Can old media’s most famous empires survive the internet onslaught?

There are reports Rupert Murdoch's 21st Century Fox Group is in talks to sell assets to Disney.

“Old media” dominated headlines in the US last week – and the business pages were no exception.

With the winners (Facebook) and losers (Snapchat) of tech earnings season settled, and investors seemingly unfazed by Silicon Valley’s troubling links to Russia, Wall Street cast its gaze towards looming consolidation among traditional media empires.

Of most relevance to Australian readers were reports that the Melbourne-born mega mogul Rupert Murdoch’s 21st Century Fox Group was in talks to sell its valuable entertainment assets (including film studios and some TV channels but not its sports or news assets) to storied media corporation Disney.

On face value, this would seem like a shocking move, and many are doubtful.

Macquarie analysts, for example, told clients  they were “sceptical that Fox is actually a seller” of the film studios and TV businesses it has spent years building up.  A spokesman for 21st Century Fox declined to comment for this column, and Disney didn’t respond to inquiries by deadline.

Anyway, there are reasons such a move might make sense, at least in theory.  Murdoch has led traditional media’s opposition to Silicon Valley in recent years, and it’s no secret he thinks significant scale will be required to compete with the likes of Google, Facebook and Amazon as they increasingly prioritise video. With billions of users, detailed data on these users, and very deep pockets, they represent formidable foes.This desire to boost scale was one of the reasons in 2014, Murdoch lobbed a bid for Time Warner, the owner of HBO (the network behind hit drama Game of Thrones) and 24-hour cable news network CNN.

He was forced to walk away from that deal after opposition from Fox shareholders and Time Warner.

So, a deal with Disney might simply be recognition that the quality assets needed to defeat the internet giants are, at least for Fox, currently unattainable.

Yet on an earnings call last week, Fox chairman Lachlan Murdoch seemed to shoot down this view.  “Let me be very clear: Fox has the required scale to continue to both execute on our growth strategy and deliver increased returns to shareholders,” he said.

Another theory doing the rounds is that a possible Murdoch retreat from the entertainment business might have something to do with the departure of one of his key allies on the Fox shareholder register.

Last week ended with the news that Saudi Prince Alwaleed bin Talal, who was detained last week on corruption charges, had offloaded his remaining stake in the business.

(One source close to the Murdochs describes this theory as “ridiculous”, noting that the prince’s stake in Fox was well below 5 per cent, after he started selling down in 2015.)

Another “old media” corporate transaction, with an intriguing political dimension to it, also captured attention last week.

About a year ago, after the Fox talks collapsed, Time Warner ended up agreeing to be acquired by telecommunications giant AT&T. All of a sudden that deal has become more complicated.

US regulators have signalled they will only sanction the deal if AT&T sells off the unit that owns CNN. AT&T’s CEO Randall Stephenson has stated he would fight any such proposal in the courts.

CNN, of course, has emerged as one of the fiercest critics of the Trump administration, leading to speculation that animosity from the White House is behind these regulatory moves.

For his part, President Donald Trump has denied any influence over the approval process. But he has also made it abundantly clear he opposes the AT&T/Time Warner tie up.  “I do feel you should have as many news outlets as you can – especially since so many are fake,” he said last week.

In the latest twist to this saga, the Murdoch-owned The Wall Street Journal reported that Murdoch and Stephenson  in two phone calls had discussed a possible divestment of CNN fo Fox. That raises a whole set of other questions.

At any rate,  the underlying theme behind all of this wheeling and dealing is a desire by old media companies (and old telcos) to do whatever it takes to compete with their younger internet rivals.

Yet, even if regulators get out of the way, consolidation might not solve traditional media’s problems. Cord cutting in the US (the abandonment of expensive pay TV packages for cheaper internet alternatives) is accelerating, according to some estimates.

And while mega mergers are exciting for journalists and the deal-making community, history shows they more often than not end up destroying shareholder value, rather than enhancing it.

One way or another, it seems doubtful that some of old media’s most famous empires will survive the internet onslaught, at least in their current form.