Rupert Murdoch has begun the breakup of his global media empire, announcing a $66bn (£50bn) deal with Disney to sell assets including his Hollywood film studio and a controlling stake in Sky.
Disney is buying the bulk of Murdoch’s 21st Century Fox media and entertainment business, in a significant strategic withdrawal for the Australian-born mogul after 60 years of deal-making and expansion from newspapers into film and TV.
Murdoch, as combative as ever at 86, insisted the move was not a retreat but a pivot to new business opportunities. However, he is giving up the Fox film and TV studios responsible for the box-office blockbusters Titanic and Avatar as well as hits such as The Simpsons, cable channels including FX and National Geographic, a 39% Sky stake and India’s Star network.
The deal marks a significant moment in Murdoch’s dynastic ambitions, as his younger son, James, 45, the chief executive of 21st Century Fox, has in effect been carved out of the line of succession after two decades with the business. The elder son, Lachlan, 46, is left as executive heir to the remaining Murdoch empire, which includes the Fox News network, and newspapers including the Sun, Times and Wall Street Journal.
Disney’s chief executive, Bob Iger, who has signed a contract extension to 2021 to oversee the takeover, said discussions were continuing about whether James Murdoch might join the company after the deal was completed. If not, he is expected to leave Fox to set up his own venture, although either way the separation is viewed as an amicable one.
Claire Enders, the chief executive of Enders Analysis, said: “It is a fundamental parting of ways between James and his father, the result over a period of time of the development of many differences between them that have become accentuated. Fundamentally, Rupert believes his son has not made a great fist of running the entertainment assets. The issues of the past look to have cost James’s ambitions in the present again.”
The all-stock deal will result in the Murdoch family trading control of 21st Century Fox for a 4.25% stake in Disney, which has reinforced its status as the world’s most powerful media brand.
“Are we retreating? Absolutely not,” said Rupert Murdoch in a conference call. “Those who know me know I am a news man with a competitive spirit. Fox News is probably the strongest brand in all of television. We are pivoting at a pivotal moment.” However, Lachlan Murdoch acknowledged that 21st Century Fox had hoisted the white flag in the sale to Disney, saying that “sometimes the right decisions are the hardest ones”.
Assets that are not part of the 21st Century Fox sale to Disney will be spun off as a separate business, called New Fox, which will include the Fox TV network, Fox News, Fox Business, Fox Sports and regional stations in the US.
Rupert Murdoch told Sky News that in two or three years he might look to merge New Fox with News Corp, the separately listed company that owns the book publisher HarperCollins and publishes Murdoch’s newspapers.
The deal allows Murdoch to focus on his first passion: newspapers. His global business grew from a single Adelaide paper that he took charge of aged 21 in 1952, following the death of his father. “The New Fox is about returning to our roots as a lean, aggressive, challenger brand,” Lachlan said.
The deal will not, for now, affect the proposed takeover by 21st Century Fox of the 61% of Sky it does not own. The Competition and Markets Authority will continue to investigate the deal as a Murdoch-brokered takeover, pending Fox’s Sky stake officially changing hands.
Disney signalled yesterday that it would not necessarily attempt to take over 100% of Britain’s largest pay-TV broadcaster if the media regulator quashed Murdoch’s bid. Disney has said the deal for Fox, which will allow it to bring the Marvel superheroes X-Men, Fantastic Four and Deadpool into the hugely successful Marvel universe it already owns, will make it an entertainment powerhouse to take on rivals such as Netflix.
Iger has transformed Disney’s fortunes through a succession of deals, taking in Lucasfilm, which owns the Star Wars franchise, Marvel and Pixar, the studio behind Toy Story, which restored its reputation as the leading animation studio.
Disney has left its Hollywood rivals, including Murdoch’s 20th Century Fox, trailing in its wake, becoming the first studio to take $7bn in global ticket sales in a year in 2016. Its revenues are further boosted by theme parks, merchandising operations and ownership of the US network ABC and sports broadcaster ESPN.
Fox’s content will help build the attractiveness of the digital TV service it is launching in the US to take on Netflix. Earlier this year, Disney announced it was pulling its films from Netflix US to compete with its own service from 2019. A sport version is also planned for ESPN.
“Our direct-to-consumer relationship is vital to our media business and our highest priority,” Iger said in the conference call. “This deal is a very important move forward that reflects our strategic vision for the future. [We will] become a more viable competitor.”
Disney will also get Fox’s 30% stake in Hulu, taking its control of the US on-demand service to 60%. It is paying $52.4bn in stock, including $13.7bn in debt. The total value of the deal is $66bn. Disney said it expected the deal to be complete in 12 to 18 months and it would generate $2bn in cost savings.
Tom Watson, the shadow culture secretary, said: “This is the end of an era for the Murdochs, who after 30 years of aggressive empire expansion are now in retreat.
“The decision to sell off key assets follows their UK business being engulfed in a phone-hacking scandal, and ongoing revelations about sexual harassment at Fox News in the USA – scandals which have been in sharp focus recently thanks to the Murdochs’ attempted takeover of Sky.”