Fox Chief Peter Rice Ponders Media M&A With Disney Deal Looming

Peter Rice Claudia Eller
Michael Buckner/Variety/REX/Shutterstock

Just because his company may be on the verge of a mega-merger doesn’t mean Peter Rice doesn’t have plenty to say about media M&A.

The 21st Century Fox president and chairman/CEO of Fox Networks Group kept mostly mum Thursday in a Q&A at Variety’s annual Dealmakers event regarding the imminent possibility of a deal that could send him, along with tens of billions of dollars in Rupert Murdoch-owned assets, to Disney.

But while Rice cited the sensitivities around the high-staked negotiations as a reason for executive silence on both sides of the deal, he opened up on a wide range of issues, from how the media sector will be transformed by consolidation and competition with Silicon Valley to Fox’s own takeaways on the sexual harassment scandals rocking Hollywood.

Even though he wouldn’t answer any questions about the potential deal, Rice slipped in a few relevant observations. Asked by Variety co-editor-in-chief Claudia Eller whether a merger as massive as the proposed Disney-Fox one could theoretically run into regulatory hurdles, he replied, “Any time you have two large media companies combining, it’s going to be looked at by the Justice Department. It will get looked at.”

Rice also addressed how the DOJ seems to be treating the AT&T-Time Warner union, noting the government body’s behavior under the Trump administration isn’t consistent with how it’s conducted itself under previous presidents. “There seems to be a head of the Justice Department who doesn’t believe in putting conditions on mergers,” he noted. “That’s different than how they dealt with Comcast and NBCUniversal.”

Across the pond, Fox is also seeing regulatory hurdles pop up in its pursuit of taking full ownership of Sky. But Rice expressed confidence Fox would get the thumbs up from the U.K.’s Competition and Markets Authority, which was given the merger to review in September.

“They are saying they will rule on it in January,” Rice said. “Our expectation is that they’ll rule in favor of it. We expect the deal to close next year.”

Consolidation was a theme Rice hearkened back to repeatedly in his conversation with Eller, held at restaurant Citizen in Beverly Hills. Sizing up a field of eight distribution giants–AT&T, Verizon, Comcast, Charter, Google, Facebook, Amazon and Apple–he acknowledged that content companies will either inevitably combine in order to sell programming to all of them or end up getting acquired by one of them.

But he also suggested that as much as Silicon Valley companies have begun paying for content, the programming-creation capabilities of Fox, Time Warner and Disney are all too easily underestimated. He estimated that Fox and Time Warner current each spend about $12 billion per year on content, while Disney spends $15 billion.

Rice mocked Silicon Valley’s rush to amass huge volumes of content without applying true expertise, a strategy he characterized as “I’ll make 100 TV shows and order them like pizzas and hopefully some of them will be good.”

While Rice didn’t specifically cite Netflix while taking that particular jab, he did directly refute Netflix chief content officer Ted Sarandos’ assertion earlier in the week at an analyst conference that the sports leagues would eventually just go direct to consumer, as if companies like Fox were just middle men easy to disintermediate.

“It’s not just someone with an iPhone at the league streaming the game,” Rice said. “We have an expertise in how to do that. It costs us a billion dollars a year to produce games. The leagues are not set up to do that. It’s not their expertise.”

Rice also noted that many of the rights packages to the biggest league games are locked up into the 2020s and beyond, though he has no illusions that Fox will face new bidding competition as these rights approach expiration. “My expectation is someone will bid for them when they become available,” he said.

Rice revisited the subject of scale vis a vis Silicon Valley in assessing how Fox stacked up against Google and Facebook for market share of advertising. He cited statistics from the fourth quarter of 2016, when Fox properties delivered 20 billion minutes of advertising, compared to YouTube at 4.5 billion and Facebook below 1 billion.

But Rice acknowledged that media companies’ advertising capabilities fall short in one important respect.

“We have this amazing product for deiivering advertising messages but not for targeting,” he conceded. “Ninety-three cents of every dollar is going to just two companies because they are targeting machines.”

But Rice also expressed confidence that the media companies will get better at targeting, a dynamic he thinks the sector’s critics aren’t quite appreciating. “The idea advertising is inexorably headed in one direction is a little short-sighted,” he said.

Another M&A-related subject Rice tackled was Hulu, which Fox shares ownership of with Disney and Comcast, which is poised to get involved in the streaming joint venture when the consent decree expires next year. Rice said all involved were very bullish on Hulu, which presented a challenge of sorts.

“Any of the three partners would very happily buy out the other two,” he said. “The other two have no desire to sell because we all love the business.”

While acknowledging that there have been times over the past decade that Hulu’s owners have diverged on their strategic outlook toward the venture, he characterized those differences as both slight and infrequent. Rice said all three companies are currently very aligned on Hulu, though he acknowledged the status quo could be upset once the consent decree expires. “Will that change when Comcast comes back to the board?” said Rice. “Potentially it will change the dynamic.”

Rice also hinted that the companies have discussed the potential for international expansion for Hulu, which is currently strictly in the U.S. (with the exception of a licensed operation in Japan).

“There’s definitely an opportunity to have a global platform with Hulu,” he said. “It’s complicated by how we each differently deal with international rights.”

Eller closed the conversation with Rice by delving into the impact of sexual harassment on Fox, which has been rocked by allegations from Bill O’Reilly to Louis CK. Rice applauded the bravery of the victims who have come forward and credited them with jumpstarting a badly needed conversation on gender and equality in the media business.

He also said Fox would emerge a better company from how it has responded to the crises. “Fox over the last couple of years–because of Fox News issues–we have changed the processes,” he said. “We tried to make it more accessible for people to come forward with complaints and have a sense of safety in doing that.”