Fox Acquisition Will Lead to a “Transformational” Year for Disney

Disney’s $71.3 billion acquisition of 21st Century Fox, as well as the launch of the Star Wars: [...]

Disney's $71.3 billion acquisition of 21st Century Fox, as well as the launch of the Star Wars: Galaxy's Edge theme parks and the Disney+ streaming service later this year, signals a "big year ahead" for the Walt Disney Company.

"2019 is likely a transformational year for Disney," reports Morgan Stanley analyst Benjamin Swinburne (via CNBC.)

"Stepping back from the complexity, it will exit the year in a different place than it begins. Significant investments in content, theme parks, and M&A [marketing and advertising] weigh on near-term earnings, but should set up the business for long-term growth."

Morgan Stanley predicts Disney's acquisition of Fox, expected to close in early March, will lead to share repurchases of $5 billion in 2020.

The deal will soon allow Disney, who purchased Marvel for $4 billion in 2009, to integrate formerly Fox-controlled characters Deadpool, the X-Men and the Fantastic Four under its Marvel Studios umbrella.

For the first time in its eleven-year history, Marvel Studios will hold the rights to most Marvel Comics characters, allowing fan-favorite characters like Wolverine and Doctor Doom the ability to operate within the Marvel Cinematic Universe alongside Iron Man (Robert Downey Jr.), Black Panther (Chadwick Boseman) and Spider-Man (Tom Holland).

Other properties to come under Disney's purview include the Planet of the Apes franchise, long-running animated comedy The Simpsons and James Cameron's Avatar.

Morgan Stanley further expects Disney+, Disney's premiere direct-to-consumer streaming service, to drive subscription to ESPN and other cable nets. This year, Disney's cable affiliate revenues will grow five percent and its theme parks division will earn one percent of annual margin expansion.

Disney Parks launches its largest-ever single-themed expansion with Galaxy's Edge, the immersive Star Wars-inspired land opening at California's Disneyland Resort this summer before its counterpart opens at Florida's Walt Disney World Resort in the fall. The land will host two "E-ticket" attractions, including a controllable Millennium Falcon, and will convincingly transport park guests to a galaxy far, far away.

Ahead of the expansion openings, the price of Disneyland park tickets increased upwards of 25 percent as part of an annual cost increase.

CNBC notes a filing revealed an investment in streaming service Hulu — 30 percent of which is currently owned by Disney, a number that will double when it assumes control of Fox's 30 percent stake — was the primary contributor to a $580 million loss in equity investments. Disney then lost another $469 million in its direct-to-consumer segment, mostly stemming from streaming service BAMtech.

In the filing, the company reports the higher loss at Hulu was "driven by higher programming, labor and marketing costs," and was "partially offset by growth in subscription and advertising revenue."

Last year, Disney CEO Bob Iger called the launch of its streaming service "the biggest priority of the company during calendar [year] 2019."

As of September 29, the end of Disney's fiscal year, the company rose 40 percent and earned $12.6 billion on revenue that rose 8 percent to $59.4 billion.

Disney took 26 percent of the box office market share in 2018, with three of its tentpole releases — Marvel Studios' Black Panther and Avengers: Infinity War, and Disney-Pixar's Incredibles 2 — emerging as the three highest-grossing domestic earners, taking in $700m, $678m and $608m, respectively.

Worldwide, Disney topped $7 billion, marking just the second time in history a studio reached the landmark. Disney was the first to achieve the feat in 2016, where it took in $7.6 billion on the backs of such hits as Captain America: Civil War, Zootopia and Finding Dory.

Avengers: Infinity War led the charge for the past year at $2 billion in global receipts, followed by Black Panther ($1.3b) and Incredibles 2 ($1.2b), ranking second and fourth on the list of biggest hits for 2018, respectively.

Disney will premiere Jon Favreau-produced Star Wars offshoot The Mandalorian alongside Disney+ when the service launches in the U.S. later this year.

Other projects planned exclusively for the service include series inspired by High School Musical and Disney-Pixar's Monsters, Inc., as well as big-budget series set in the MCU centered around Loki (Tom Hiddleston), Scarlet Witch (Elizabeth Olsen) and Vision (Paul Bettany), and the Falcon (Anthony Mackie) and Bucky Barnes (Sebastian Stan).

Theatrically, Disney's prolific 2019 slate includes Captain Marvel (March 8), Avengers: Endgame (April 26), Aladdin (May 24), Toy Story 4 (June 21), The Lion King (July 19), Frozen 2 (November 22) and Star Wars: Episode IX (December 20).