Ronald Reagan believed in relaxing antitrust, and appointed Bill Baxter, “a severe-looking man in his early fifties, with coal-black slicked-down hair, cold, dark eyes, sunken cheeks, and a sallow complexion,” as author Steve Coll described him, to do so. But merger booms tend to start in specific sectors, in that era it was energy, specifically oil and commodities. The reason was that it was cheaper to buy oil reserves on Wall Street than to drill for it in Texas.
Today, there’s a similar pent-up demand for deal-making, but this time, it’s starting in entertainment, which is one of the first sectors we’re seeing consolidate after a change in administration. Unlike tech, entertainment is a ‘legacy’ industry whose business model no longer works, so the executives are trying to consolidate and squeeze whatever they can out of what’s left. And the first domino just fell, with a rather lawless sale of a majority of the relatively small sports streamer Fubo to Disney, where it will become part of a new sports-specific joint venture of Disney, Fox, and Warner Bros.
Today, there’s a similar pent-up demand for deal-making, but this time, it’s starting in entertainment, which is one of the first sectors we’re seeing consolidate after a change in administration. Unlike tech, entertainment is a ‘legacy’ industry whose business model no longer works, so the executives are trying to consolidate and squeeze whatever they can out of what’s left. And the first domino just fell, with a rather lawless sale of a majority of the relatively small sports streamer Fubo to Disney, where it will become part of a new sports-specific joint venture of Disney, Fox, and Warner Bros.
Sports is by far the most important part of the pay TV industry. I mean, 97 out of the top 100 events on TV last year were sporting events. There’s sports, and then there’s everything else. Everything else is dying, moving to YouTube and Netflix, but sports is the one asset the incumbents still have that big tech mostly doesn’t. Fox, Warner Bros, and Disney all have massive content empires, and they are sustaining a lot of their non-sports content by packaging it with sports. As Disney CEO Bob Iger said, “You cannot launch a new multichannel platform or bundle successfully without ESPN.”
This new joint venture was blatantly illegal. It’s designed to reduce the bargaining power of sports leagues, who would have fewer bidders for their content. But the deal also created risk for anyone trying to form a sports programming network, like Fubo, since competitors would have to license content from direct rivals. When the joint venture was first announced, Fubo sued almost immediately, recognizing it would be quickly driven out of business if the network operators it licensed from combined their sports programming into a direct competitor.
Fubo’s logic was compelling. In August, Judge Margaret Garnett quickly ruled against the Disney/Fox/Warner Bros joint venture, writing that if it went through it would “exercise near-monopolistic control over the ability for a different live-sports-only streaming service to exist and compete.” It would control 54% of all U.S. sports rights, 75% of the “Big Five” sports (the NFL, NBA, MLB, NHL, and college football), and 80% of the games for professional baseball, hockey, football, and basketball, including 98% of all playoff games for those leagues.
And it’s not like anyone can go out and license sports content from the leagues. As the judge put it, “The practical reality of these steep prices is that only the largest television programmers, and, increasingly, well-capitalized technology corporations (such as Amazon or Apple), can negotiate telecast licensing deals directly with the leagues.” (...)
And that’s what’s happening here, an assumption that the new Antitrust Division cops will just look the other way. (...)
And the linchpin for TV is sports. So that’s where the first shots are being fired in this deal spree. But it won’t stop there. As with Reagan in the early 1980s, it wasn’t just the energy sector where we saw significant changes. And right now, there’s an assumption on Wall Street that pent-up dealmaking can now move forward, even when the deals are outlandish. In a similar deal this week, Getty Images is buying Shutterstock in an obvious move to monopolize the stock and editorial image licensing market and further demonetize photographers. The specter of AI image generation allows these two firms to pretend that their merge to a monopoly is necessary, as they are ‘legacy’ businesses who must combine to survive. And Paychex has cut a deal to buy Paycor while surprisingly cutthroat uniform supplier Cintas is trying to buy arch-rival UniFirst. Wall Street imagines there will be massive merger spree in all such ‘legacy’ areas.
Of course, we shouldn’t assume that these deals will just go through. The Trump administration doesn’t have to accept this kind of consolidation, they didn’t put in libertarians to serve as antitrust enforcers. And one would think that companies like Disney, which have been hated by the conservative movement for years, wouldn’t be the ones getting big favors. But then, the broader question is whether symbolic gestures, like Jeff Bezos or Mark Zuckerberg groveling, are all it takes for Trump to let monopolists continue to run our society. ~ Why a Corporate Deal You Haven't Heard of Should Scare You (BIG)
UPDATE: (Jan. 9, 2025)
Only, Fubo’s stock isn’t doing well. So earlier this week, Fubo CEO David Gandler sold a controlling stake in his company to Disney. Clever, right? He gets to profit from winning an antitrust suit, and instead of being David against Goliath, join Team Goliath. Fubo will have Disney’s resources, but its leaders imagine it will operate still sort of independently. Beyond that, Disney greased the wheels of the incoming administration, with a $16 million payment for defamation against Trump that all legal analysts agree is ridiculous if you’re just considering the law. Disney bought credibility with Trump, so why would his antitrust enforcers throw sand in the wheels of this deal?
There’s no problem, they might imagine, Fubo and Disney will both improve their products, everyone’s happy except for a few whiny lawyers and advocates. Fubo’s top leaders have that kind of malevolent naivety so common to corporate leaders in which they airbrush out of their minds their own violation of the law. But the more important question is, what could go wrong?
The answer is probably something Gandler and his team aren’t thinking about, whcih is merger risk. What happens for the 18-24 months during which the deal has to clear financing and regulatory hurdles?
Mergers, you see, are quite risky. They can fall apart for all sorts of reasons, but in the time your company is under contract to be sold, you can’t make any major strategic decisions or investments. You can barely hire or fire. You can’t really sign significant contracts, because no counterparty will see your guarantee as meaningful. You’re in limbo. Your purchaser, however, is not. They can do whatever they want. Meanwhile, you are stuck with massive legal bills; Kroger and Albertsons spent about a billion dollars on their failed merger in legal and administrative costs.
So if the deal falls apart, you’ve wasted 18-24 months, while the rival who bought you has invested, signed deals, launched products, et al during that time. In fact, your buyer might get cold feet, and try to sabotage the deal, but you can’t do anything about it. That’s the reason Albertsons is suing Kroger, alleging that Kroger didn’t really try to win the merger case because it secretly decided that the deal wasn’t worth it shortly after signing it.
In other words, the incentive for Iger to complete the deal and Gandler to complete it are wildly different. Disney will still be Disney, whereas Fubo will be a limping and probably dead company. Gandler had immense leverage, and that’s now gone with this deal. Failed merger deals lead to bad outcomes. After its merger failure, Illumina’s CEO got fired. So did Penguin’s CEO. Capri’s executive leadership is being shaken up after that deal failed. I’d be surprised if Albertsons’ leadership is kept around.
Still, so what? It’s not like this deal is going to fall apart. That’s the point of Disney’s dealings with Trump, to ensure that government enforcers don’t act in the face of consolidation in entertainment.
[ed. I initially posted about this merger a few days ago, but then deleted it thinking there probably wasn't much interest. I've since reconsidered (see: Disney Makes Antitrust Problem Go Away by Buying Majority Stake in Fubo - below). After reading Matt's posts I now have a better idea of what's at stake, most strikingly: major corporations aren't waiting till Jan. 20 and the new administration to get up and running: they're positioning themselves now for major consolidations (ie. monopolies), and greasing the skids to make sure those things happen, along with more relaxed regulatory oversight on other matters (eg. Amazon donating $1 million to the inauguaration; Facebook deciding to jettison content moderation; ABC settling its $16 million defamation suit). The feeding frenzy and protection rackets are just gearing up!]
