Disney’s Fox Deal Threatens to Create Superpowered Mouse

Read any history of Hollywood, and you’ll learn that the Supreme Court’s 1948 ruling in United States v. Paramount Pictures, Inc. was “the end of the studio system,” though the details are often fuzzy. Simply put, the court ruled that seven major studios (not only Paramount, but Universal, MGM, Twentieth Century Fox, Warner Bros., Columbia, and RKO, which was at that time the distributor of Disney films) had violated federal antitrust law in two ways: by their system of “vertical integration,” wherein studios not only made films in a factory-like system (with actors, directors, and craftspeople under contract), but controlled their distribution and exhibition by owning their own theaters; and by “block-booking” films to independent venues, which were forced to take “blocks” of a studio’s lesser product, sight unseen, to lock in the high-demand titles they wanted. The United States v. Paramount Pictures, Inc. decision broke up the studios’ monopolies, forcing them to end those practices, creating a fairer playing field for media creation and distribution.

Next year marks the seventieth anniversary of that decision, yet it seems worth revisiting a little early in light of last week’s announcement that the Walt Disney Company will acquire 21st Century Fox and several components of the Fox media empire in a deal reportedly valued at $52.4 billion. Disney is not exactly bereft of diversity in its portfolio to begin with: In addition to its studios, film and television library, park and resort empire, and various ancillaries, the company already owns Pixar, Lucasfilm, Marvel Studios, the Disney/ABC Television Group (which includes ABC, ABC Family, and several local ABC affiliates), ESPN (including not only multiple ESPN networks but also radio and publishing arms), A&E Networks (including A&E, the History Channel, and Lifetime), and a 30 percent stake in Hulu.

The Fox acquisition will add that studio’s properties and library to Disney’s war chest, plus a handful of cable channels (including the FX Networks and National Geographic), 22 regional sports channels, and more than 300 international cable channels. (Fox will retain ownership of Fox News, Fox Sports, and a few other properties, which it will spin off into a new company.) Disney will also acquire Fox’s 30 percent stake in Hulu — making it the majority shareholder in that streaming service.

This concentration of ownership, coupled with the huge boon the Fox film library represents for Disney’s previously announced, Netflix-disrupting streaming service, takes on a particularly sinister tinge in that it somehow happened on the very day that the FCC voted to shoot down net neutrality regulations. If those regulations are indeed dismembered, Disney will find itself in an enviable position: with a product everyone wants, the technology in place to provide it, and the legal means to make itself more available and/or desirable to ISPs and consumers. If it wants to challenge Netflix for online streaming supremacy, it will most likely pay ISPs for faster throughput rates — and Netflix will have to do the same, passing along the costs to consumers. (Disney’s deep pockets would allow it to eat the costs as a loss leader.) And if it really wants to be king of that mountain, it’ll just buy an internet provider.

And to be clear, there’s nothing to prevent it from doing that. Comcast owns NBCUniversal (and, as part of that, 30 percent of Hulu); until last year, Spectrum was known as Time Warner Cable, part of an empire that included Warner Bros., HBO, and CNN (and the last 10 percent of Hulu). Such consolidations of media power are possible thanks to a deregulation movement that began with the 1985 rules change, under Reagan, that allowed single broadcasters to own up to twelve television stations (up from the earlier maximum of seven). If that shift was a hole in the levee, the Clinton administration’s Telecommunications Act of 1996 was the destruction of the dam, all but eliminating FCC regulations on limits of ownership, and centralizing the flow of information to a select few lever-pullers.

Similarly, Disney has gobbled up many high-demand brands and franchises, from Star Wars to The Avengers to Toy Story, and is attempting to leverage that public thirst for content (or “product” or whatever horrible dystopian neologism you choose) into draconian demands on exhibitors. The Wall Street Journal recently reported on a set of terms for screening Star Wars: The Last Jedi that “numerous theater owners say are the most onerous they have ever seen” — chief among them a demand that the film play in each theater’s largest auditorium for four weeks solid, and a requirement of a 65-35 split of ticket sales for the entire period in Disney’s favor, the largest such revenue requirement in post-divestiture history. (If any theater breaks the terms of the booking agreement, Disney can take another 5 percent of revenue.)

Those terms apply no matter the market or the size of the venue. The Journal interviewed Lee Akin, operator of a single-screen theater in Elkader, Iowa, who ultimately chose to turn down The Last Jedi. “There’s a finite number of moviegoers in my market, and I can service all of them in a couple of weeks,” he explained of a town with a population just north of 1,200. Meanwhile, Akin — and even multiplex owners in large markets — would be restricted in his placement of big films (like the new Jumanji and Pitch Perfect 3) opening in the weeks after Star Wars. This may not amount to the monopoly practices targeted by United States v. Paramount Pictures, Inc., but it sounds a lot like overreach; on these terms, Disney may not own the theaters on paper, but it does in practice.

It’s not the first time Disney has attempted this kind of power move. Back in 2015, the studio demanded theater owners hoping to screen Avengers: Age of Ultron enforce a hard 5 p.m. cutoff on all matinee prices, and then calculated Disney’s ticket-revenue cut based not on the theaters’ own ticket prices, but on that of a national average, hurting small-market exhibitors like Akin. That time, the theaters balked, and Disney walked back its regulations. But it’s made no such move on The Last Jedi, and if, two years from now, it has the collateral of an Avengers–X-Men team-up, it’s hard to imagine a single exhibitor who won’t fold to the company’s demands.

Disney has also taken advantage of its considerable power to influence laws and regulations that intersect with its specific corporate interests. Chief among them is the company’s ongoing (and, thus far, successful) attempt to extend the life of copyrighted works, mostly to keep Mickey Mouse and other Disney characters out of the public domain; the Copyright Term Extension Act, which passed in 1998 (and is also cheekily known as the “Mickey Mouse Protection Act”), added twenty years to the protection period and kept Mickey Mouse the exclusive intellectual property of the Mouse House. The law is up for renewal next year, but considering what we learned about Disney’s legislative bargaining power from the Los Angeles Times investigation of the company’s business ties with the city of Anaheim, California, that shouldn’t be a problem.

And the company’s response to that investigation is yet another troubling aspect of this expansion of its media reach. Angry about the revelations of the Anaheim stories, Disney took the heretofore unprecedented step of banning the Times’ critics and entertainment writers — who had no involvement in the investigative story — from advance screenings and junkets for its films, and from digital screeners of its television shows. The studio only rescinded the ban after other outlets announced solidarity boycotts, and the major critics’ associations threatened to remove Disney’s films from consideration for year-end awards.

But the kerfuffle still had a chilling effect, and with the confirmation of the Fox acquisition — a story that began to circulate unofficially in the midst of the Times controversy, coincidentally enough — that precedent of retribution becomes all the more troubling. Between them, Disney and Fox have at least 26 major features set for release next year. If they decide to ban another media outlet, can entertainment journalists protest by vowing to skip them all?

And so on. When the Supreme Court ruled in favor of the government in United States v. Paramount Pictures, Inc. its intent was clear: The dissemination of information and entertainment should not be solely controlled by a handful of corporate entities, and those entities should not hold undue sway over the distribution and exhibition of their products. The court held that the business model of the major studios violated antitrust law “if it was a calculated scheme to gain control over an appreciable segment of the market and to restrain or suppress competition, rather than an expansion to meet legitimate business needs.”

So which phrase would more accurately describe Disney’s goal with the Fox deal? Hard to say. It’s an important question — and one that industry journalists should investigate with at least as much urgency as whether this means the Avengers, the Fantastic Four, and the X-Men will be in movies together.