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Disney-Fox combination sparks fears of layoffs in Hollywood


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Disney-Fox combination sparks fears of layoffs in Hollywood

Walt Disney Co.'s bid to acquire TV and film assets from 21st Century Fox Inc. would combine two major studios — a development unprecedented in the modern film era — sparking fears of layoffs and content consolidation in Hollywood.

After the deal, the Big 6 Hollywood studios would become the Big 5: Warner Bros., Paramount Pictures, Universal Pictures, Sony Pictures and Disney. Because of the size and scope of the transaction, it is likely to draw intense scrutiny from regulators, and the odds of its ultimate passage remain unclear. But Hollywood insiders said Disney's planned $2 billion in cost savings almost certainly points to layoffs, and the conglomerate's growing power over film production could also have implications for exhibitors and consumers.

"I can see the benefits for Disney, absolutely. It's a smart move on Disney's part," said former Warner Bros. systems and sales vice president Don Tannenbaum in an interview. "[But] I'm never happy to see such consolidation that's horizontal." He noted that the deal could have unpleasant implications for his friends and former associates at Fox.

The Writers Guild of America West, or WGAW, came out in strong opposition to the deal, also pointing to likely layoffs as well as antitrust concerns.

"[The deal] increases [Disney's] power over writers, and that creates a significant concern about what they can do," said Ellen Stutzman, WGAW public policy and research director, in an interview. "We all know what $2 billion in cost savings means. It's $2 billion in fewer jobs."

Last year, the Guild saw a 10.2% drop in screenwriters reporting earnings, coupled with a 6.4% drop in total earnings, according to its annual report.

Stutzman said the deal will likely accelerate the trend of fewer small- and middle-budget original films in favor of big-budget tentpoles based on existing intellectual property, ultimately impacting how much variety consumers see at the box office.

Disney would significantly expand its already robust intellectual property rights with the Fox deal. As noted in a recent analysis by Kagan analyst Wade Holden, Disney has been reducing the number of films it produces each year. Even so, it is poised to end 2017 as the highest-grossing film distributor despite putting out just eight films this year.

Tannenbaum pointed to Disney's growing influence over the film distribution model as another area of potential concern. Distributors and exhibitors have long engaged in a debate over premium video-on-demand windows for theatrical releases, which would shorten exhibitors' exclusive window over new films.

Beyond windowing, the studio will potentially have more distribution leverage, able to negotiate lower prices from exhibitors. Disney was able to name unprecedented terms to exhibitors for the distribution of blockbuster "Star Wars: The Last Jedi," and a Fox-Disney combination will only add to that muscle, potentially crowding out smaller films for screen space, Tannenbaum said.

Still, Wedbush Securities analyst Michael Pachter said that while Disney-Fox will have more market share in Hollywood, it still faces plenty of competition from Sony, Paramount, Warner Brothers and Universal. He argued that a combined Disney/Fox studio would not have unchecked power over the theatrical distribution model.

Even less clear was how the deal would be viewed by the U.S. Department of Justice. Uncertainty seems to remain the rule in Washington, D.C., at present, Stutzman said.

"Horizontal mergers are looked at very skeptically, and this is a pretty clear case," she said. "But in this climate, who knows."