Disney wants to kill Netflix, but Comcast has totally different reasons for wanting Fox

Reuters

Rupert Murdoch, Chairman of Fox News Channel, September 10, 2017.

• Comcast is trying to outbid Disney for Fox. But it's motivations are likely very different.
• Disney's move is about taking on Netflix, while Comcast's is about amassing power - and hedging its bets - in a media landscape that is set to be increasingly dominated by a handful of titans.
• Besides power, Fox would bring Comcast more sports clout, more innovative ad opportunities, and an important international presence.

Disney wants Fox to help it kill Netflix. But what does Comcast want with Fox exactly?

Late last year, when Disney made its bold attempt to acquire a suite of 21st Century Fox assets, its motivation seemed crystal clear: it wanted to bolster its collection of IP for its upcoming direct to consumer streaming service (i.e. the would be Netflix killer). Add the X-Men and Avatar to Star Wars and Mickey, and you've really got something, the thinking goes.

Less clear perhaps, is why exactly pay TV titan Comcast wants Fox, which includes assets ranging from a TV studio to the FX cable network.

Business Insider talked to a pair of media industry experts to attempt to shed light on this would-be deal.

It's about Time Warner and being big

Looming over every big media deal these days is the pending AT&T/Time Warner deal. If that merger is approved (and the companies' court battle with the Department of Justice is set to be resolved by June 12), nearly everyone else in media will feel pressure to get bigger. So grabbing Fox ensures Comcast gets to play with the big kids.

Plus, even in a world dominated by Netflix and Facebook and Amazon, people still need to pay someone for broadband.

"Comcast could emerge with a soup to nuts portfolio," said Scott Rostan, a former analyst in Merrill Lynch's M&A department who's now CEO of financial education firm Training The Street. Besides owning a huge cable system, a slew of TV networks, production studios and a film division, Rostan wondered whether Comcast might even want to get into the wireless business next.

Regardless, if future media offerings are dominated by a few giants, Comcast wants to be included. "At worst if gives them a seat at table, and at best it lets the dictate how things play out."

It's about the world

You may think of Fox in terms of "Deadpool" or the National Geographic cable network. But the company's secret strength is in international distribution, across Europe, Latin America and other regions, said Mary Ann Halford, a former Fox International EVP who's now senior advisor at strategy consulting firm OC&C Strategy Consultants.

Halford noted that for Comcast, international business makes up about 9% of its revenue. "For their competitors it's a lot more."

"Disney clearly has a strong brand internationally, and Fox does too. Comcast - they just don't." For example, in her view, what Fox has built in Latin America versus NBC's smaller footprint, "It's night and day."

It's about streaming

Yes, Disney's motivation is more about amassing a library of shows, characters and movies that could envy Netflix's massive content output. But that doesn't mean Comcast couldn't do something similar with the Universal library and Fox's assets. "Universal is not as big on the content side as Disney but they could get bigger," said Rostan.

Universal

It's about Sky

Disney CEO Bob Iger has called Sky, the UK-based satellite TV service, a "crown jewel." But wait? Aren't people cutting the cord, even British people? Why does a legacy cable TV player like Comcast want another pay TV service, when all the consumer trends seem to be going in the opposite direction?

Don't undervalue Sky, said Halford. The company, which Fox controls 39% of and Comcast is bidding for independently, has valuable exclusive sports rights in the UK. It also has innovated by offering a version of a skinny bundle and a direct-to-consumer streaming service, and has dabbled in e-commerce.

It's about programmatic ads

Sky is also ahead of the US when it comes to delivering targeted advertising to consumers, said Halford. The company's addressable TV ad platform, Sky Adsmart, is being rolled out beyond the UK to Germany, Ireland, Italy and Austria, reported The Drum. Comcast could theoretically borrow some best practices from Sky's ad tech team.

It's about sports

With all the other pieces involved, it's easy to forgot that as part of its proposed deal, Fox is set to sell 22 regional sports networks to Disney. Even as people cut the cord and binge on streams, these local cable stations are extremely valuable. These stations are how fans in New York watch Yankee games and fans in Los Angeles watch Lakers games.

Even if Comcast would have to sell off some of these networks, they could easily piece together the company's existing sports portfolio ("Sunday Night Football," US rights to the English Premiere League) to be a that much more powerful sports media and advertising player.

YES/MLB

It's about culture

According to Halford, there's been some worry over how the corporate cultures at Disney and Fox would mesh. Uber TV creator Ryan Murphy even cited this as part of his reasoning for inking a massive Netflix deal.

Meanwhile, Halford says that Comcast and Fox executives - particularly the folks at Sky - have talked for years and get each other. "They share a worldview," she said. Plus, there's the added benefit that the deal isn't seen as anti-competitive. "British regulators have already said its cool."

It's about blocking Disney

Media mergers and acquisitions are about big money, big power, and big egos. And Comcast CEO Brian Roberts is someone who doesn't like to be left out.

And beyond this immediate deal, there's the string of deals that could happen next that Comcast may want to steer toward.

"M&A is a chess game," said Rostan. "Deals give you future optionality. By making this move now, you get more access to content, more subscribers, etc. The future trends of media consumption are all uncertain, and uncertainty means risk. So future options gives you extra cards to play."

On the flip side, there is a lot of risk for Comcast, Rostan said. "Bidding wars tend to be long, protracted and high profile. There is always a fear of overpaying due to the intense competition."