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For Disney or Comcast, the Secret to Snatching Fox May Hinge on Regulators

Analysis: To trip each other up in the quest to buy Fox, Walt Disney and Comcast are citing complex regulatory scenarios the other must overcome

Stop us if you’ve heard this one before: A Mouse and a Peacock start to fight over a Fox. To win the battle, each cites a host of complex regulatory scenarios the other must overcome to prevail.

If that tale seems fanciful, so too does the one that will, at its end, remake the traditional media sector. The Murdochs, the family that controls 21st Century Fox, are watching two of the industry’s biggest companies, Comcast and Walt Disney, duke it out for a passel of its assets, including FX, Nat Geo, 20th Century Fox, multiple regional sports networks and stakes in Hulu and Sky PLC. The winner will have a new mass that allows it to take on new competitors like Netflix, Amazon and YouTube.

Walt Disney on Wednesday raised its bid for the bulk of 21st Century Fox that its controlling family, the Murdochs, hopes to sell. Where Disney once offered $52.4 billion in stock, it is now making a bid valued at $71.3 billion in stock and cash – 35% more than its previous proposal and around $6 billion more than the $65 billion in cash rival Comcast Corp. submitted last week.

To trip each other up, the two companies, Walt Disney (the Mouse) and Comcast (the Peacock), are spinning all sorts of frameworks under which the other’s bid would fail to pass muster with federal regulators. “While difficult to predict how this will play out, we believe Disney is in the driver’s seat given Fox’s stated preference for Disney shares and a faster regulatory path,” said John Hodulik, a media-industry analyst for UBS, in a Wednesday research note.

If you listen to the Comcast side of the argument, Disney’s Fox purchase would place too many sports-media and production-studio assets under one corporate roof. And the Disney side posits that Comcast’s broadband and cable operations would give the government pause before it allows the Philadelphia giant to augment its already wide NBCUniversal media portfolio. Both companies have quietly suggested a willingness to work with regulators. Both are said to consider selling off Fox’s regional sports networks if they raise concerns among antitrust officials.

Disney executives highlighted what they thought was a regulatory advantage during a conference call this morning. “We have a much better opportunity in terms of approval and the timing of that approval than Comcast does in this case,” said Bob Iger,  Disney’s CEO, noting that Disney had been working with regulators for six months. “We are confident that we have a clear and timely path to approval.”

The government may have already given Disney’s bid a tacit nod. Before Comcast made its offer and before the recent court approval of AT&T’s effort to buy Time Warner, Department of Justice antitrust chief Makan Delrahim suggested that Disney “had good advice and carved out surgically what a transaction that might be doable.”

“We will see what the investigation shows,” Delrahim said at The Deal conference on June 7. “They didn’t acquire or propose to acquire Fox Sports One and Two. They didn’t acquire Fox Broadcasting and say, ‘We’ll combine this with ABC broadcasting, and ‘Don’t worry about it. We will have an arbitrator decide if prices go up.”

Comcast may be under some lingering scrutiny. It’s in the waning months of a consent decree it reached with the DOJ when it acquired NBCUniversal. The provisions ofo that agreement prohibited the company from discriminating against rivals when it came to access to programming, and mandated arbitration in programming disputes. It also set out series of net neutrality rules, some of which no longer apply given the FCC’s recent repeal.

There have been calls from public interest groups and at least one lawmaker to reexamine Comcast’s NBCU buy.  In December, Sen. Richard Blumenthal (D-Conn.) asked the Justice Department to look again at the merger and perhaps extend the terms of the consent decree, which expire on Sept. 1.

When the Comcast bid was announced, the public interest group Public Knowledge’s senior counsel John Bergmayer said that “without the protections of the consent decree, Comcast will already have the ability to harm its rivals, raising prices for consumers. The Fox assets would significant increase its incentive and ability to do so.”

Comcast has pushed back against suggestions of extending the terms of the consent decree, noting that the Justice Department has not pursued any enforcement action in the six years they have been in place, and that there was “no need” to do so given the changed competitive landscape in the market for online video. A Fox acquisition also would not change Comcast’s broadband footprint, unlike its proposed acquisition of Time Warner Cable that was blocked by the government in 2015.

Other concerns may come to the fore. At a post-mortem on the AT&T decision on Tuesday, a group of antitrust experts assessed the impact that the ruling would have on future antitrust enforcement.

Buying the Fox assets could create a “horizontal question,” noted Christopher Yoo, professor of law, communication and computer and information science at the University of Pennsylvania. The combined share of the theatrical box office would differ significantly depending on which company was ultimately successful.  Disney combination with Fox would put its share of U.S. box office near 50%, according to the latest figures. Combining Fox and Comcast’s Universal would represent 25%, he said. Anything approaching half of a sector would likely raise regulators’ notice, he suggested.

The story of the Fox, the Mouse and the Peacock is far from over.

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