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This article has been written by Asmita Topdar pursuing the Diploma in M&A, Institutional Finance, and Investment Laws (PE and VC transactions) from LawSikho.

Introduction

Has Disney always been ahead of the curve as it has grown, expanded, and diversified its base through several acquisition deals in the past two decades? The first acquisition deal of Disney was in 1993 when Disney acquired Miramax. This was followed by the acquisition of Fox Family Channel in 2001, which post-acquisition derived the name of ABC Family. With the acquisition of Fox Family Channel, Disney became more omnipresent with its reach increasing to 81 million homes, giving full control over the programming of the ABC Family Channel. Recently the world has witnessed the megamerger in the media and entertainment business witnessed with the coming together of two leading studios – Disney and 21st Century Fox – when 21st century Fox was acquired by its rival Disney for a whopping $71bn in the year 2019. The acquisition deal resulted in adding massive hits like X-men, Avatar, The Simpsons, and Deadpool in Disney’s portfolio thereby uniting these characters with Disney’s Mickey Mouse, Marvel and Luke Skywalker. 

This article deals with the making of the ABC family and describes in detail the acquisition deal between the Fox Family Channel with Disney. Further, the article will throw light into the strategies and advantages which the deal brought to Disney and the reasons why the deal failed to live up to the expectations of Disney post the acquisition. 

Disney

Disney has been a top-notch company in the entertainment industry having its presence for more than 90 years. Having started its operation in the year 1926 by Walt Disney, the company has grown exponentially since then. Disney was the studio that introduced Mickey and Minnie mouse to the entire world. This cartoon helped Disney establish the image and popularity which it enjoys till date. Disney has diversified and expanded its base by entering several acquisition deals dating back to 1993 when it first acquired Miramax to strengthen its base. Besides acquisition deals, Disney continued with its global expansion by opening Disney Lands in different foreign lands. Disney has today reached the pinnacle in the global arena which is higher than what Walt Disney would have likely imagined. Disney acquired the Fox Family Channel in 2001 to have sole control over broadcasting its program and successfully reach 81 million houses. In 2019, Disney entered an acquisition deal to acquire 21st Century Fox. With the latest acquisition, ABC Family got reunited with its former Fox siblings. 

Fox family channel

Fox Family Channel was initially named as The Family Channel was formed by Christian Broadcasting Network (CBN). The International Family Channel was later purchased by  Rupert Murdoch-owned News Corporation in the year 1997 for $1.9 bn. The International Family Channel’s assets were split within News Corporation’s portfolio, The Family Channel was merged into Fox Kids Worldwide Inc., a joint venture between majority owners News Corporation and Saban (which each owned a 49.5% share in the company), and media investment firm Allen & Company (which owned the remaining 1%), which was subsequently renamed Fox Family Worldwide Inc. following the closure of the acquisition. Post the acquisition, The Family Channel was renamed as Fox Family Channel and its headquarters was shifted from Virginia and was integrated with the operations of News Corporation in Los Angeles. 

Making of ABC family – what was the acquisition deal between Fox channel & Disney?

The acquisition deal was consummated in the year 2001 when a definitive agreement was entered into between Saban Entertainment, News Corporation, and Disney for selling the entire stake of Fox Family to Disney. The deal was closed with a cash transaction amounting to $5.3 Billion. As part of the transaction, Disney acquired the Fox Family Channel, a fully distributed cable channel reaching 81 million U.S. homes; a 76% interest in Fox Kids Europe (Amsterdam Exchange: FKE), which had dedicated cable and satellite channels reaching 25 million subscribers in 54 countries and 15 languages; Saban Entertainment Inc., a production, distribution and merchandising company with one of the world’s largest libraries of children’s programs at over 6,500 half hours; and Fox Kids Latin America, the second most widely distributed satellite/cable network in the region. Fox Kids Network was excluded from this transaction deal. The vertical merger allowed Disney to expand and strengthen its consumer base by increasing the ability to offer media content through cable networks securing access to 225 affiliated stations, 8 TV stations, and 80% ownership of ESPN and the powerful Fox Channel network. The vertical merger had offered Disney the lower side of a whole service, namely the distribution process, thereby improving Disney’s content distribution. As part of the Agreement, the Fox Channel was later renamed ABC Family which became a subsidiary of Disney. On January 12, 2016, ABC Family was renamed as Freeform, and later in 2019, ABC reunited with its former Fox siblings as a result of the acquisition of 21st Century Fox by Disney.

Regulatory approval

  • What is Vertical Merger?

The Fox Family Worldwide and Disney acquisition is a vertical merger wherein two companies at different levels of supply chains are integrated. With the acquisition of Fox Family Worldwide, Disney enjoyed complete control over the distribution process of its media content reaching over 80 million houses. The deal was a merger between the production and distribution levels of the supply chain.

  • Approvals for Vertical Merger

The deal required antitrust approval from both domestic and international markets, where both the companies had their presence. Antitrust approvals in the US are subjected to vertical and horizontal merger guidelines and are regulated by the Federal Trade Commission (FTC) and the Antitrust Division of the U.S. Department of Justice (DOJ). On June 30, 2020, FTC and DOJ released new Vertical Merger Guidelines replacing the DOJ’s Non-Horizontal Merger Guidelines from 1984. The new guideline outlines their enforcement policies and practices for assessing vertical mergers, acquisitions, and joint ventures. The Vertical Merger Guidelines need to be considered alongside the Horizontal Merger Guidelines from 2010.

Reasons for acquiring Fox family channel by Disney

Disney is the production company that was then looking to stream its programs through a network channel having wide distribution and reach among the viewers. Fox Family Worldwide’s channel network which had a wide distribution channel having access to 80 million houses with 8 TV stations and more than 200 radio stations was an interesting target company for Disney which could have served its purpose for the wide distribution process. The acquisition transaction provided Disney with an accessible place to stream its programs, advertisements, movies, TV shows among others, with complete autonomy over deciding the timing/schedule of the programs. The transaction was beneficial in synergizing the operation of the network channel with the products of Disney thereby strengthening the products individually. In the 1970s, the channel was among the top three networking channels in the US media industry which gave Disney the required reach and expansion over the distribution of its programs to the global viewers. The transaction was also beneficial for increasing returns on production. Evidence showed that television production companies cannot be profitable if they sell all their rights to a network. Thus, the integration of Disney and Fox Channel could aid in producing programs with high returns. 

Post-acquisition performance of ABC family

The post-acquisition performance of ABC was not up to par and did not live up to the expectations of Disney. Consequently, Disney engaged Blaisdell Consulting for recommending strategies and evaluating the situation of ABC. As per the report submitted by the consultancy firm, the situation at the ABC television network could be described as –

  1. ABC’s ratings had dropped considerably and with only 7 million viewers, it had fallen behind Fox and was ranked fourth among the national networks.
  2. Revenue from Disney’s media networks had decreased by roughly $400 million per year, which could largely be attributed to problems with ABC. 
  3. There was no hit program delivery by the network channel.

Previously, through the 1970s there were mainly 3 channels i.e CBS, ABC, and NBC, which would cater to the entertainment needs of the consumers. However, with time, the availability of alternative network channels for the consumers has increased which has resulted in the distribution of market share. This reduces the possibility of making huge returns and enables the high cost of restructuring for Disney. 

Conclusion

Disney acquired Fox Family Channel with the intention to broaden its scope and reach through the widened distribution of its programs among the viewers in the global arena. The Fox Family was renamed ABC Family after the acquisition. However, post-acquisition ABC Family was not able to live up to the expectations of Disney due to a drop in ratings, reduction in revenue, and no airing of hit shows in the channel. Blaisdell Consulting firm was appointed for evaluating the position of ABC who recommended for divestiture of ABC by Disney. However, ABC Family continued and was renamed Freeform on January 12, 2016. ABC reunited with its former Fox siblings after the recent acquisition of 21st Century Fox by Disney. 

Disney has benefitted from acquisition deals involving the Fox Family channel improving the ability of Disney to distribute its programs reaching larger viewership. Besides distribution, the deal has also helped Disney in acquiring 80% ownership of ESPN. The recent 21st century Fox acquisition has made Disney one of the biggest film-making and distribution companies in the US market today. 

References

  1. Disney buys Fox Family for $3B – Jul. 23, 2001. (2001, July 23). CNN Money. https://money.cnn.com/2001/07/23/deals/fox_disney/.
  2. Dolan, K. A. (2013, June 6). Beyond Power Rangers. Forbes. https://www.forbes.com/forbes/2001/1126/066.html?sh=54b87d0614c4.
  3. S A B A N Capital Group | Press. (2001, July 23). Saban Capital. https://web.archive.org/web/20090421070416/http://www.saban.com/html/press/010723.html.
  4. https://biblioteca.cunef.edu/files/documentos/TFM%20Hanxiao%20Zhang.pdf.

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