magic Kingdom Expands



How the Disney-Fox merger will change the world of entertainment

At midnight on March 20th, the Walt Disney Company finalized their merger with 20th Century Fox. Disney beat out Comcast in a bidding war to buy Fox for $71 billion. However, unlike most boring corporate acquisitions, this one has a real impact on your life.

The Walt Disney Company is the most profitable movie studio in the world. Four out of the ten highest grossing movies of 2018, were released by Disney.

Surprisingly, the studio’s success is not built on quantity. Disney’s closest competitor, Warner Brothers, made 1.9 billion dollars in 2018 by releasing forty-nine films. Disney made 3.09 billion dollars with a mere thirteen films that same year. Disney’s business model is built on the backs of blockbusters. Instead of releasing dozens of mediocrely successful movies, Disney produces a handful of huge hits.  

With the merger, Disney will be able to Marvel-ize franchises like X-Men and Avatar, adding more sequels, stars and CGI. With the new acquisition, Disney is set to control 40% of the domestic box office, changing the face of entertainment.

The deal will also play out in the theme park market. Today, the Walt Disney Company owns six resorts (two in America, two in China, one in France and one in Japan). Within these, Disney operates twelve theme parks, which generated $20 billion in 2018. Disney’s only serious competitor is Universal Studios parks, which only operates 4 resorts and pulls in about a quarter of Disney’s annual revenue. Despite the gapping difference, Universal has been causing Disney trouble for years in Florida and California. To fully understand Disney’s strategic genius in the Fox acquisition, one has to understand the roots of this Disney World-Universal conflict.

Nearly everyone has heard of Universal Studios’ Wizarding World of Harry Potter. However, not nearly as many know just how the Harry Potter theme park came about. In the early 2000s, Disney desperately wanted to obtain the rights to Harry Potter for a decently advantageous price. They had done a similar deal with George Lucas’ Star Wars and Indiana Jones properties. Lucas, an avid fan of Disney, sold his rights for a reduced price and ceded all creative control, to immortalize his creations at the parks.

JK Rowling was not so easy to deal with. In 2004, she met with Disney in Orlando about the details of the park. She wanted $250 million dollars, complete creative control, and the original film makers to work on the park.  Finally, Rowling demanded that all guests enter the wizarding world through the magical brick portal found in the back of the Three Broomstick Tavern, from the book. The team at Disney, shot down the idea because of crowd logistics. At this point,Rowling supposedly stormed out of the meeting.

While Disney assumed she was headed to the airport, she actually drove to Universal Studios, where she demanded to speak to the president, laying out her conditions. Desperate to gain the upper hand over Disney, Universal  gave her the $250 million, plus royalties, creative control, and even her brick wall portal entrance. The wild success and popularity of the Wizarding World’s fully immersive experience was unlike anything the public had ever seen. Consequently, Disney World looked outdated, with nothing remotely as immersive.

In 2009, Disney acquired Marvel Studios for about $4 billion and began developing the most profitable franchise in movie history. Now, in the 2019 Fox merger, Disney has acquired America’s favorite animated family: the Simpsons. Why are these two properties key?

It just so happens, that Universal Studios has entire sections dedicated to both Marvel Comics and the Simpsons. Since the original licensing contracts roll over to Disney, Universal Studios will now have to pay their chief competitor annual royalties on their Marvel and Simpson’s rides as well as a percentage on all Simpsons and Marvel merchandise. Meanwhile, Disney has constructed immersive themed lands throughout their parks. This year, they plan to roll out the highly anticipated “Star Wars Galaxy’s Edge” park, boosting projected park attendance to an all time high. All while, the Magic Kingdom collects royalty checks from their competitor, Universal.

The Fox acquisition also has huge ramifications for the streaming industry. Recent studies have shown that nearly 60% of Americans use streaming today. Prior to the merger, Hulu, the third largest streaming service in the world, was jointly owned by the major movie studios. Now, Disney owns a controlling interest.

As a business, Hulu loses about a billion dollars a year. It is only kept alive by the investment of big companies like Disney. While Netflix has a global subscriber base of 158 million people, Hulu has a meager 20 million. Unless Disney has a plan to boost subscriptions by 700 percent, Hulu cannot compete with Netflix.

However, as any Netflix subscriber will know, today you can stream Disney’s latest Pixar, Star Wars, or Avengers content on Netflix. Any month now, all of those films will disappear and reappear on the new Disney+ streaming app. By licensing their films to Netflix, Disney has made a lot of money, but has also exposed all 158 million Netflix subscribers to their unique content. By suddenly moving that content to a new service, Disney hopes to carry Netflix subscribers over to their platform. Disney will also bundle Hulu with Disney+, to convince wary Netflix users to make the switch.

 

So how will this affect you?

Expect to see far fewer original films in theaters. Disney hates risky movies. For the past five years Disney has taken incredibly few risks, exclusively pumping out Marvel superhero flicks, Star Wars epics, Pixar sequels, animated musicals, and live action remakes.

Second, expect Universal Studios to dump their Marvel and Simpson’s properties. These older attractions are not mainstays of the parks and probably cost much more than they are worth. Universal will most likely sell the theme park rights back to Disney and replace those attractions with more Jurassic Park, Harry Potter, and Nintendo, because Disney owns nearly all other intellectual property. The variety of themed attractions will get narrower at Universal Studios and broader at Disney parks.

Expect every Pixar, Marvel, and Star Wars product to vanish from Netflix. Disney will make access to their film library exclusive to Disney+ subscribers.

However, we are about to experience a content renaissance like we have never seen before. If you love Star Wars, Marvel, or just Disney in general, prepare for a tidal wave of quality content. Over the course of the next few years, Disney will pump billions of dollars into producing movies across their property. There will be more Marvel, X-Men, Avatar, Indiana Jones, and Star Wars, as well as near constant theme park expansion.

One thing is certain: Disney is here to stay.  

Alex Arroyo is a Sophomore who can be found hiking the backtrails of the Dakotas or searching for the perfect Oysters Rockefeller in New Orleans or at rarroyo@nd.edu

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