Tuesday, 19 December 2017

Disney Buys Fox

I've seen quite a bit of attention about this but it's almost all been focussed on the MCU. That's a totally reasonable thing. I've vastly read more about this specifically to find its implications for the MCU.

When I've turned to sources which aren't likely to care about the MCU do you know what I discover? Business interpretations. Considerations of the strategies involved.. why Disney wants to buy, why Fox wants to be bought. A little on the regulatory side of things.

And on Twitter I have found people complaining about why no one is talking about the monopoly angle. Well, I'm here to explain that.

You might be thinking, "Well, this better be a pretty epic explanation because it is obvious that this creates a monopoly and that's bad." This is my interpretation of the tweets I saw.

Let me be very, very blunt. Offensive even. I hope you're not thinking like this because the truth is that this is a very ignorant position to be taking. And it is with every fibre of my being that I hope you haven't been publicising this view if you hold it.

Please don't mistake my meaning. Absolutely I believe in getting things wrong. I believe in the mistake. What I don't find okay is writing about something without even the modicum of research. And that's what all you need to do to understand why people aren't really talking about monopoly here... when you're not reading MCU sites talking about the MCU.

Disney isn't going to become a monopoly if it buys Fox. It just isn't.

A monopoly is a single dominant firm. Strictly speaking it's a sole firm situation. Neither this weak monopoly or pure monopoly concept describes what Disney's potential acquisition will be. Rather, Disney will become a larger firm in an already oligopolistic market.

Look, Disney's being an oligopolist is not ideal. Oligopolistic markets are failed markets. They're also really, really common (practically all markets are failed). And I'm not convinced that Disney's getting bigger is actually really going to change anything. But it might.

And, look, the regulatory bodies are going to go over this deal with a fine tooth comb. They are going to be really interested in whether or not Disney's expansion in this fashion will be anti-competitive. And what they're looking for and interested in is complex. It's beyond me. And if anything I've written here has surprised you it's beyond you too (especially if you're a lawyer because you're going to have the added disadvantage of recognising the legal concepts whilst lacking the economics to comment on what's going on).

Something that I'd consider if I was whatever equivalents of the Commerce Commission will be looking at is what exactly the market that Disney is involved in is. It's not obvious at all.

Disney is an entertainment firm. That's clear. And we might understand an entertainment industry that involves sports (ESPN), television (ABC), comics (Marvel), theme-parks (Disneyworld etc.) and movies (a variety of brands, e.g. Marvel Studios, Disney, Pixar). And regulators will, I assume, be looking into the deal from this perspective. But I think they might be considering the evolving dynamics of the market and who exactly the participants are.

One of the general ways of thinking about the entertainment industry is that it is a market in a transitionary period. The big thing these days is "streaming". And the streamers look to have a competitive advantage. In other words, in 20 years if you weren't streaming within the next three you might not be in business any more. And what regulators might be thinking here is that this means a duopolistic market of the future... Netflix and Amazon (the current market leader and a giant poised to be able to capture a substantial market).

The strategic paradigm responses to Disney' "buying" of Fox like to talk about the role of scale. Their thinking is that Disney has to get big to make Hulu or its own completely separate (perhaps even Disney only) streaming service a viable product: it needs the content. That's a reasonable position, and it makes Disney sound a hell of a lot less like a monopolist, right? It makes Disney sound like Kodak.

I should also mention that even if Disney were a monopoly, scale is one of the reasons why it might be better to keep it. The reality is that in some situations a monopoly can be coerced into pricing in a fashion that it can (a) afford and (b) is cheaper than what a bunch of small actors could offer (because they're unable to spread their fixed costs over as many units as the much larger monopoly).

Also, monopolies are the reason NZ doesn't have and doesn't need net neutrality laws. Chorus is a state owned monopoly that owns all the infrastructure. Each ISP then uses Chorus' network, and Chorus isn't allowed to operate in the way that Spark or Vodafone do. Yet another illustration of why every economics text ever is at pains to explain why monopolies aren't inherently bad.

But this is far from the only way to think about things in a non-MCU way. That article's fellow suggests that one consider the sheer scale of the oligopoly's power. That is, the firm doesn't have to be a monopoly to be a big problem.

Disney's scale, at the moment, is such that if it threatened a movie theatre with blacklisting that theatre would be screwed. And that's as a seller. It is as a purchaser or producer (in the entertainment not economics sense) that Disney+Fox might well be at its most problematic. Problematically, Disney does seem to do stuff like this now. That is something that bodes extremely ill.

A big as Disney is likely to be I feel like it will continue to play the game as much as it always had. I think a price war will be unlikely because its rivals are big boys too. I think the concern is that Disney might coerce more desirable contracts by pointing out that if Disney doesn't buy your script or whatever you have far less options to sell it too instead. That's a big deal. But maybe it's a feature of the current market too (I don't know). If so, I'm not sure if Disney's getting bigger matters.

So, there you have it... no-one's talking about the monopoly because there isn't one. And no-one's talking about the oligopoly because unless you are as into speculation as I am there isn't much more to say than "regulators are looking into it". But I suspect the reason you're saying the coverage is all about the MCU is simply because you're not reading the business pages.

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