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Disney-Fox: Shock, Fear and Uncertainty Heighten in Face of Impending Mega Deal

As the countdown to the expected Dec. 14 announcement of a $60 billion-plus acquisition by Walt Disney Co. begins, insiders at Fox studio are privately expressing a mixture of shock, frustration and great concern over what the future spells for them.

After news of the talks between the two media giants surfaced in early November, there was a period of disbelief followed by unease as it became clear that the negotiations were accelerating. Nobody on Fox’s Century City lot could conceive of Rupert Murdoch selling the studio and other crown jewels such as FX Networks and the National Geographic Channels group, the 22 regional sports networks, Star India, the 39% interest in Sky and the 30% stake in Hulu.

Now, executives are wondering how they might fit into a reconfigured Disney-Fox film or TV structure. Producers with deals at 20th Century Fox and sibling units, including Fox 21 Television Studios and FX Productions, are wondering how the demand for content will change under Disney ownership and management. From “In Living Color” to “American Horror Story,” Fox has a well-earned reputation for pushing the envelope on edgy material — shows that might have a hard time co-existing with the traditional Disney brand. On the movie side, with the exception of an occasional franchise installment, Fox and its specialty unit Fox Searchlight are known for producing sophisticated adult movies like “The Post” and “The Shape of Water” — not the kind of titles that deliver the event-size audiences of a Marvel superhero film or a “Star Wars.”

Multiple sources say there has been little communication from Fox’s corporate offices even to senior managers about the battle plan for the future. The expectation is that the studio and other divisions will continue to operate autonomously for the short term because the deal will inevitably face a rigorous regulatory review in Washington. That could take up to a year, or longer if the Justice Department’s opposition to the AT&T-Time Warner merger is any indication. Neither Disney nor 21st Century Fox can risk making major decisions on management structures until the acquisition is signed, sealed and delivered. Securities and Exchange Commission rules also bar public companies from doing much in the way of integration and reorganization until a transaction is completed.

Consequently, some at Fox see only a long road of uncertainty ahead. That’s going to be tough on morale as staffers run the Disney-acquired businesses during the review period. Several department heads said they would focus on trying to ensure their teams were well-positioned to make the transition. Reports that James Murdoch is preparing to make a move to Disney in a senior role have generated clucking in the ranks about CEO privilege. However, sources close to the situation on both sides insist Murdoch’s future has never been a deal point in the Disney-Fox negotiations.

One longtime Fox executive cited a level of resentment among staffers about the impending sale because of the long-standing corporate ethos that the Murdochs were always in it for the long haul. Murdoch’s News Corp. famously survived a near miss with bankruptcy in the early 1990s, but he moved heaven and earth to keep the lights on at the fledgling Fox network. That legacy of innovation and derring-do has long permeated the halls at Fox.

Nearly two years ago, the Fox studio lot was thrown into turmoil after the corporate mandate came down to downsize operations to the tune of more than 300 employee buyouts. The severance offers were generous, but it was still a grueling process of managers having to decide who should stay and who should go. And it was one of the first major initiatives implemented after James Murdoch and Lachlan Murdoch took the reins of 21st Century Fox in 2015 as CEO and executive chairman, respectively.

During the months-long process, the message from on high was that the cuts and reorganization were necessary to prepare film and TV operations for the future. The emphasis on “future” has gnawed at some insiders in recent weeks. “There was no reason to think that [Fox] wouldn’t have a future on its own,” said a senior executive.

Another lingering question is what will become of the key assets that will be left behind with the Murdochs once the Disney deal closes.

That the Murdochs are planning to part with the 20th Century Fox studio is seen as prime evidence that the days of scripted entertainment programming at Fox Broadcasting Co. are numbered. Scripted programming is so costly these days that the real profits come not from the advertising haul from debut airings on the network but in aftermarket streaming, syndication and international licensing. Networks across the board are looking to own more of their programming, not less. Sure, the Murdochs could launch a studio operation to replace the 20th Century Fox supply chain, but that hardly seems like a practical use of capital at a time when the chase for creative talent has turned into an arms race.

Some speculate that Fox Broadcasting will gradually pare down its entertainment programming as its contracts for long-running shows — such as “The Simpsons” and “Family Guy” — run out. Or there could be a scenario in which the best of Fox’s existing scripted roster is ported over to the FX and FXX cable channels.

Insiders have picked up the nomenclature of Wall Street analysts in referring to the acquisition targets as “GoCo” and the remaining units as “StayCo.” There’s no clarity yet on how the division of labor will be determined for those whose work straddles either side of the Go and Stay divide.

All of these moving parts will influence the kind of skill sets required of the employees who remain with the Fox network.

The closer the deal comes to fruition, the higher the level of “what now” angst climbs among Fox staffers. On the Disney side, some executives are reading Wall Street’s glowing reports about Fox’s film and TV management teams with trepidation. At this pre-launch moment, the only thing that the thousands of Disney and Fox employees affected by the transaction can count on is that the horizon will probably get a whole lot cloudier before it gets clearer.

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