The Walt Disney Co.’s months-long effort to sell 22 regional sports networks might be getting close to wrapping up, now that Disney’s deadline clock has formally begun.

Disney said it would sell the RSNs as a condition to winning federal approval of its $71.3 billion purchase of 21st Century Fox programming and production assets. As part of that agreement, Disney agreed to have sale agreements in place within 90 days after closing the larger Fox deal, which occurred on March 20.

According to people familiar with the auction process, the next round of bids — most likely the final round, given the 90-day window — is due in mid-April. At press time, the leaders appeared to be a team owners’ group, including John Malone’s Liberty Media; and Major League Baseball itself.

Whether or not that means a winning bid will be picked in April still remains to be seen. The 90-day deadline to close the sale would mean a deal would have to be done by June 18. But those same people familiar with the auction said that as long as progress is being made, an extension could be applied for, which would push the deadline to Sept. 16.

Bidders Have Had Time to Ponder

Disney began this process in June 2018, after the Justice Department approved the Fox transaction. Books on the networks went out in October.

One deal is done or at least is in the eighth inning, metaphorically: YES Network’s sale to the New York Yankees. The Yankees, which own 20% of the channel and had the right of first refusal to purchase Fox’s 80% interest in the event of a sale, exercised that right earlier this month, teaming up with Amazon, Sinclair Broadcast Group and several private-equity firms to buy it for an estimated $3.5 billion, less than the $4 billion most expected the network to fetch. When the deal closes, the Yankees will own the majority of the channel.

While the YES deal hasn’t been officially announced, most observers believe that is merely a formality as the network is waiting until the other RSNs are closer to a sale before making the big reveal.

Sinclair, which in February announced a partnership with the Chicago Cubs for an RSN called Marquee Sports that will launch in 2020, is apparently still interested in adding to that portfolio. During an earnings conference call on Feb. 27, Sinclair CEO Christopher Ripley alluded to reports concerning opportunities that Sinclair may have in the space.

RELATED STORY: Fox Closes Disney Deal, Issues Affiliate-Fee Warning

“I can’t comment specifically on those reports, due to non-disclosure agreements we’ve signed,” Ripley said. “But there is a very unique moment in time here in the RSN space that we really like our positioning on.”

There have been a steady stream of potential suitors for the remaining RSN assets. Private-equity firms like Apollo Global Asset Management; consortiums of teams and investors; rapper Ice Cube, and others have all expressed interest.

According to Fox Business Network’s Charlie Gasparino, Disney and MLB were discussing “add-ons” to the league’s bid, mainly a “national rights extension” that would allow the league to air some games on ESPN that the RSNs own the rights to.

Gasparino said those discussions seemed to hint that MLB was in the lead.

One source familiar with Big 3 Networks, the professional three-on-three basketball league owned in part by Ice Cube, said it remains very much in the hunt for the channels. Big 3 has secured partial backing from boutique PR firm Centerbridge Partners.

Malone was said to be interested mainly to protect the interests of the team Liberty owns, the Atlanta Braves. There was a fear among owners of smaller market teams that an outside buyer would allocate more resources to networks with teams in larger cities, leaving the smaller markets in the lurch.

Other team owners have reportedly entered the fray as well. Platinum Equity chief Tom Gores, who also owns the National Basketball Association’s Detroit Pistons, has conferred with Malone about a bid, as has Minnesota Twins owner Jim Pohlad. Other baseball teams including the Arizona Diamondbacks, the Los Angeles Angels (owner Arte Moreno was reportedly interested in bidding on Fox Sports West, Prime Ticket, Fox Sports Arizona and Fox Sports San Diego) and the Milwaukee Brewers have also considered making bids, according to reports.

Bids Seem to Be Coming In Low

Unfortunately for Disney, the networks, including Fox Sports channels in Atlanta, Detroit, Kansas City and Phoenix, have reportedly attracted bids in the $10 billion range, or about half of the $20 billion first expected.

The emergence of Malone was said to have raised the price slightly — to maybe as high as $13 billion — but still below the original target.

Live sports and news are primarily the two remaining areas of programming that are attracting meaningful ad dollars. And sports on RSNs consistently place high in the ratings.

But regional sports networks have distribution concerns. Already saddled with a reputation of being too costly — YES Network, according to Kagan, a unit of S&P Global Market Intelligence, costs distributors about $6.50 per subscriber per month — they have been placed on tiers by most cable and satellite service providers, which limits their audience.

“With the 90-day clock beginning with the close of the Disney/21st Century Fox sale, and YES not getting its full estimated value, I don’t think the other RSNs will be able to either,” Kagan sports analyst Adam Gajo said in an email message.

Suitors continue to line up for 21st Century Fox’s 22 regional sports networks, with reports that Amazon has submitted a bid for the channels which could carry a price tag as high as $20 billion.

Amazon is just one of many potential buyers of all or some of the Fox RSNs and could be a partner in the biggest jewel in the crown — New York-based YES Network, according to CNBC. Amazon was said to be part of a group willing to team up with YES’s 20% owner, Major League Baseball’s New York Yankees, in buying out Fox’s 80% interest. The Yankees have the right of first refusal in any sale.

The first round of bids for the channels ended on Nov. 8 and were known as much for the parties that didn’t participate — Fox and NBC Sports Group — as those that did. According to reports, Fox sat out the first round of bidding but could come back in the later stages. NBC Sports did not make an offer and is not expected to after NBC Broadcasting and Sports chairman Mark Lazarus told an audience at the Fairfield County Sports Commission event in Stamford, Conn., that regulatory issues would prevent any bid.

“The government’s not going to let us buy any more where we are heavy in cable — we’ve already been informed of that,” Lazarus said at the event, according to Sports Business Journal.

Otherwise, the list of potential suitors includes the expected — private equity players like The Blackstone Group, KKR & Co. and Apollo Global and broadcasters Sinclair Broadcast Group and Tegna — and some unexpected, like rapper Ice Cube, reportedly making bids.

Fox made the RSNs part of its larger $71.3 billion sale of certain programming assets to The Walt Disney Co., mainly for tax reasons. The RSNs, a cash cow for Fox, are thought to be well-run and are expected to fetch a high price.

Will Amazon Get in the Game?

Amazon, which renewed its streaming rights for NFL Thursday Night Football in April for two years, has been interested in obtaining sports rights, but hasn’t been willing to part with much cash to do it. Its April renewal of the TNF deal reportedly cost about $65 million per year, but that’s miles away from the $20 billion price the RSNs are expected to attract.

While some analysts have always expected Amazon to be a player in the sports arena — BTIG media analyst Rich Greenfield has said the deep-pocketed online giant could pony up for everything from NFL Sunday regular-season packages to the YES Network — some see the company as playing more of a spoiler role.

“What’s the plan?” asked CNBC anchor David Faber after breaking the Amazon story on Nov. 20. “Keeping them on cable and collect a fee?”

While moving the networks to Amazon Prime would solve one problem for operators who have struggled with consumer complaints about having to pay for sports channels they don’t watch, it opens up another question for Amazon — can they offer the RSNs at an attractive price and justify the cost? Faber said maybe Amazon could use the RSNs to steer viewers to memorabilia or sportswear purchases, but they would have to sell a lot of jerseys to justify a $20 billion price tag.

RSNs have also come under fire for their high fees — YES, according to S&P Global Market Intelligence research arm Kagan, attracts a fee of $6.37 per subscriber, per month — which has had some analysts question their growth opportunities.

One potential upside is advertising, which is expected to grow with the advent of legalized sports betting. At the Bank of America Merrill Lynch Media, Communications and Entertainment Conference in September, Fox Sports CEO and executive producer Eric Shanks said YES Network was airing some sports gambling ads in New Jersey, but he said it was too early to tell what impact it will have on the market in general.

“I think it will take a little while for that tipping point to happen before you start to see a material amount of advertising revenue come through,” Shanks said at the BofA conference. “And how long will it last?”

Fox was expected to show interest, especially since after the Disney deal is complete, New Fox will be focused on live news and sports. But chief financial officer John Nallen played down the benefits of putting together the regionals with its FS1 and FS2 networks.

“I’m not sure that New Fox gets a real revenue kick for having bolted the RSNs with those other assets,” Nallen said at the Goldman Sachs Communacopia conference in September. “I think those other assets, unto themselves, do just fine in the affiliate world. And from a cost synergy standpoint, there’s very little overlap between Fox today and the RSNs. The RSN game is a complete local game.”

Shot Clock Is Ticking

Whatever Fox’s involvement, either as facilitator or buyer, the RSNs are expected to pick a new owner or owners in the next few months. According to its agreement with the Department of Justice, Disney has to sell the RSNs within 90 days of closing its Fox deal. With recent regulatory approvals from Europe and China, that timeline could compress from Fox’s conservative first half of 2019 to as early as the first quarter of next year. One person familiar with the company said Fox has told employees that any day after Jan. 1 could be closing day.

Disney also is under a bit of pressure to close a deal — according to the DOJ approval, if it can’t close a deal within the 90-day window, the agency will appoint its own trustee to engineer a deal.

“I don’t think Disney wants that to happen,” said one sports executive who asked not to be named.

With Comcast’s abandoning its pursuit of 21 Century Fox programming assets a reality, influential media analyst Craig Moffett has another suggestion for the cable giant: drop your bid for U.K. satellite company Sky, too.

Comcast said early Thursday that it would no longer pursue the Fox assets, giving The Walt Disney Co., a clear path toward completing its deal with the content company. Instead, Comcast said it would focus on purchasing Sky – which is 39% owned by Fox. Comcast already is locked in a bidding war with Fox over that asset – it bettered Fox’s $32.5 billion bid for the company on July 11 with a $34 bid just hours later. 

Comcast sees the Sky assets as a way to diversify into the growing international content and distribution markets. In announcing its first bid for Sky way back in April, Comcast chairman and CEO Brian Roberts called Sky “a great fit with Comcast.”

But Moffett, who has been a critic of Comcast’s run at the Fox programming assets in the past, is no fan of the Sky pursuit either. To Moffett, Comcast is confusing what Sky couldbecome with what it is.

“…[W]hat Sky actually is, is a satellite TV provider, with all the shortcomings that that implies (most probably technological obsolescence),” Moffett wrote in a blog post. “For what it’s worth, Sky’s growth rate is about the same as DirecTV’s was when AT&T acquired it. [Investors will recall that, at the time, AT&T fancied DirecTV to be a platform-agnostic content aggregator that could easily become the bass of a global OTT brand…but we digress].”

Related: Analyst Says Disney Could Outlast Comcast in Fox Fight 

Moffett noted that Sky has an impressive list of content assets – Premiere League Football rights, exclusives with programmers like HBO, Fox, Disney, NBCU and Showtime. But, while those deals create some protection against the increasing competitive threat from OTT and SVOD providers, they can’t be counted on to last.

Disney has already announced plans to go direct-to-consumer with some of its offerings, and HBO, recently purchased by AT&T, and CBS’s Showtime will probably do the same at some point.

On the soccer front, Facebook recently purchased Premiere League rights for Vietnam, Laos, Cambodia and Thailand, and Moffett believes it isn’t much of a stretch to think they would try the same for Western Europe once those rights come up for renewal. 

“Knowing this, if Comcast does acquire Sky, they would have to rapidly wean it from its dependence on licensed content, just as Netflix had to begin doing five or so years ago when it became clear that they faced the same crisis,” Moffett wrote.

Moffett has always thought that the man driver for Comcast’s bids for Fox programming was the TV and movie studio. Distribution is all well and good, but to Moffett, Comcast saw that producing more compelling content would determine the winners in the battle for consumer entertainment dollars. Now, with the studio out of the picture, Comcast will instead have to ramp up production at its existing Universal Studios. But there’s some risk involved in that too.

“If they can’t manage to ramp up their studio slate fast enough, they will be left with what is at best a declining distribution platform that will serve as a drag on growth of whatever it is they try to build in its place,” Moffett wrote. “And even if they can ramp the production slate fast enough (with only their Universal Studios) they will have to spend like drunken sailors to do it.”

And Comcast should be careful what it wishes for. Moffett notes that Netflix has a lot of subscribers – about 130 million globally, at last count – that are losing a lot of money.

"Would Comcast ever be ascribed anything remotely like a Netflix –like valuation if they were to achieve something like Netflix-like metrics?” Moffett asked. “We (strongly) doubt it.”

Moffett also dismisses the notion that Comcast’s pursuit of Sky – or for Fox programming assets for that matter – was a reflection on its displeasure with the distribution business.

“Instead, they are a commentary on Comcast’s view of NBCU,” Moffett wrote. “Comcast rightly believes that being a player in media will require enormous scale. Now that they own NBCU, they’ve got to feed the beast.”

Comcast could sell its programming unit and let someone else deal wit the scale issue, but Moffett and most other analysts don’t believe that will ever be considered.

And Moffett commends Comcast for its forward-looking attitude in what is an increasingly scary future.

“The problem isn’t with the vision,” Moffett wrote. “It’s with the asset (Sky) they are trying to shoehorn into that vision. And with the expectation that shareholders will be rewarded for their pursuit of that vision, even if they achieve it.” 

Comcast investors were apparently pleased that the cable operator has dropped its months long pursuit of 21 Century Fox assets, driving its shares up by more than 3% on Thursday.

Comcast stock went as high as $35.29 each on July 19, up 3.7% or $1.25 per share. It was the highest point for Comcast stock since March. The stock was trading at $35.19 each (up 3.2%) at about 10:26 a.m. Thursday.

Shares of The Walt Disney Co. also rose sharply on July 19 – up as high as $114 (3% or $3.31 per share) in early trading. The stock was priced at $113.75 (up 2.7%) at 10:26 a.m. July 19.

Now that the bidding war for its programming assets is over – and the battle for British satellite giant Sky is heating up – 21st Century Fox shares dipped about 2% (91 cents each) to $45.77 in early trading Thursday. The stock rose slightly to $45.82 (down 1.9%) at 10:26 a.m. July 19.

Related: The Hunt is On

Comcast ended its months-long bidding war with Disney earlier Thursday, saying it would drop its pursuit of the Fox assets and focus its attention on Sky. 

Fox owns a 39% interest in Sky and has been trying to consolidate the asset, only to be outbid by Comcast. With Comcast's attention fully focused on the U.K. satellite company, the potential for that ongoing battle to heat up has increased. 

AT&T chair and CEO Randall Stephenson, a day after the U.S. Dept. of Justice said it would appeal a federal court decision that helped clear the path to its merger with Time Warner Inc., told CNBC Friday morning that the DOJ’s action could affect another potential mega-media merger: Comcast’s pursuit of 21 Century Fox assets.

Related: DOJ to Appeal AT&T-Time Warner Merger 

Comcast was expected to raise the ante again for certain Fox programming and studio assets pledged to The Walt Disney Co. Comcast had outbid Disney’s original $52.4 billion equity offer for the assets in June with a $65 billion all-cash proposal, only to be bested by another cash and stock offer from Disney worth $71.3 billion. The DOJ approved the Disney deal on June 27. 

Speaking to CNBC’s Squawk Box on Friday from the Allen & Co. conference in Sun Valley, Idaho, Stephenson said the DOJ’s plans to appeal the Time Warner purchase came as little surprise, adding that it probably isn’t great news for Comcast’s pursuit of Fox.

“[It] probably can’t help it,” Stephenson told CNBC, according to a transcript. Stephenson said he didn’t want to speculate on the government’s motives for appealing his merger, but said it could affect the Comcast-Fox “process.”

Related: AT&T, Time Warner Cleared to Merge 

“You’re in a situation where two entities are bidding for an asset, and this kind of action can obviously influence the outcome of those actions,” Stephenson said. “But who knows whether that’s behind us.”

The AT&T chief stressed that the appeal process – which he speculated could take five-to-six months to complete -- will have no effect on the way AT&T and Warner Media run their businesses.

“This changes nothing,” Stephenson said. “This changes nothing we’ll be doing over the next 30 days or the next 12 months. We’re about executing our plan. We think the likelihood of this thing being reversed and overturned is really remote. It’s a very narrow path that would have to be traveled to get this thing reversed in any way. So we’re about executing our plan. The merger is closed. We own Time Warner.”

Related: AT&T Completes Time Warner Purchase 

Stephenson said as part of the original agreement, AT&T would run Warner Media separately and independently, and the company has no intention of changing that.

“I mean, when you have content players who are both suppliers and customers, you just have an obligation to treat them that way anyway,” Stephenson said. “So this changes nothing about how we operate the business. It changes nothing about products we will launch. It changes nothing about other M&A we need to do like Appnexus.”

Related: AT&T to Acquire AppNexus as Start of TV Ad Marketplace

And while the AT&T chief said the appeal could pose some problems for Comcast-Fox, he doesn’t see the same chilling effect on other potential mergers.

“If [I] were a CEO looking at media acquisitions and deals, I don’t think I would be looking at them today any differently than I did yesterday,” Stephenson said. “I think this is a process that will play itself out. But I think there is such a slim chance of this thing being altered in some way that it wouldn’t affect my thinking much at all.

But he added that most other companies shouldn’t have been looking to the AT&T-Time Warner ruling as a regulatory template in the first place, because Judge Leon’s ruling was so specific to that transaction.

AT&T has come under fire lately over how it would run Warner Media, specifically a Town Hall meeting with HBO employees where Warner Media chief John Stankey appeared to want the premium network to be more like Netflix. Stephenson said that Stankey’s message of increasing engagement is a strong one. 

“At the end of the day that’s what this is all about, engaging the consumer,” Stephenson said. “Because the more engagement you have, the more opportunity you have to create value.”

More engagement could mean “pumping more content into HBO,” but it also means spreading it across AT&T’s other digital properties like DirecTV Now, WatchTV and online sites like CNN.com.

Still, the AT&T chief said the company is aware of the potential for culture clashes between Warner and other AT&T units, but added he wasn’t concerned about it.

“I’m conscious of it and we’re being very, very careful and mindful of that.” Stephenson said. “The way we’ve organized the business, it will be run separately, very independently. It’s important that we preserve the culture.” 

A British regulator has approved 21st Century Fox’s proposed acquisition of Sky as the bidding war between Fox and Comcast over the European satellite broadcaster escalated.

With the approval of the U.K. Secretary of State for Digital, Culture, Media and Sports, Fox said in a statement that all regulatory preconditions to its acquisition have now been satisfied and waived. A committee of independent Sky directors waived the preconditions on their merger agreement, Fox said.

Fox is looking to acquire the 61% of Sky it does not already own.

Comcast might still be standing in the way. After the close of trading on Wednesday (July 11), the cable company raised its bid for Sky to 14.75 British pounds sterling, or $34 billion.

That topped Fox’s latest bid, made Wednesday morning, for 14 pounds per share, or $32.5 billion. Fox’s new bid was 30% higher than its previous offer.

The battle for British satellite giant Sky just got hotter as 21 Century Fox upped its bid for the company to $32.5 billion, besting a rival offer for the company from Comcast and clearly putting the ball in the cable operator’s court.

Fox was widely expected to increase its offer for Sky after Comcast made a $31 billion unsolicited bid for the company in April. In making its latest offer, Fox said the all-cash deal values Sky at £14 per share (about $18.57 per share) and bests Comcast’s £12.50 per share bid by 12%.

Related: Comcast Formalizes Sky Offer 

In a statement, Fox said the offer represents an 82.1% premium to Sky’s closing price on Dec. 6, 2016, when it made its original offer to purchase the 61% of Sky it didn’t already own. The deal is conditioned on a positive ruling on the purchase from the U.K. Secretary of State, who has said he will make a decision on the deal on July 12.

Fox was widely expected to make the higher offer. 

Related: Fox Adding Ammo to Sky Battle 

Sky is expected to be part of a separate deal between Fox and The Walt Disney Co., for certain programming assets. Disney has already agreed to purchase Sky News – which had been a sticking point with regulators – and will assume control of the satellite company once its larger deal is closed.

Related: Disney Pledge to Buy Sky News Unit Clears Regulatory Path for Fox Consolidation 

“As the founding shareholder of Sky, we have remained deeply committed to bringing these two organizations together to create a world-class business positioned to deliver the very best entertainment experiences well into the future,” Fox said in a statement. “We strongly believe that a combined 21CF and Sky will be a powerful driver for the continued growth and vibrancy of the UK and broader global creative industries. The enhanced scale and capabilities of the combination will enrich Sky’s ability to continue on its mission for years to come, especially at a time of dynamic change in our industry. This transformative transaction will position Sky so that it can continue to compete within an environment that now includes some of the largest companies in the world, but none of whom have demonstrated the same local depth of investment and commitment to the UK and to Europe.”

Say what you want about how bidding wars are bad for business and how nobody truly wins in the end, for cable programming stocks, the battle between The Walt Disney Co. and Comcast over 21st Century Fox’s entertainment assets has been plenty good.

Programming stocks have been under the gun since the summer of 2015, when a market sell-off decimated the sector after Disney admitted its flagship sports network ESPN had shed about 3 million subscribers.

Cable programmers watched their stocks plunge and the sector lost more than $60 billion in market capitalization as investors panicked that over-the-top services would take over, gutting affiliate fees and ad revenue.

That may still happen. And though most programming stocks haven’t fully recovered from that 2015 bloodbath, the battle for Fox’s entertainment cable networks and TV and movie studios has done more for the overall sector than just about anything else over the past six months.

AT&T Deal Raises Deal Tides

For some, the past two weeks has been particularly productive, after U.S. District Court Judge Richard Leon approved AT&T’s purchase of Time Warner Inc., on June 12, ending what had been a 20-month regulatory process and possibly opening the door for further consolidation.

The day after the judge’s decision, Comcast made a formal, all-cash bid of $65 billion for the Fox properties, touching off what some expect to be a lengthy bidding war.

So far, Disney hasn’t disappointed, sweetening its December offer for the assets with a $71.3 billion cash and stock on June 20.

And on June 27, the U.S. Justice Department approved the Disney-Fox deal, on the condition that Disney divests Fox’s 22 regional sports networks.

That approval could complicate Comcast’s quest for the other Fox assets, but it also puts more programming assets in play. Comcast, at press time, had yet to up the ante for Fox, but was widely expected to escalate the bidding.

Comcast, which has an investor base that doesn’t seem to want it to pursue expensive content assets, has seen its stock fall about 20% as its management did just that.

Disney, down about 3% in the months just leading up to the official Comcast bid, fell another 4.5% in the two weeks after June 13 as the bidding war threatens to heat up.

Fox, owner of the prize assets coveted by Comcast and Disney, has seen its stock rise steadily (41% or about $14 per share) in the past six months.

Also benefiting has been Discovery Inc., which closed on its $14.6 billion purchase of Scripps Networks Interactive in February. It’s enjoyed a resurgence recently amid speculation it could be involved in the latest consolidation wave.

Discovery shares are up 15.5% since June 13, more than twice the 7.3% they gained between Dec. 29 and June 12.

Pivotal Research Group senior advertising analyst Brian Wieser changed his rating on Discovery from “hold” to “buy” and back to “hold” again between June 4 and June 18, mainly because the stock’s 30% gain over that period exceeded his $28 price target. Wieser has maintained that price target, but is still a bit skeptical about the prospects of more consolidation.

“There are many legitimate concerns about the company’s strategic position vs. its peers and around the industry in which it operates,” Wieser said in a research note. “And while we recognize that M&A has the potential to provide favorable benefits to Discovery stock, we’re hard-pressed to see any buyer urgently pursuing Discovery at this time.”

Other stocks that could be attractive to consolidators have gained, too. Regional sports programmer MSG Networks, which could benefit in a Fox RSN spinoff, is up more than 13% since June 13. The stock rose just 0.5% in the prior six months.

Who Might Be Buying?

But who might roll up programmers in the wake of Comcast-Fox-Disney? Some analysts think one of the online video giants — Facebook, Apple, Amazon, Netflix and Google, the so-called FAANG stocks — could easily snap up networks. Others point out that Netflix’s strategy has been to build, not buy.

“Tech is NOT buying legacy media, they are replacing legacy media,” BTIG media analyst Rich Greenfield wrote in a blog post. “[W]hy acquire legacy media assets when you can simply invest and acquire Hollywood talent without all the unwanted baggage that is embedded in legacy media assets?”

Some still hope for a buying spree. The New York Yankees, the Major League Baseball team that is a partner in and the primary content provider to YES Network, could buy out Fox’s 80% stake in the sports channel for an estimated $4 billion. Should that happen, FBN Securities analyst Robert Routh believes MSG Networks would be an attractive target to whoever owns the other Fox RSNs.

In a recent interview with The Wall Street Journal, cable legend John Malone said Charter Communications could be a possible buyer if the Fox RSNs were spun off. Malone’s Liberty Broadband is Charter’s largest individual shareholder.

In a client note, Routh said whoever gets the Fox RSNs will likely have no presence in the New York metro area if the Yankees buy YES. “This would make MSGN the only other ‘game in town’ as far as the New York RSN market is concerned, and thus we think whoever acquires Fox’s RSNs will look to acquire MSG Networks to complement the other RSNs they would be purchasing from Fox.”

MSG Networks could fetch as much as $35 per share from a buyer, about 10 times its forward looking cash flow and a 52% premium to its current stock price, Routh said.

Just days after saying it was ready and willing to make a counteroffer for 21st Century Fox assets pledged to The Walt Disney Co., Comcast now has about six weeks to put up or shut up.

Both Disney and Fox said on May 30 that they will hold their respective special shareholders’ meetings July 10 to vote on the $68 billion deal. Disney’s is slated for 10 a.m. at the New Amsterdam Theater in New York, Fox’s at the same time at the New York Hilton Midtown. While both companies have recommended that shareholders vote in favor of the transaction approved by their boards months ago, Fox acknowledged it was “aware” that Comcast could make a competing offer.

Should Comcast lob in an all-cash offer (and every indication is that it will), the shareholders’ meetings could be postponed to a later time.

Waiting on AT&T Ruling

Comcast is expected to wait until June 12 to make a formal offer for the assets. That’s when U.S. District Court Judge Richard Leon is expected to make his ruling on the other big media deal on the table: AT&T’s $108.7 billion purchase of Time Warner.

Much has been made of Comcast’s intentions, mainly surrounding the inevitable bidding war that a counteroffer would touch off. But more broadly, its move underscores just how rapidly the pay TV landscape is changing.

In one fell swoop, the deal would give Comcast control of two sizable content and distribution assets inside the U.S. (online video service Hulu) and outside (U.K. satellite-TV giant Sky).

Hulu, the online service partly owned by Disney (30%), Fox (30%), Comcast (30%) and Time Warner (10%), about a year ago launched Hulu Live, a virtual multichannel video programming distributor that now has about 800,000 customers. That’s in addition to the Hulu SVOD service, which boasts around 20 million customers.

Getting Fox’s 30% interest in Hulu would give Comcast 60% control of a national OTT distribution arm — it would likely try to buy out Disney and Time Warner at a later date — and could position the cable operator nicely for any changes that may come in the distribution business.

Adding Fox Networks International, Sky and Star India, Fox’s pay TV network in India, would also lessen the blow of increasingly intense competition in the U.S. by boosting Comcast’s international exposure from 9% of total revenue to 25%.

“It’s an international play,” said one person familiar with Comcast’s thinking, who asked not to be named. “You’ve got Sky News, they have an OTT platform called Sky Now; over in India, 400 million people watch a cricket match. There’s a lot of opportunity internationally.”

Comcast made a formal offer for 100% of Sky in April valued at $31 billion, a deal that trumps an earlier buyout offer by Fox. Unlike the Fox deal, it is expected to get little pushback from U.K. regulators. Adding the Sky bid to an anticipated $78 billion offer for the Fox assets would push Comcast’s total commitment to the Murdoch family well over $100 billion.

Comcast was an early participant in the bidding for the Fox assets last year, but dropped out after it became apparent Disney was the preferred suitor. Comcast apparently floated an all-stock deal that was at a 16% premium to the Disney bid, but said in a statement at the time it “never got the level of engagement needed to make a definitive offer.”

Cable Declines, Netflix Soars

Since December, cable companies have endured heavier-than-expected video subscriber losses and a shift in investor sentiment toward alternative distribution. Comcast shares have lost more than 20% of their value since the beginning of the year, and the rest of the sector has seen similar declines.

Meanwhile, shares in Netflix, which practically invented the SVOD space, are up by more than 80%, and last week the OTT service passed both Comcast and Disney in total value, with a market cap of $153.7 billion. Disney’s market cap was $149.02 billion and Comcast’s was $144.9 billion as of May 31.

“It feels like Comcast wants it more than Disney partly because Disney needs Fox less than Comcast,” Pivotal Research Group CEO and senior media & communications analyst Jeff Wlodarczak said. “In regards to developing a global OTT platform, Disney probably does need Fox less than Comcast.”

The Walt Disney Co. is reportedly lining up banks to provide a substantial cash boost to its offer for 21st Century Fox assets it previously agreed to purchase, in an effort to best any competing bids from Comcast, CNBC’s David Faber said Tuesday (May 29).

Citing sources familiar with the company, Faber said on CNBC’s The Faber Report  that Disney is prepared to add “significant cash” to its all-stock bid for the assets, currently valued at about $68 billion.

Comcast made public its intentions for the Fox assets, issuing a formal statement May 23 that is considering an all-cash offer that would be superior to the Disney bid. While Comcast did not specify how big that bid would be, some analysts have speculated it could be as much as $10 billion more than the Disney offer. 

But that bid apparently hinges on the outcome of AT&T’s proposed $108.7 billion takeover of Time Warner Inc. That deal, which the U.S. Dept. of Justice sued to block in November, is expected to receive a ruling from U.S. District Court Judge Richard Leon on June 12. If the deal is approved, and most analysts expect it will, Comcast is anticipated to make its offer shortly after.

Fox agreed in December to sell its cable channels FX, FXX, National Geographic; its movie and TV production studios 20 Century Fox, 21 regional sports networks, its 30% interest in Hulu and its 39% interest in British satellite TV company Sky to Disney in a deal valued at $66.1 billion at the time. Fox will keep its broadcast network, as well as its cable channels Fox News Channel, Fox Business Network and sports networks FS 1, FS 2 and the Big Ten Network. In April, Comcast made a formal offer for all of Sky for $31 billion. Sky is still evaluating the offer although British regulators said earlier this month they would likely have no difficulty in approving a deal.      

With its decision to go public with its heretofore unmentioned desire for 21st Century Fox assets currently betrothed to the The Walt Disney Co., Comcast appears to be gearing up for an epic battle that hearkens back to the old media mogul days, when oversized personalities like Sumner Redstone, Barry Diller and John Malone duked it out for control of media properties.

In a statement spurred in part by public filings by Disney and Fox for their upcoming shareholders meetings, Comcast said it was “considering, and is in advanced stages of preparing, an offer for the businesses that Fox has agreed to sell to Disney.”

With that, Comcast took off the gloves, making it clear that it was not only preparing for battle, it was more than ready. It closed its terse statement by stating while no decision had been made “at this point, the work to finance the all-cash offer and make the key regulatory filings is well advanced.”

In other words: Bring it on.

Throwback Move

The media landscape is littered with tales of bare-knuckle brawls between entertainment titans. And the current love triangle that is Comcast-Disney- Fox has jogged some memories back to 1994, when three epic media personalities — Paramount Communications chief Martin Davis, Viacom chairman Sumner Redstone and QVC chief Barry Diller — battled publicly over the movie studio.

Diller, who had worked at Paramount earlier in his career, had been rumored to be interested in making a deal for the studio, but had pulled back at the last minute, according to a 1994 article in Vanity Fair. In that piece, Diller had lunch with Davis at Paramount’s private dining room in Manhattan, deflecting the Paramount CEO’s fears that he was considering a bid for the studio. Two months later, Paramount announced a deal with Viacom, valued at about $8.2 billion. Shortly after, backed by then Tele-Communications Inc. chairman John Malone, Diller launched a hostile bid for the studio for $9.5 billion.

What followed was a five-month bloody battle between the moguls involving lawsuits, poison pills and a lot of finger-pointing. In the end, Viacom emerged the victor with a $10 billion bid. It is unlikely that Comcast will get off that cheaply this time.

MoffettNathanson senior media analyst Michael Nathanson has estimated that Comcast would likely bid about $10 billion more than Disney for the Fox assets. That, he said in a note to clients, is something Disney can easily match.

Nathanson estimated that Disney’s current offer for the Fox assets is valued at about $68 billion, $54 billion in equity and $14 billion in assumed debt. Assuming that Comcast would offer about the same as it did before — it was rejected in the early rounds of bidding because of potential regulatory concerns and the Murdoch family’s distaste for Comcast stock — its cash bid would be valued at about $78 billion in total ($64 billion in equity and $14 billion in assumed debt), according to Nathanson. “We would expect Disney to match that higher bid with $10 billion in cash added in to its existing deal,” Nathanson wrote.

Nathanson has said Iger is determined to win the Fox assets, and believes the Disney chief has “never backed down from making the right long-term strategic moves for his company because of price.”

Comcast CEO Brian Roberts, the veteran of many mega-deals ranging from industry-defining acquisitions like AT&T Broadband in 2001 and NBCUniversal in 2011 to smaller content buys like DreamWorks Animation, is no stranger to asset battles. But he has preferred to take the high road in most of his transactional endeavors. At the same time, Comcast investors appeared spooked by the company’s interest in Fox, with some interpreting it as an indication that the cable company has lost faith in its U.S. distribution business.

Although Comcast has denied that — even as it made a $31 billion formal offer for U.K. satellite company Sky, of which Fox owns a 39% stake — shares in the cable firm have plunged about 20% this year. The public admission of its interest in Fox hasn’t helped either, as Comcast shares were down about 3% since it made the announcement.

That decline has come just as Netflix, once thought of as the cable killer, has risen. Last week, Netflix’s market capitalization briefly touched $153 billion, passing Disney ($152.2 billion) and Comcast ($145.5 billion) for the first time, before settling for a tie with the Mouse House, closing May 24 with a market cap of about $152 billion. Fueling those gains has been an 82% surge in Netflix’s share price since December.

Disney’s Big War Chest

Disney, which has low leverage — about 1.2 times forward-looking cash flow — and $9 billion in free cash flow, can afford a bidding war with Comcast. Nathanson estimated borrowing the additional $10 billion needed to compete with the Comcast bid would increase its leverage ratio to about 1.6 times at the end of 2020, not a major concern for ratings agencies.

Comcast, on the other hand, would see its debt balloon to $164 billion in a Fox deal, according to Moody’s Investors Service. In a note, it said a Fox bid, estimated at about $60 billion for the equity, would drive Comcast’s overall leverage past 4.3 times cash flow, endangering its investment-grade debt rating.

Moody’s placed Comcast’s A3 debt ratings on review for possible downgrade last week, adding that a Fox bid would make it the second highest leveraged media company behind AT&T-Time Warner. Earlier, Moody’s had warned that Comcast’s willingness to increase its debt load that much represents a big departure from past practices and stated commitments and creates “significant doubts for the future.”

But both companies see Fox as an integral part of that future and are expected to bid hard and high. Sanford Bernstein analyst Todd Juenger in a report earlier this month said Disney and Comcast believe the business has evolved to a point where there will be only a few global scale players and Fox is “the seminal defining point,” in determining who they will be.

“And therefore, we think both Comcast and Disney are likely to pay a high price,” Juenger wrote.

After reviewing Securities and Exchange Commission documents, Comcast confirmed what the rest of us have been expecting all along — it is seriously considering a competing bid for 21st Century Fox assets currently pledged to The Walt Disney Co.

Comcast has already made a competing bid for British satellite giant Sky — 39% owned by Fox and also part of the Disney deal — and most analysts expected the cable giant to make a play for the other Fox assets in the Disney deal. But most had expected Comcast to wait for a favorable ruling in the pending AT&T-Time Warner merger before pulling the trigger on a bid. Apparently Comcast is either very confident that deal will be approved or is fearful another player may enter the fray.

Related: With Rival Bid, Comcast Complicates the Fox Hunt [subscription required]

In a statement issued early Wednesday, Comcast confirmed that as Fox and Disney shareholders ready to vote on their deal, the cable company is “considering, and is in advanced stages of preparing, an offer for the businesses that Fox has agreed to sell to Disney (which do not include the Fox News Channel, Fox Business Network, Fox Broadcasting Company and certain other assets). Any offer for Fox would be all-cash and at a premium to the value of the current all-share offer from Disney.”

The Disney deal, including debt, is valued at $66.1 billion. No word on whether an all cash deal from Comcast would include its already on the table $31 billion cash offer for Sky, or if that latter deal will be separate. UK regulators have already hinted that a Comcast takeover of the satellite company would probably receive little resistance.

Related: U.K. Culture Secretary Says Unlikely to Block Comcast-Sky

Comcast said that it still could decide to not make a bid, but also seemed to confirm past reports that it was lining up banks for a Fox offer.

“While no final decision has been made, at this point the work to finance the all-cash offer and make the key regulatory filings is well advanced,” Comcast said

Cable investors have a new obsession when it comes to battles between networks and distributors — determining which one will shoot first.

Comcast was the first to flash its weapons by lining up banks for a hostile run at 21st Century Fox assets currently pledged to The Walt Disney Co. Comcast, according to reports, is readying an all-cash offer for the Fox assets, which include cable channels FX, FXX, National Geographic, the 20th Century Fox TV and movie studio, 22 regional sports networks and U.K. satellite assets. 

Comcast is reportedly set to fork over about $60 billion in cash for the Fox assets, above Disney’s $52.4 billion all-stock proposal. When about $13.7 billion in assumed debt is factored in, the Comcast bid could be worth about $74 billion, a 12% premium to Disney’s $66.1 billion offer.

Whether Comcast is serious or is simply trying to tweak Disney’s nose by forcing it to pay more for the Fox assets — it also has made a separate $31 billion offer for U.K. satellite TV company Sky, 39% of which is owned by Fox — isn’t clear. 

Related: Comcast Bid May Spark  War for Sky

The Comcast bid is contingent on a favorable outcome to the government’s efforts to block the AT&T-Time Warner merger. Most analysts believe that deal will go through, and a ruling in the antitrust court case around that merger is expected June 12. Meanwhile, Comcast has some regulatory baggage of its own.

As the largest U.S. cable operator with 22 million subscribers, Comcast already owns a movie studio (Universal), broadcaster NBC and about 13 cable networks — including USA Network, Bravo and Syfy — through NBCUniversal. Adding Fox’s channels and studios could prove too much for the government to bear. And while some have said the government honed in on the Time Warner deal because its news network, CNN, is critical of President Donald Trump, NBC is the network that said, “You’re fired” to the president on its The Apprentice reality show in 2015. Many observers have noted that there is little love for the programmer, or desire to make its path easier, in Washington.

Unquestionable Growth

In a note to clients, MoffettNathanson senior research analyst Michael Nathanson noted that Disney executives didn’t take a single question about affiliate fees or subscriber trends on the company’s fiscal second-quarter earnings call May 8, normally the main topic of conversation in such events. That was a shame, because Disney’s numbers were good — ESPN’s affiliate-fee growth of 5.2% was its best such mark in two years, and subscriber declines appear to be slowing.

“The declines this quarter were less than the declines we’ve seen in the prior two quarters,” Disney CEO Bob Iger told CNBC before the earnings call, adding that it is mainly due to growth with virtual multichannel video programming distributors. “That’s great for a number of reasons because they carry all of our channels and it’s a consumer-friendly proposition. The growth of those is offsetting, to some extent, the losses on the more traditional platforms.”

Fox, which reported earnings on May 9, also deflected any questions about the Disney deal.

“We are committed to our agreement with Disney and are working through the conditions to bring it to a closing,” Fox co-executive chairman Lachlan Murdoch said on its fiscal third-quarter conference call with analysts. “In addition, our directors are of course aware of their fiduciary duties on behalf of all shareholders.”

In a note to clients, Nathanson wrote that he too expects the Disney-Fox deal to be completed, adding that Iger has never backed away from what he considered to be the right move simply over price. “From the moment he bought Pixar to building Shanghai Disney Resort, Iger has invested whatever it takes to do what is strategically right in the long run,” Nathanson wrote, adding that with leverage low at 1.2 times cash flow and free cash flow of nearly $9 billion, Disney has the resources to raise its bid.

Sanford Bernstein media analyst Todd Juenger wrote in a note to clients that he expects Comcast to bid and bid hard for the Fox assets, adding that it is becoming increasingly apparent that Disney, Fox and Comcast believe the future of the content business lies in increasing scale.

“We think Disney and Comcast increasingly view Fox as the seminal defining point, and this the moment in time, in determining which company ascends to that role,” Juenger wrote. “And therefore, we think both Comcast and Disney are likely to pay a high price.”

But not everyone is convinced Disney is up for a fight. BTIG media analyst Rich Greenfield, a frequent critic of Disney, wondered in a blog post why the entertainment giant continued to repurchase its stock if it was expecting a bidding war with Comcast.

Best Bids

“Disney may need to dramatically sweeten its offer for Fox with stock or part/ all cash and make an all-cash offer for Sky to fend off Comcast and likely needs to invest far more heavily in its consumer offerings,” Greenfield wrote. “We wonder if Disney is really prepared for a bidding war against Comcast.”

For Fox, a Comcast bid would present different problems. Comcast was involved in the initial bidding process with Disney last year, and even submitted a higher offer, only to be rejected. According to reports, Fox chief Rupert Murdoch preferred Disney shares to Comcast stock — he believed it was less volatile — and wanted an all-stock deal to lessen the tax burden of the sale. An all-cash offer from Comcast would be constructed solely to appeal to shareholders outside of the Murdoch family, which some observers believe puts the Murdochs in a tough position.

At Kagan, a unit of S&P Global Market Intelligence, analyst Derek Baine said if Comcast goes through with a hostile bid, “Fox management will be in a pickle.” He added that rejecting a higher all-cash bid just to get a better tax profile would open the programmer to “a flurry of shareholder lawsuits, only further serving to distract management in the midst of a major restructuring of its assets.”

Pictured: Disney's The Fox Hunt (1938)

Netflix Stock Reaches New All-Time High

TWIN: Netflix shares were up nearly 4% on Friday (March 2), closing at $301.05 per share, a new all-time high for the stock, beating the old mark of $297.36 as the company continued to ride a wave of investor optimism over the SVOD space. With Friday’s close, Netflix’s market cap reached $130 billion, putting the company within spitting distance of other major media companies like Comcast-NBCUniversal ($169 billion) and The Walt Disney Co. ($155 billion).

A few years ago I read an article that asked if @netflix had "the worst board in history". Seems like the answer is no, they do not. #startups#businesstipshttps://t.co/l1RgiQl6om

— Dan Schepleng (@DanSchepleng) March 2, 2018

MCN Take: Netflix shares are up more than 50% since the beginning of the year. And the rise comes just days after Comcast lobbed an unsolicited bid at U.K. satellite giant Sky, a move some see as insurance against growing virtual MVPD and SVOD competitors.

Read the full story at Variety

Netflix Forcing Media Competitors to Think Globally

TWIN: Former DirecTV chief Mike White told CNBC that he believes U.S. media companies need to watch what Netflix is doing internationally closely. He warned that if the company gets to 200 million international customers – it’s at about 67.7 million now – it will be able to write much bigger checks to content creators.

MCN Take: Netflix already plans to spend about $8 billion on content this year and at an industry conference, CFO David Wells said it will have around 700 original TV shows, movies and specials this year. About 80 of those programs will be internationally focused.

Read the full story at CNBC

Netflix is testing a navigation bar on Android

TWIN: According to Engadget, Netflix is beta testing a new navigation bar for Android phones, replacing the slide-out menu with something more elegant and accessible.

Netflix moves to a bottom nav bar on Android (& iOS).

Why? Obvious always wins: https://t.co/coJ7Ge55Itpic.twitter.com/iEtnPEeETE

— Luke Wroblewski (@lukew) February 26, 2018

MCN Take: The new navigation bar will make it easier for users to access their offline downloads and see what content is coming soon.

Read the full story at Engadget

Hastings: Netflix’s Next 100M Subs Will Come From India

TWIN: While it has more than 117 million subscribers worldwide, Netflix founder chairman and CEO Reed Hastings told an audience at the Economic Times Global Business Summit in New Delhi that its next 100 million customers will come from India. That would be a big boost, given that Netflix has about 500,000 customers currently in the sub-continent.

MCN Take: Hastings said India has all the components for streaming video growth, a strong, affordable high-speed internet infrastructure and a consumer base that is passionate for film and other video content.

Read the full story at the Hollywood Reporter

Black Panther Coming to Netflix This Fall

TWIN: Crossing the $700 million worldwide box office milestone in just its second week in theaters, Black Panther is expected to come to Netflix in September or October, but it will be the last Marvel movie for the streaming service as part of its expired deal with Disney. Black Panther debuted in theaters on Feb. 16 and Disney’s Netflix deal – which the company declined to renew in August and will take effect in 2019 – usually calls for movies to hit the streaming service about seven or eight months after theatrical release.

MCN Take: The blockbuster won’t make its debut on Disney’s planned streaming entertainment service, which will launch in 2019. But the streaming product is expected to be chock full of Star Wars films – including the original Episode Three, which comes as part of its 21st Century Fox deal and a new Star Wars series from Game of Thrones screenwriters David Benioff and D.B. Weiss.

Read the full story at The Independent

Wall street analysts are typically concerned about cable programmers’ cash-flow and affiliate fees during earnings season, but these days consolidation is commanding the conversation.

As earnings season begins for big programmers such as The Walt Disney Co., 21st Century Fox and Viacom, investors are concerned about the scale needed for content companies’ plans to stream direct to consumers.

“While advertising and subscriber trends are arguably not set to improve, they’re also not top of mind,” RBC Capital Markets media analyst Steven Cahall wrote in a note to clients, adding that tax reform and consolidation will more probably be the dominant themes. “There’s likely to be as much, if not more, debate around the [Department of Justice] view of media consolidation as there will be around cord-cutting.”

Disney and Fox have already announced their deal plans. In December, Disney agreed to purchase certain Fox assets for $66.1 billion.

Viacom and CBS are reportedly revisiting the possibility of recombining the companies — they split in 2005 — in a move that in the past many believed to be more favorable strategically to the cable programmer than its broadcast cousin.

Related: CBS, Viacom Form Special Committees to Evaluate Possible Merger

But as ratings have declined and cord-cutting accelerates, some analysts believe drafting a viable direct-to-consumer strategy is more important than ever, and consolidation is the only way to get there. “Viacom and CBS simply cannot wait any longer,” BTIG media analyst Rich Greenfield wrote in a recent note. While CBS already has a direct-to-consumer product in CBS All Access, the analyst said that alone isn’t enough.

The Fox deal would strengthen Disney’s programming dominance, adding Fox’s 22 regional sports networks, its 20th Century Fox movie and television production studio, and cable networks FX, FXX and National Geographic, as well as Fox’s 39% stake in U.K. satellite-TV service Sky. With the transaction expected to close by the end of the year — and already receiving a ringing endorsement from President Donald Trump — Disney appears to be taking the more-is-better approach as the content distribution sands continue to shift.

With viewers increasingly moving away from traditional distribution methods for mobile, over-the-top and online offerings, Disney is bulking up its already hefty content coffers to ensure no matter what method viewers use to consume content, they are likely to run into at least one Disney-owned property. As for sports, Fox’s regional sports assets should add fodder to Disney’s planned ESPN Plus OTT offering, scheduled for later in the spring.

Related: It’s Game On for ESPN After Disney-Fox Deal

Fox Takes a New Stance
Fox, in turn, is taking the sniper’s tack as opposed to Disney’s shotgun approach. By keeping its broadcast network and TV stations, perennial news ratings champ Fox News Channel, Fox Business Network and national sports channels FS1, FS2 and Big Ten Network, Fox is honing in on what it believes can still attract robust ratings and ad dollars — live sports and news. It further solidified that stance with its deal to pay about $3.3 billion over five years for rights to 11 NFL Thursday Night Football games.

Whether either, neither or both approaches win the day remains to be seen. But the fundamental truth behind both moves is apparent — traditional TV audiences are shrinking and are not expected to recover soon.

Disney seemed to verify the real impact of cord-cutting when it revealed in 2015 that sports channel ESPN had lost 3.2 million subscribers in the prior 12 months, a figure that rose to a collective 13 million viewers between 2011 and 2017. Since then the losses for pay TV programmers in general have averaged about 3% to 4% per year, although some networks, such as Fox, have experienced far less erosion.

According to Pivotal Research Group senior research analyst, advertising Brian Wieser, using Nielsen Universe data, the median growth rate for Fox networks improved to -1.6% in December from -1.9% in November. Nielsen’s February estimates show an even sharper improvement (-1.2%) compared to the prior month (-1.6%). But according to the Nielsen data, Fox is one of the exceptions.

Those declines have begun to eat into affiliate-fee growth, although some networks are more affected than others. MoffettNathanson senior research analyst Michael Nathanson estimated that calendar Q4 affiliate fee growth would range from 11% at Fox to -6.9% for Viacom. Disney fees should rise about 2.5% in its fiscal Q1, while Discovery Communications and Scripps Networks should gain 3.2% and 5%, respectively.

Less Subs, Less Ad Bucks
Fewer subscribers and declining ratings (Nathanson predicts a 13% drop in primetime C3 18-49 ratings for broadcast and cable in Q4) translates into lower advertising revenue, and in the calendar fourth quarter, total national TV ad sales are expected to fall 2.7%, according to the analyst. Viacom once again is expected to show the biggest declines (-4.5%), with Disney not far behind at -3.6%.

Despite the erosion of core fundamentals, Nathanson urged investors to focus on names that have affiliate-fee pricing power, exposure to live sports and news and unique global content. “These companies are cheap and should likely hold their value when the next wave of worries come,” he wrote.

Merger and acquisition activity in the U.S. media and telecommunications industry picked up in 2017, though the value of those deals was lower than in 2016, according to a report by PwC.

Last year saw 876 deals announced, up 29% from the year before. Those deals were worth $138.8 billion, down 31%.

Related: Viacom Shares Dip 7% as Deal Fervor Fizzles

Most of the value of those deals was wrapped up in a handful of what PwC terms megadeals, worth $5 billion or more.

Those transactions were the The Walt Disney Co.’s proposal to acquire TV and studio assets from 21st Century Fox, worth $68.4 billion; Discovery Communications' bid to acquire Scripps Networks Interactive, worth $11.8 billion; and Crown Castle International Corp.’s acquisition of Lightower Fiber Networks, worth $7.1 billion.

PwC said another 15 deals in 2017 were valued between $1 billion and $5 billion.

Related: Comcast's Roberts Downplays M&A Desires

The deals come amid big changes in the media business.

“The traditional media players are refocusing their strategy as they consider what their position will be in the ecosystem and whether they will be part of the next big deal, while non-traditional media players are honing in on the next big value play as they look to have a stake in the new future of [media,]” PwC said in its report.

Bart Spiegel, U.S. media & telecommunications deals partner at PwC, said: “Given the robust deal market in 2017, we expect 2018 to be another banner year as companies look to expand on their capabilities and portfolio. Many of the deal theses underpinning 2017 M&A will continue into 2018.”

Related: The Five Biggest Deals of 2017

In its report, PwC identified trends that will drive deal making and shape the media and telecom landscape. They include the rise of artificial intelligence; the importance of creating authentic user experiences; headline-making mega deals as companies seek scale, access to content, technology and operating efficiencies; growth of internet video, internet ads and gaming; and network upgrades by telecom companies

In an ever-shifting media landscape, both content creators and distributors spent most of 2017 chasing scale.

With changing consumer habits and growing appetites for more choice, lower prices and true on-demand availability, that pursuit is expected to continue well into the new year.

Scale economics is nothing new to the cable industry — the business was based on the concept that giving consumers more channels would create more customers who would require more channels. The real shift is in how companies in the video space are defining big. Toward the end of the year, more companies were asking themselves, how much scale is enough?

On one side of the argument is The Walt Disney Co., which late last year decided that there is no such thing as too much scale, agreeing to plunk down $66.1 billion for 21st Century Fox’s TV and movie studio, FX and National Geographic cable channels, 22 regional sports networks and U.K. satellite assets.

But Fox, a pioneer in the cable and broadcast business for decades, saw an opportunity to scale down, paring its holdings to a streamlined few — its Fox broadcast network and stations, Fox News Channel, Fox Business Network and national sports networks FS1, FS2 and Big Ten Network.

For Fox, scale is important, but it’s the right type of scale — news and live sports — that is best.

Distributors weren’t immune to the impact of scale during the year, either. Riding a wave of optimism that tax reform and a friendlier business environment would serve as a catalyst to bigger distribution deals, overall cable operator stocks were up 25% in the first nine months of the year, as speculation swirled around possible deals between Charter Communications and Verizon Communications, Charter and Sprint, and Charter and anybody else. But those hopes were dashed in September after Comcast said it would lose video customers in Q3. Add to that an apparent slowing of cable’s biggest profit center — broadband — and distributor gains began to shrink.

“Investors are transitioning to more of a higher data monetization, wireless market share, still-solid overall financial growth and increasingly large capital return strategies,” Pivotal Research Group CEO and senior media and communications analyst Jeff Wlodarczak said. “At the end of the day, I think we are in the seventh inning of the transition for cable.” He expects to see seasonal subscriber gains in the fourth and first quarters, he added, which should help the stocks.

While most investors remain sanguine about the cable business, they are also leery of the blood-letting power of the so-called FAANG stocks (Facebook, Apple, Amazon, Netflix and Google). With a combined market capitalization of almost $3 trillion, those five stocks not only dwarf the pay TV distribution business, which has a combined $800 billion market cap — these companies have the resources to upend the entire distribution model, snapping up sports and entertainment content at will, or at least driving the prices paid for that programming into the stratosphere.

As the new year begins, we chart how the three biggest sectors of the pay TV industry performed in 2017 and the prospects — good and bad — for 2018.

Distributors
Best Performing Stock in 2017: Charter Communications (16.7%)
Worst Performing Stock in 2017: WideOpenWest (-35.9%)

Distributors rode an optimistic wave for most of 2017 — Comcast and Charter were up nearly 20% and 40%, respectively, heading into September — that came unceremoniously crashing down after investors panicked over video subscriber declines. Comcast touched off the mini-firestorm with its Sept. 7 announcement that it would shed between 100,000 and 150,000 video customers in the third quarter, nearly erasing the 161,000 customers it gained in 2016.

Investors headed for the exits, with Comcast stock falling 7% on Sept. 7, but gradually came back to the fold. The sector in general rose 9.2% for the year, backing out new entrants Altice USA and WideOpenWest; the stocks fared better, up 11.2% for the year.

On the telco side, AT&T was down 8.6% mainly after the government moved to block its deal to acquire Time Warner, and Verizon was relatively flat as investors struggled to decipher its video strategy.

Continued pressure from over-the-top competitors only added to the panic after distributors lost a collective 827,000 video customers in Q3, well above the 559,000 the lost in the prior year. Adding insult to injury: Broadband growth, the one consistent bright spot for cable operators over the past decade, was showing signs of slowing down. Comcast and Charter added 818,000 and 908,000 broadband customers, respectively, in the first nine months of 2017, about 17% behind the prior year’s pace.

While most analysts believe cable broadband will hold its own in the coming years, video is expected to play an increasingly minor role in the overall business. UBS media analyst John Hodulik estimated video would account for 20% of total cash flow in 2018, dropping to 10% by 2020.

Tax reform also will play a big role in added profitability, with Hodulik estimating it would help drive 20% increases in earnings per share and free cash flow for AT&T, Verizon, Comcast and Disney. And while some have already given back some of the expected windfall — AT&T and Comcast announced $1,000 cash bonuses for employees in December — what the companies do with the money is up to them.

“Capital freed could be used for capex, buybacks, dividends or strategic investment,” Hodulik wrote, adding that future deals also could be added to the mix. “Despite the uncertainty cast by AT&T-TWX, we expect M&A to remain a focus with the potential for further media and infrastructure deals.”

Wireless also is expected to play a big role in the coming year, with Charter’s much-anticipated wireless offering — through its mobile virtual network operator (MVNO) pact with Verizon — expected to debut later in the year.

Comcast introduced its wireless product Xfinity Mobile in April, also via the Verizon MVNO, and has more than 250,000 customers for the service. Hodulik estimated that could rise to 500,000 by the end of the year and coupled with Charter, cable operators could have more than 1 million wireless customers by the end of 2018. That’s about one-third of the wireless industry’s net annual growth.

Programmers
Best Performing Stock in 2017: WWE (66.2%)
Worst Performing Stock in 2017: Discovery Communications (-18.4%)

Faced with the havoc that a direct-to-consumer world could wreak on the programing business, content providers struggled with whether to take a more is better or bare bones approach. Both concepts were at play as the year drew to a close.

On the more is better front, Disney’s planned purchase of certain 21st Century Fox assets was the biggest example, but there were others, too.

In July, Discovery Communications pulled the trigger on a long-awaited buy of Scripps Networks Interactive for $14.6 billion. Discovery had long pursued Scripps — the two were reportedly negotiating a deal in 2014, but ended talks — and the inclusion of its similarly themed networks seemed like a perfect fit.

Some analysts, such as Sanford Bernstein media analyst Todd Juenger, have questioned the concept of going big on programming content in a market where consumers seem to be telling distributors they want less, not more. In a recent research note shortly after the deal was announced in July, Juenger said that while Discovery and Scripps had run into the same trouble as other networks in the changing landscape, bigger isn’t necessarily better.

“If you combine Discovery and Scripps, you now have, literally, 20 networks, many of which MVPD’s don’t want,” Juenger wrote. “That’s already a problem for Discovery, but we think adding Scripps makes it worse.”

Juenger later called the Disney-Fox deal a classic “build or buy” decision, in which Disney determined it was more advantageous to buy added scale, saving the money, time and earnings dilution that a build would entail. But there are disadvantages to the buy scenario, too — buying requires paying a hefty premium for content that may never be realized.

Networks are obviously worried about the future, as many sense an end to the content bubble of new TV series being produced. With distributors pushing back on higher affiliate fees, declining advertising revenue and the growing threat from online giants like Google and Facebook, they have good reason to be scared.

It is no accident that the top performer in the pay TV network segment in 2017 — sports-entertainment titan WWE, up 66.2% for the year — got there mostly on speculation that Facebook would bid for rights to its flagship programs, Monday Night Raw and WWE SmackDown.

While Facebook could look to boost its content holdings, it already has a stranglehold on the advertising business. According to MoffettNathanson media analyst Michael Nathanson, traditional media advertising revenue declined 11% in Q3 2017, while digital advertising rose 22%. And Facebook and Google accounted for 74% of digital ad growth in the first half of 2017.

While the third quarter was the third straight period of decline for national TV ads — “the worst we’ve seen in the past decade,” according to Nathanson — the sluggish performance is expected to continue. He estimated that in 2018, a year with a Winter Olympic Games and midterm Congressional elections, traditional advertising will be down by 1% while overall spending will increase by 7%.

FAANG
Best Performing Stock in 2017: Amazon (56%)
Worst Performing Stock in 2017: Google (35.6%)

Amazon turned heads with its April purchase of streaming rights to a package of NFL Thursday Night Football games not for the amount paid — about $80 million — but for the message it sent to the industry. That simple purchase made it known that the online retail giant was a player in the live content business.

Amazon already is spending about $4 billion annually for content to fuel its Amazon Prime Video service, and the addition of live content could only make a powerful competitor even stronger.

BTIG media analyst Rich Greenfield thinks this may be the year Amazon goes deep with Thursday Night Football, bidding more than $600 million for exclusive rights.

While Amazon is expected to get deeper into the original content business, it will still lag behind Netflix, which is expected to plunk down $8 billion for content in 2018. Facebook, which bid $610 million for streaming rights to Indian Premier League cricket matches last year — it lost out to Fox’s Star India, which bid $2.5 billion — is expected to continue to test the content waters in 2018. In a blog post, Greenfield wrote that he expects Facebook to turn its focus on professional wrestling in 2018 — WWE’s rights deals with NBCUniversal for Raw and Smack- Down expire in 2019, but the programmer has said it plans to secure agreements for the U.S. and the U.K. markets in 2018.

Facebook already has a relationship with WWE: It announced a deal last year for a 12-episode show that airs on Facebook Watch called Mixed Match Challenge featuring Raw and SmackDown wrestlers.

In his blog, Greenfield saw that deal as a test bed for a deeper relationship between the companies, and said he believes not only will Facebook try to acquire digital rights for Raw and SmackDown, but it may also bid for exclusive linear rights in the U.S. and U.K.

“The question for 2018 is will Facebook start ‘winning’ the bidding processes it enters or just drive the price up on legacy media rights buyers?” Greenfield wrote.

But other analysts were puzzled by the social media giant’s video strategy, which so far has been a mix of user-generated short-form content and some short-to-medium professionally produced shows for its “Watch” and “Discover” tabs.

Nathanson wrote in December that Facebook hasn’t been very aggressive, save for the cricket bid, in trying to attract studios or smaller content creators for programming.

In a research note, Nathanson wrote that Facebook appears to be tiptoeing into the video space and that a more aggressive stance is “critical for it to jump start this initiative and get real attention in what is already an incredibly crowded space.”

For Google, the launch of YouTube TV hasn’t created the competitive storm some believed it would despite its attractive price point of $35 per month and lineup of 40-plus channels, including broadcast networks, AMC Network, Disney Channel and sports networks. But that could change in 2018 as the service’s reach expands.

YouTube TV was available in 83 markets as of December, up from five at its April launch. Apps for Roku and Apple TV, as well as for smart TVs, are expected in the first quarter of this year.

On the downside, some media executives see the distribution strategies of some of the new-entrant tech companies — especially Apple and Facebook — as “incoherent,” Barclays media analyst Kannan Venkateshwar said. That perception has caused some reluctance in licensing content to these companies, the analyst wrote, because the absence of a strong coherent distribution plan during the initial window of a deal can adversely affect the lifetime value of the content.

“Those selling content believe there are only about 10 or 11 serious buyers of content despite new entrants, i.e. the four broadcast networks, the top four to five cable networks, Netflix and Amazon,” Venkateshwar wrote.

The Walt Disney Co.’s $66.1 billion purchase of key 21st Century Fox assets will create a dominant force in the content business, with the combined company controlling 40% of the movie and TV studio output in the country, more than half of the regional sports networks available to customers and a growing stable of pay TV channels that can fuel future over-the-top offerings in the next two years. It will also provide a more compelling bundle come affiliate-fee renewal time.

Related: Disney Pulls Fox Trigger

While much has been written about the impact of the deal — one of the biggest in a while, not counting the pending AT&T-Time Warner merger pegged at $108.7 billion — here are five key points that could result from a pairing of the Fox and the Mouse.

Disney Could Create a Viable Alternative to Netflix: With the acquisition of Fox’s 30% interest in streaming video service Hulu, Disney will control 60% of the service after the deal is closed. While it would still have partners — NBCUniversal (30%) and Time Warner (10%) — Disney chairman and CEO Robert Iger hinted that majority ownership would possibly allow Disney to steer Hulu in a more aggressive direction. That could mean flowing more content through the service and pricing it differently. Iger has said Disney’s already-planned direct-to-consumer offerings — ESPN Plus in 2018 and a Disney-branded entertainment product in 2019 — would be priced lower than Netflix.

The Pay TV Model Is on Its Last Legs: Despite Fox’s protestations to the contrary, its decision to sell off most of its pay TV assets sends a signal that it believes the future lies in live sports and news. Disney’s take — accumulating more content to provide more choice to customers who want less — validates that point from the other side (more content means even the pickiest viewers will choose at least one of your networks).

Consolidation Among Remaining Networks Could Come: As Disney grows to Godzilla-like proportions, other networks may feel like they need to combine just to compete. But with few consolidators remaining in the sector — especially if AT&TTime Warner becomes reality — network parents such as AMC Networks, Viacom, Discovery-Scripps and other smaller companies may have to consider joining forces.

Job Losses Could Mount: Despite President Donald Trump’s contention that the Disney-Fox deal will lead to job creation, some analysts believe just the opposite will be true. Disney has identified about $2 billion in cost synergies as a result of the deal, a figure that BTIG media analyst Rich Greenfield believes will mainly be achieved through job cuts. Because of a massive overlap in the two businesses, Greenfield estimates Disney could shed 5,000 to 10,000 jobs worldwide as a result of the deal.

Future Big Media Deals Could Hinge on Being FOD (Friend of Donald): The president’s about-face on big media deals when they involve a friend — Rupert Murdoch has been a longtime supporter, and Fox News Channel is Trump’s favorite, and often his main, source of policy news — sends a strong signal to media CEOs: Lay off the “fake news” — i.e. anything critical of the administration — and your approval chances improve.

The Walt Disney Company’s acquisition Thursday (Dec. 14) of 22 regional sports networks as part of its whopping $52.4 billion all stock purchase of key 21st Century Fox programming assets has set the company up to score in both today’s linear TV environment as well as on a future direct-to-consumer field.

With the acquisition of the regional sports networks – which together hold rights to 44 Major League Baseball, National Basketball Association and National Hockey League teams providing more than 5,500 live sports events per year – Disney is betting big that live sports programming will continue to have strong appeal to viewers via traditional MVPDs across the country.

While its unclear how much programming from the regional sport networks could be available to ESPN or to Disney’s proposed ESPN Plus direct-to-consumer service set to launch in 2018 – most regional sports programming rights are set for the foreseeable future  -- the deal positions the network to become a major player in the sports streaming game as the industry continues to move toward providing more choice and flexibility to consumers through over-the-top services, according to industry observers.

“If cable and pay penetration continue to drop by a significant percentage over the next couple of years, you are a half-step away from offering up ESPN and the RSNs on ESPN Plus or other created [direct to consumer] services,” said sports consultant Lee Berke. “Disney straddles the line – they are no longer just pure content companies; they are distributors. They can offer content in a lot of different places in a lot of different ways.”

For now, the regional sports networks could provide Disney with additional leverage in it negotiations with future MVPDs, particularly with a Verizon carriage agreement expiring in 2018, according to sources. Media advocacy group Public Knowledge has already criticized the deal, saying that the addition of Fox’s regional sports programming gives Disney “unprecedented control over both national and local televised sports” and “may significantly increase Disney’s bargaining power over local cable providers” due to the popularity of sports programming.

Disney has put its chips on live sports content. Let the games begin.

The Walt Disney Co. made its video domination aspirations official Thursday, agreeing to buy key assets from 21st Century Fox in a $52.4 billion all-stock deal ($66.1 billion including debt) that will make the world’s biggest content creator even bigger, fueling its plan to become a streaming video and traditional programming powerhouse.

UPDATE: Iger Says Fox Will Help Accelerate Direct-to-Consumer Plans

When the dust settles, Disney will control the 20th Century Fox movie and television production studios, cable channels FX, FXX and National Geographic, 22 regional sports networks and Fox’s 39% interest in European satellite TV service Sky and its 30% interest in streaming service Hulu, in addition to its Disney studios, cable networks ESPN, Freeform and Disney Channel.

Fox, which stands to become a major Disney shareholder as a result of the deal (Disney plans to issue 515 million new shares for the transaction, giving Fox shareholders a 25% pro forma stake in the content giant), will retain its Fox broadcasting operations, Fox News Channel, Fox Business Network and sports channels FS1, FS2 and the Big Ten Network, which will be spun to shareholders prior to he deal closing to ease the tax burden.

Related: Murdoch: Disney Deal a ‘Momentous Occasion’

Under the terms of the deal, Fox shareholders will receive 0.2745 Disney shares for every 21st Century Fox share they hold. Disney will also assume $13.7 billion of 21st Century Fox debt. Overall, the transaction implies a $66.1 billion value for Fox

Disney chairman and CEO Bob Iger has agreed to stay in that role through 2021, adding another year to his employment deal. Iger was originally scheduled to retire in 2019.

“The acquisition of this stellar collection of businesses from 21st Century Fox reflects the increasing consumer demand for a rich diversity of entertainment experiences that are more compelling, accessible and convenient than ever before,” Iger said in a statement. “We’re honored and grateful that Rupert Murdoch has entrusted us with the future of businesses he spent a lifetime building, and we’re excited about this extraordinary opportunity to significantly increase our portfolio of well-loved franchises and branded content to greatly enhance our growing direct-to-consumer offerings. The deal will also substantially expand our international reach, allowing us to offer world-class storytelling and innovative distribution platforms to more consumers in key markets around the world.”

Also as part of the deal, Fox will continue to pursue the purchase of the remaining 61% in Sky it doesn’t own. Once that deal is completed, assuming it is done before the Disney deal is closed, Disney would assume full ownership of Sky.

With the Fox assets, Disney will be able to pursue its direct-to-consumer strategy full bore. An ESPN-branded offering, ESPN Plus, is scheduled to debut in 2018 with a Disney content product expected the following year. With the Fox studio assets, that Disney-branded product just got more robust.

The acquisition is expected to yield at least $2 billion in cost savings from efficiencies realized through the combination of businesses, and to be accretive to earnings before the impact of purchase accounting for the second fiscal year after the close of the transaction.

“We are extremely proud of all that we have built at 21st Century Fox, and I firmly believe that this combination with Disney will unlock even more value for shareholders as the new Disney continues to set the pace in what is an exciting and dynamic industry,” said 21st Century Fox executive chairman Rupert Murdoch in a statement. “Furthermore, I’m convinced that this combination, under Bob Iger’s leadership, will be one of the greatest companies in the world. I’m grateful and encouraged that Bob has agreed to stay on, and is committed to succeeding with a combined team that is second to none.”

Media consolidation critic Public Knowledge was quick to call for a tough government review of the Disney-Fox deal, which it said would combine must-have programming, notably sports, and which it also said would lead to higher prices for video content.

“Antitrust authorities should thoroughly examine the incentives and power a combined Disney-Fox may have to harm consumers and competition," said PK senior policy counsel Phillip Berenbroick.

"Disney’s acquisition of Fox’s regional sports networks, which carry thousands of local NBA, MLB, and NHL games, as well as college athletics, is also a cause for concern," Berenbroick added. "Disney’s ESPN-family of networks is already the most valuable, and most expensive, sports programming network in the cable bundle. The addition of Fox’s regional sports programming may significantly increase Disney’s bargaining power over local cable providers because consumers demand access to their local professional and college athletics.

"The combination of these assets may also give Disney the power to negotiate even higher prices and more preferential treatment for the rest of its video programming, as well as unprecedented control over both national and local televised sports." he said.

Comcast has officially dropped out of the running for 21st Century Fox assets, saying in a statement that it did not receive the “level of engagement” it believed necessary to make a serious offer, and clearing a path for The Walt Disney Co. to make a bid for the properties later this week.

The news was first reported by Reuters.

Comcast has been in talks for weeks about purchasing a mix of assets including the 20th Century Fox film and TV production studios, cable channels FX and National Geographic and Fox’s 39% interest in European satellite TV company Sky. Those are the same assets being pursued by Disney, and now with Comcast out of the picture, the programmer could strike a deal for the assets later this week.

“When a set of assets like 21st Century Fox’s becomes available, it’s our responsibility to evaluate if there’s a strategic fit that could benefit our company and our shareholders,” Comcast said in a statement. “That’s what we tried to do and we are no longer engaged in the review of those assets. We never got the level of engagement needed to make a definitive offer.”

With the Disney-Fox deal moving closer and closer to inevitability – most reports say that it could be announced as early as next week – Sanford Bernstein media analyst Todd Juenger said that despite earlier beliefs that Fox would never sell, market forces and personal taste may have played a role in the decision to come to the table.

In a note to clients, Juenger wrote that faced with a decision to either build the infrastructure needed for its streaming video plans or buy them, Disney choose the buy path. While that will require a lot of upfront capital, it will also take a lot less time, Juenger said, adding that the Fox assets are perhaps the closest thing to giving Disney what it needs – a strong content studio, sports assets and popular cable networks.

“But Fox would never be for sale, right?” Juenger wrote. “Well, apparently, hell has frozen over, and (most of) Fox is for sale.”

Juenger speculated that the change of heart at Fox, which just a few years ago was a buyer – remember its failed attempt to buy Time Warner? -- could have been caused by two factors: a realization that its business is a declining asset and its peak value is now; or that CEO James Murdoch is frustrated over sexual harassment scandals and the conservative bent of Fox News and wants to get out.

Both scenarios, Juenger wrote, have a “ring of truth” to them.

As far as the deal goes, Juenger estimates that the Fox assets Disney will be acquiring are worth about $57 billion, leaving about $31 billion in properties – Fox broadcasting, Fox News, FS1, etc. – that could be combined with the Murdoch’s newspaper business (News Corp.) and perhaps taken private.

One asset that appears to be a key piece of the deal – Fox’s 39% interest in the Sky satellite service in Europe, could also be a wrinkle in the deal. Fox is in the process of buying the 61% of Sky it doesn’t own – the Murdochs have said they expect it to clear by the end of the year – but a sale will likely hold up the regulatory process even further. Juenger estimated that UK regulators put the deal on hold again, wait for the Disney deal to pass U.S. regulatory muster and then start the whole process again.

Given the size of the deal – Juenger estimated that Disney would pay $78 billion for the Fox assets (a 30% premium) -- it would need to extract about $1.6 billion in synergies to make the transaction break even for Disney on an earnings per share basis.

The analyst added there are some very good reasons for Disney to buy the Fox properties, mainly that it gets to market faster without having to weather the many years of earnings declines a build out would require. But there are costs, too. Juenger estimated that Disney will have to pay about $20 billion more than what the Fox assets are worth to get a deal done and some of the assets – FX Network – are not family-friendly.

“The Studio and National Geographic make perfect strategic sense to us,” Juenger wrote. “Beyond that, it gets questionable. The FX/FXX networks have a pedigree of having created some of the most memorable serialized drama series on cable television. They are also filled with violence, language, and sexual themes that absolutely do not fit with the 'Disney' brand.”

So Disney has an important choice to make, the analyst continued. If it wants to build an OTT service for the widest possible audience, including the FX networks in the mix with their edgy, grown-up programming is the way to go. It gets trickier if it wants to be true to a brand that is arguably the most well-known in the media space. If that's the case, then it has to protect that brand at all costs.

“One way Disney could bridge this gap is to put the 'R-rated' content into a different brand wrapper – such as Hulu,” Juenger suggested. “On one hand, this fragments Disney's OTT offerings in an already fragmented space. But, Disney could also bundle/unbundle its different OTT products (sports, 'Disney', Hulu) in packaged offerings to consumers.”

But that also hinges on whether Disney ends up with full control of Hulu – it will acquire Fox’s 30% interest in the deal, bringing it to 60%, but it still has other partners in NBCUniversal and Time Warner for the service.

The sports assets also present another dilemma – sports programming is one of the biggest drivers of live TV viewership, but RSNs have been a thorn in some distributors’ sides because of their high cost and consumers who believe they shouldn’t pay for them if they don’t watch them.  

"Perhaps Disney is willing to live through the pain of that transition, to eventually emerge with a more appealing OTT sports product that offers both ESPN and the RSN in each applicable market,” Juenger wrote.

The analyst was less optimistic on the deal’s impact to Disney shares and the cable network sector in general. While Disney could be considered to be the Walmart of the content space – the old-school retailer is behind Amazon but receives a premium from investors because it has scale – it all comes down to the multiple the market assigns the stock. Currently trading at about 15 times earnings, that multiple would need to climb to 20 times to justify the deal.

“The market would have to *really* believe Disney is creating something special, to re-rate the multiple several turns upward in the face of all the downward pressures,” Juenger wrote.

As far as other stocks in the sector like AMC Networks, Discovery Communications and Viacom, the signal Disney (we’re not big enough) and Fox (get out while you still can) are sending presents another problem. Juenger doesn’t see any larger potential buyer for those companies, adding they may have to combine together themselves, probably at little or no premium.

“On that basis, especially if Disney acquires Fox, we would expect the already bleak outlook for these little, over-levered pure play cable network companies to be even worse,” he wrote.

Illustration by cpuga/Getty Images.

21st Century Fox CEO James Murdoch’s flirtation with the top spot at The Walt Disney Co. may have to wait a bit, after a report in the Wall Street Journal said current Disney chair and CEO Bob Iger would likely extend his employment deal at the company should it acquire certain assets from Fox.

Disney is reportedly in deep discussions with Fox concerning the purchase of its movie studio, regional sports networks, cable channels FX and National Geographic and other assets valued at more than $60 billion.

Related > Report: Disney, Fox Close in on Deal

According to reports, people familiar with the matter speculated that one of the benefits of the deal would be that Murdoch could step in to replace Iger as CEO, thus solving a nagging succession problem at Disney over the past several years. Iger had originally intended to retire as chairman and CEO at Disney in 2015, but has extended his deal each year – he is scheduled to step down in 2019 – as a successor has been hard to find.

Former Disney chief operating officer Thomas Staggs was the last serious candidate considered for the role,  but he resigned from the company in 2016 after it became apparent that he did not have the support of the Disney board of directors.

The deal, which could be announced as early as next week, would likely take until the end of 2018 to obtain all the necessary federal approvals, the Journal said. Integrating the assets could take up to another year, and would be even more difficult with a new CEO at the helm, adding to the need for Iger to extend his current contract. It is plausible that James Murdoch could take over as Disney CEO in 2020, once the integration is complete.  

Murdoch has reportedly been under pressure at Fox after weathering sexual harassment scandals at its Fox News unit and a phone-hacking scandal at its U.K. tabloid newspapers in 2012.  According to an earlier report in the Journal, Murdoch has at times “felt like a CEO in title only.”

With rumors that a major sale of television assets is imminent, 21st Century Fox CEO James Murdoch said it would be wrong to comment on market speculation.

Speaking at the UBS Communications Conference in New York Tuesday (Dec. 5), Murdoch declined an invitation to discuss the asset sales reports, which indicate that Fox would sell assets including its cable networks, movie and TV studios, some of its international business and its regional sports networks to The Walt Disney Co.

Related > Report: Disney, Fox Close in on Deal

“It would be wrong to comment on market speculation,” said Murdoch, citing company policy, "so there’s nothing to add to that.”

But he added that “the way we’re running the business is about value, long-term value.”

Related > Would a Mouse Eat a Fox?

He added that the shape of the business that management was aiming for was “what’s going to create the most value for our shareholders.”

The Walt Disney Co. and 21st Century Fox held earnings calls last week, but quarterly returns weren’t among the most pressing questions from analysts.

Most of all, Wall Street wondered aloud if the two iconic companies would merge. As deal speculation swirled around both media giants, executives seemed eager to highlight the success of their cable and content properties while acknowledging the changing landscape.

Fox stock surged nearly 15% after reports that it had held talks, since ended, to sell off its 20th Century Fox studio, cable networks FX and National Geographic Partners, and its 39% interest in European satellite TV company Sky to Disney. In that scenario, Fox would have kept Fox News Channel and Fox Business Network, and its regional sports networks, broadcast operation and TV stations.

On Fox’s fiscal first-quarter conference call, executives were quick to point to the success of their cable operations — revenue at the cable unit was up 10% in the period, and affiliate fees rose 11%. Fox said the gains were due to growth across the portfolio.

But despite that success, Fox left the door to any possible deals or divestitures slightly ajar.

“We told you many years ago that innovative disruption would come to our industry,” 21st Century Fox co-executive chair Lachlan Murdoch said on the call. “We moved early to jettison our thin brands and went deep with investments for our rich distinctive brands, when many market pundits were skeptical of this approach.”

Whether that means more “thin brand” paring is due or it was just an attempt to give analysts historical perspective is open to interpretation. But Fox was adamant it has the scale and the assets to execute on its strategy.

At Disney, which escalated the cord-cutting conversation two years ago when it revealed flagship sports network ESPN was losing subscribers, some evidence suggested that erosion may be slowing. On a conference call with analysts Nov. 9, Disney chair and CEO Bob Iger said subscriber losses at ESPN were “not as deep” as they had been in prior quarters, in part because of deals with new over-the-top service providers.

Disney’s fiscal fourth-quarter results were mixed. Iger pointed to two-week Nielsen data that showed when live consumption of sports includes streaming and OTT platforms, ratings rise 25% to 29%, an encouraging trend. But broadcast revenue was down 11% in the quarter, and cable revenue was flat.

While neither Disney nor Fox did much to totally squelch speculation, it appears that the lines drawn in the initial reports — that Disney was doubling down on content and Fox was throwing in the towel — are much more nuanced.

Iger said Disney’s focus is on monetizing high-quality programming, and though he conceded that “some improvement from a quality perspective would be helpful,” he also pointed to the company’s strong production and creative capabilities. Disney has a live-action Star Wars series in development as well as midseason shows that should attract audiences.

“Our intention as a company is to take advantage of opportunities that exist out there today for good television and to produce more of it,” Iger said.

That could point to a deal with Fox, or another programmer. FX is known for high-quality content, and Fox’s TV production studios have cranked out perennial hits like The Simpsons and Family Guy for its broadcast unit, as well as Modern Family for Disney’s ABC.

Deal Wouldn’t Be Disney Cure-All
But not everyone was convinced that a Fox deal would solve Disney’s problems. BTIG media analyst Richard Greenfield, a staunch critic of Disney over the years, wrote in a blog post Nov. 7 that Disney should focus more on companies like Activision for gaming, Spotify for mobile subscriptions and Twitter “to capture the SportsCenter of the future.”

Sanford Bernstein media analyst Todd Juenger, another critic of the pay TV content model, said in a research note that “the chances of a Disney-Fox deal, as described, are very low.”