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David Poland

By David Poland

The Problem With Fox Eating Time-Warner

Tale as old as time…

With every major announcement, there is a wave of media insisting that there is a universal meaning. The wave du jour is “bigger, Bigger, BIGGER.”

Dare I remind you that just a few weeks ago, before the Aereo decision, the wave was all about “disruption”?

The crazy thing about watching all this is that each event is unique unto itself, but there is, almost always, an insistence that each event is part of the big picture… until our attention turns elsewhere in an instant, like the dog in Up.

Even within the stories about Fox making a rejected offer to Time-Warner, there is a bit of schizophrenia. Everyone has noted that Time-Warner has scaled itself down, making it an attractive takeover target. But within a paragraph or two, it is also explained that this is really about the consolidation craze amongst those who are providing the “wires” into our lives, both through the air and through physical distribution.

David Carr closes out his column sensibly mentioning the AOL/Time-Warner deal of 2000. But he doesn’t really explain why. He’s still too busy chiding regulators who didn’t stop Comcast from acquiring Universal and don’t seem in a hurry to stop Comcast from adding Time-Warner Cable… or allowing DirecTV to get swallowed by AT&T. Carr and Team NYT are also in a tizzy over the super-sized Amazon and its vise-like control on publishing these days. This seems to distract the paper of record from the bigger picture.

The angle on this story I find myself eye-rolling over is that every move is now a response to Comcast and other merger-minded companies with internet delivery roles. The consolidated theory of the current situation is that, somehow, a company with 30% of the market will have a lot more buying power with 40% of the market, so somehow, the sellers now need to consolidate too. But I don’t buy that at all. I see no history suggesting it is true. Time-Warner Cable’s 10% of the market was, by itself, plenty to create an ongoing national saga as it fought out a retransmission agreement with CBS. Comcast/TWC might put a lot more television sets in play during the next showdown, but neither side wins in these fights. Neither side is just walking away from the table.

And not every merger of a media company is the same. One sort of size is not the same as every other kind of size. Muscling up by cable companies that who see their future leaning more and more to the internet delivery business is not about setting the price for content. Buying more content and the top specialized delivery brand which is already converting into an internet-driven play is.

Did we learn anything from the AOL/Time-Warner merger? (Here’s where I point out that I was publicly against that merger from the start, even though I was working for Time-Warner at the time. That was because it was clear that AOL was a bubble company eating a more substantial company and there was nothing good to come of it.) Time-Warner allowed itself to be consumed because being forced into a merger was seen to be inevitable and AOL was the king of the internet at the time. And they’ve been divesting ever since.

But the lesson I am most keenly interested in, regarding the AOL/Time-Warner merger, is that new ownership, no matter how hands-off they claim they will be, can’t keep their hands off the money… and the film and television businesses are not widget businesses. In the AOL/Time-Warner merger, it was inevitable that we would see some changes in the web business. But AOL blithely dropped established brands not because there was a problem, but because they were Time-Warner’s and not their own. Likewise, their power was felt at both WB and New Line in ways that didn’t make anyone happy… since AOL knew nothing about the film business.

Fox knows a lot about the film business, but it also has had a very different strategic position on most areas of the film business, from development to Home Entertainment. The only strategic match in the new streaming universe is that neither company has a film deal with Netflix. But after that, there are many significant variations. Of course, the most discussed element in this regard is HBO, a worldwide content delivery powerhouse to which Fox does not have an equivalent.

But in the straightforward issue of the TV businesses and the film businesses, both smell of burnt metal when considering this (unlikely) possibility. The Wall Street Journal did a very good job of explaining why the TV side is potentially ugly, but the piece writes of the film side as “unlikely to herald major change in the film business.” And to that I say, “Bull.”

There are two layers of problems. First, is the actual merger bringing two or the six remaining major MPAA studios under one owner. It is true that WB has moved to more outside funding in recent years, but the studio has been a much more aggressive spender and risk-taker over the last decade. If Fox had a summer like WB’s 2006 (Superman Returns, Poseidon, Lady In the Water, Ant Bully), heads would have rolled. Not at WB. And WB having a year like, say, last year’s Fox year is unthinkable… no attempts at anything bigger than a triple and only one of those.

It pretty much would have to fall one way or the other. Either Fox would find WB’s methodology attractive and shift that way or Fox would see WB as profligate and tighten everything up.

But the second layer regards the entire industry. Consolidating power for two studios would mean that that, suddenly, Murdoch and one other studio control half the strategy of the MPAA and the future of the business. Fox has, traditionally, been a passionate outlier when MPAA infighting gets clique-y. They are slow to jump in any pool until they know what temperature of the water is. The company has made some big moves when up against the wall, whether the Fox TV network or the first NFL deal or the Wall Street Journal purchase. But aside from those big leaps, it’s a pretty tight room. Often a brilliant room, but a tight room.

The next big paradigm shift is coming. The massive libraries at all of the majors are not being exploited well in the present streaming era. It’s got to happen. And when it does happen, the question of the theatrical window, the Blu-ray window, and the streaming endgame all need to find maximum revenue positions. Disney has its own ideas. Comcast has proprietary distribution interests. Sony and Paramount are likely to wait to allow others to lead. And that leaves the most conservative studio of this era, Fox, and the most aggressive, Warner Bros. With both companies under his control, Murdoch is in position to decide the future… both of online and theatrical.

For me, the Comcast/Time-Warner Cable is an 800-pound gorilla growing to 900 pounds in an industry under fire. I don’t think they change the game for everyone, whether they get TWC or not. But the film and television production business is not a utility.

People will need internet access until some other delivery system exists… that could be close to forever. And Comcast can only push customers so far. But the movie and television business can be collapsed in on itself and customers don’t get a vote. “Hey… in 2018 there will  be only one studio-distributed release each week.” Only a select group would care, aside from the exhibitors filing for bankruptcy. In fact, a lot of film critics would cheer, presuming that it would mean better movies as a result of a limited number of releases.

In the future of more entertainment abundance than we can even imagine now, original content and the amount of it and the amount of risk capital entertainment conglomerates will spend each year will be seriously reconsidered. And yes, as David Carr memorialized with a column, unique content like “South Park” (and “Seinfeld “and “The Big Bang Theory” and “Family Guy,” etc.) will be worth a fortune… because it’s proven.

But on the film side, we are already noticing that no fad lasts forever. But the fad of the moment has a minimum $300m price tag with production and P&A. WB had three of those this summer (and it was a little quiet this year), a fourth coming, and Fox had one and maybe one more coming (a second sequel). Does Fox have any mega-budget films on the schedule next year? Fantastic Four? Probably on the cheaper side. Nothing else even suggests a huge budget. WB looks to have three… and three more in 2016 to Fox’s two (ID4-2 and Apes 3). Warner Bros ain’t Disney… but it’s a lot more financially aggressive than Fox.

This is a terrible, terrible idea for the movie business. WB and CBS? Sure. Fox and Sony? Makes more sense.

No question there are all kinds of economies that both businesses could take if Fox ate Time-Warner. But I fear that one of them with be a whole lot of investment in theatrically-released feature films, independent network television production, and a cultural legacy that is unlikely to ever be rebuilt if destroyed.

4 Responses to “The Problem With Fox Eating Time-Warner”

  1. EtGuild2 says:

    Fox, as we all know, also cares a LOT more about overseas box office, a strategy that other studios are catching up to, but not in the manner Fox is. You can’t tell me that the underwhelming domestic results for “Dreamworks” since the merger doesn’t fall at least somewhat on Fox’s obsession with the overseas and home markets.

    Fox, at the moment has had one $200 million domestic grosser since December 2009 (yes, Apes will get there). Warner Bros has had TEN (not including GODZILLA). Ten to one! Yup, a lot of that is risk aversion. But then you compare $450 million worldwide movies, and the record since December 2009 is going to be dead even in a month (with APES and DRAGON 2 getting there).

  2. PcChongor says:

    Then again, we’re also now probably going to miss out on a potentially stratospheric “Avatar vs. Justice League vs. Planet of the Apes vs. Godzilla vs. the sabertooth tiger from Ice Age” series.

  3. David Poland says:

    Perhaps you could unpack that a little more, ET.

  4. Chris S. says:

    “And Comcast can only push customers so far.”

    Actually, Comcast can beat their customers relentlessly because many or most of them have no other reasonable options for Internet service.

    And as a growing Comcast gets more and more aggressive with data caps and paid-peering arrangements, the online delivery of film content will likely be adversely affected in terms of affordability and depth of content.

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