By Dana Mattioli, Keach Hagey and Ryan Knutson
New suitors are circling 21st Century Fox Inc., affirming that
the media empire built by Rupert Murdoch is now in play.
Comcast Corp. has approached the media company to express
interest in buying a substantial piece of it, according to people
familiar with the situation. Verizon Communications Inc. is also
kicking the tires on Fox assets, though a person familiar with its
thinking cautioned the exploration was in the early stages. And
Sony Corp's entertainment unit has also informally approached Fox,
the people familiar with the situation said.
The takeover interest in 21st Century Fox gained steam after
news last week that Walt Disney Co. recently held talks with the
company but failed to reach a deal.
The assets Fox is discussing with potential suitors include the
Twentieth Century Fox studio, some U.S. cable networks and the
international business. Fox News, the Fox broadcast network and the
company's sports channels haven't been part of the talks, the
people familiar with the situation said.
Any deal would be sizable. 21st Century Fox has a market
capitalization of about $54 billion. Fox's shares rose 8.1% after
hours on Thursday, after The Wall Street Journal reported the
interest from Comcast and Verizon.
21st Century Fox and the Journal's parent, News Corp, share
common ownership.
It is uncertain how regulators would receive a combination
involving a large player like Comcast or Verizon with 21st Century
Fox. AT&T Inc.'s pending takeover of Time Warner Inc., which
would result in a behemoth spanning distribution and content, has
run into resistance in Washington, and could be headed for a court
battle.
The interest in Fox is part of a broader wave of consolidation
sweeping through the media industry as the pace of cable-TV
cord-cutting accelerates and new players like Netflix Inc. and
Amazon.com Inc. have quickly ascended to dominant positions.
At the same time, a series of mergers has bulked up distributors
like Charter Communications, AT&T and Comcast, weakening the
leverage that media companies have to get their channels
distributed at a good price.
Fox may be more receptive to offers after its shares
underperformed some media competitors in recent years. While
content creators and distributors have been consolidating, some of
Fox's pursuits have been thwarted. Fox saw the need for greater
scale three years ago and attempted to buy Time Warner Inc., but
was ultimately rebuffed and backed off after its stock price sank.
Last year, in yet another bid for greater scale, it announced its
intention to buy the rest of Sky beyond the 39% it already
owns.
Comcast has weathered the storms in pay TV better than peers in
recent years, but has begun to feel the pinch. In its most recent
quarter, it suffered its largest quarterly loss of cable
subscribers in three years. Comcast is particularly interested in
Fox's international assets, one of the people familiar with the
situation said. As the U.S. pay-TV market saturates, other
countries where penetration of cable services is lower can offer
more growth.
The notion that Comcast would make a large bet on more media
content in this environment is especially surprising. The cable
company acquired NBCUniversal in 2011, integrating a host of cable
TV networks, the NBC broadcast network and the Universal studio.
And one reason antitrust enforcers are skeptical about the AT&T
deal is that they believe Comcast hasn't lived up to the spirit of
the conditions regulators put on that 2011 deal, people familiar
with the matter have said.
For Verizon, a deal with Fox would help it expand its
digital-media business, which as of now is driven by the
combination of AOL and Yahoo, both of which it acquired. Verizon is
looking to build a cache of websites and online video services it
can sell advertising against.
The wireless carrier has frequently expressed skepticism about
the legacy television business model, but has aggressively sought
to build new video businesses based around mobile video.
Verizon may face slightly less antitrust scrutiny than some of
its rivals. Unlike Comcast and AT&T, which have millions of
pay-TV subscribers, Verizon only has 4.6 million TV customers, who
are all concentrated in the northeastern U.S. Verizon Wireless is
the nation's largest cell carrier, with more than 115 million
subscribers, but there is no established model for bundling
television and cellular services like there is in the cable
industry.
Reports last week of Fox's discussions with Disney signaled a
new willingness from the Murdoch family to consider a restructuring
of its media empire, a move that shocked the industry and
effectively put Fox on the block.
Entertainment assets like those owned by Fox are rarely
available for purchase, and are expensive and time-consuming to
create from the ground up. Mr. Murdoch invested heavily to build
and piece together his company over the course of decades.
Over the past week, Fox has hosted both its quarterly earnings
call and its annual shareholder meeting. While executives have
declined to address acquisition-related questions, they have taken
the opportunity to emphasize Fox's ability to compete with its
current set of assets.
"There's a lot of talk about the growing importance of scale in
the media industry," 21st Century Fox Executive Co-Chairman Lachlan
Murdoch said at the annual meeting Wednesday. "Subscale players are
finding it difficult to leverage their position into new and
emerging video platforms, but let me be very clear: We are not in
that category."
One of Fox's international assets that has drawn particular
interest is U.K. pay-TV company Sky. Fox already owns a 39% stake
in Sky, but its bid to acquire the rest of the company has faced
significant delays in the U.K. since the approximately $15 billion
bid was announced a year ago. Fox has continued to express
confidence that the deal will close by mid-2018.
Fox has said its international holdings help it reach more than
one billion subscribers in roughly 50 languages in more than 170
countries.
Fox's movie and television studio has been a mixed bag. Fox is
one of the most prolific producers of scripted shows, providing
programming for its own channels as well as selling shows like
"Modern Family" and "This Is Us" to other networks and digital
platforms. The Twentieth Century Fox film studio's performance has
been more erratic, ranking everywhere from first to sixth in
domestic box-office sales since 2011, according to Box Office
Mojo.
Some of Fox's entertainment networks have also been eyed by the
potential acquirers. The cable network FX is a critical darling and
some of its shows command top dollar in rerun rights from Netflix.
National Geographic Channel has been spending heavily on original
content but so far the effort hasn't paid off in higher
ratings.
Selling off some assets could slim the Fox global conglomerate
down to a leaner media company focused on broadcast TV, cable news
and sports programming, which theoretically could command a higher
valuation. The thinking at Fox, according to a person familiar with
the matter, is that the company could be successful with a makeup
similar to CBS Corp., which has a higher valuation even though it
isn't one of the largest U.S. media conglomerates.
Joe Flint and Lukas I. Alpert contributed to this article.
Write to Dana Mattioli at dana.mattioli@wsj.com, Keach Hagey at
keach.hagey@wsj.com and Ryan Knutson at ryan.knutson@wsj.com
(END) Dow Jones Newswires
November 16, 2017 21:53 ET (02:53 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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