#vertical monopoly

Content companies need to wake up.

The Trump administration has guaranteed vertical monopolies. The perfect monopoly. Companies can now control content and the access to it via the internet. What’s at stake: censorship, content blocking, throttling, pay to play, fast lanes and selling your data. 

Americans are now pwned at all ends of the spectrum.

First is the district court’s decision to approve the merger of AT&T and Time Warner announced just moments ago. That will create one of the largest content creation and distribution companies in the world when it closes. It is also expected to encourage Comcast to make a similar bid for 21st Century Fox, further consolidating the market. As Chip Pickering, CEO of pro-competition advocacy org INCOMPAS put it, “AT&T is getting the merger no one wants, but everyone will pay for.”

Title: Disney's Vertical Monopoly In The Making

Author: Shawn Barroso

Course: Entertainment Business (ENT101 Dr. Patrick Preston)

Semester: 1

Date Completed: 9/17/2013 (Revised on 11/21/2013)

Abstract: In this short five page analysis on Disney's actions to build a vertical monopoly, a closer look at the acquisitions of ESPN, Marvel Studios and LucasFilms are looked at and questioned.

Paper: Across the United States there are six major studios that collectively are referred to as the Big Six. These six studios are directly responsible for 76% of the domestic box office gross income; that’s about three-fourths of the total market.[1] The Big Six, as they are known by both entertainment industry runners and general public alike, are made up of Walt Disney, Universal, Paramount, Columbia/MGM, Twentieth Century Fox, and Warner Brothers. Throughout the long running history of these studios contains many big moves, buyouts of smaller studios, mergers and even creations, from the ground up, of internet distributors. One of the most interesting studios histories is Walt Disney’s. Through Disney Studios recent actions over the last twenty years or so, more specifically acquiring ESPN, Marvel Studios and Lucas Films, the claim that Disney is successfully building a vertical monopoly can be made.

When Disney Studios first acquired eighty percent of ESPN (Entertainment and Sports Programming Network) in 1996 it was due to Walt Disney Studios “second largest takeover in United States history at the time” (Badenhausen, 2012). Disney acquired Capital Cities/ABC incorporated for $19,000,000,000; they also acquired all subsidiary markets of ABC and Capital Cities.[2] When Disney first made the takeover it was for the $11,000,000,000 ABC network and the ABC stations, one of which is ESPN.  When the Chief Executive of Disney, Michael D. Eisner was questioned about the takeover, before the agreement was finalized, at a news conference in New York he said: "These are the two premier family entertainment companies," (Fabrikant, 1995). Eisner was correct, thanks to the Capital Cities/ ABC Incorporated takeover along with the countless other big moves made by Walt Disney Studios, they are currently ranked thirteenth overall in the World’s Most Powerful Brands list on Forbes.com. ESPN today is responsible for the largest percentage of Disney’s earnings. Disney, one of the largest and most profitable organizations in the world, is worth about $104,000,000,000[3] and ESPN as of fourth quarter of 2012 is estimated to be worth $11,500,000,000 in 2013.[4]

In 2009 Disney made one of the most surprising moves in the entertainment industry of the last decade; they bought Marvel Entertainment. Marvel Entertainment, the action-packed summer blockbuster gurus who are responsible for the Iron Man Trilogy (Iron Man 3 launched with a domestic opening weekend gross of $175,000,000[5] in May 2013); the Spider-Man Trilogy (Spider-Man 3, released in May 2007, grossed $151,000,000 on its domestic opening weekend[6]) and The Avengers (released May 2012 to a domestic opening weekend gross of $207,000,000[7]), among other superhero movie titles. When the deal was being finalized for the amount of $4,000,000,000[8], CNBC interviewed Disney Chief on the situation, “This is a very, very attractive company form many reasons, one, its intellectual property over 5000 characters…” says Disney Chief, Bob Iger, “the intention is not to rebrand Marvel, Disney, in fact the opposite, to emphasis the Marvel brand” (Iger, 2009). Disney essentially bought Marvel for the creative control over 5000 different intellectual properties. This granted creative control over some of the biggest superhero names in the world. One problem Disney faced after acquiring the intellectual properties of names such as Iron Man, Thor, Captain America and The Avengers was acquiring the movie rights that were previously granted to Paramount Studios. Disney was partially successful in acquiring the rights to these properties in July 2013:

The agreement covers the first two “Iron Man” movies, “Thor” and “Captain America: The First Avenger […] The deal gives Disney, the world’s largest entertainment company, more control over Marvel’s film library as it seeks to expand those characters into television shows and theme-park attractions. […] Disney later purchased the distribution and marketing rights to 2012’s “Marvel’s The Avengers” and this year’s “Iron Man 3.” Both were held by Paramount. Disney paid Paramount at least $115 million at the time. (White, 2013)[9]

By acquiring the rights to Iron Man, Iron Man 2, Thor, Captain America and the marketing rights to The Avengers and Iron Man 3, Disney has more control over the Marvel properties held by Viacom’s Paramount. At the root of all other justifications for buying Marvel, this one is the most lucrative. For every lunchbox or T-shirt sold with a Marvel graphic from the point Disney bough Marvel, Disney has gotten revenue from it. In the CBNC interview, Erin Bernett, a correspondent for CBNC questioned Iger on the deal asking if the focus of the deal was to attract a larger male audience, “Perhaps this is Disney’s effort to go after boys, you got the girls market cornered. Is that one way to look at this that you’re trying to bring boys into the Disney family?” (Iger, 2009). It is not a surprise that Disney would want to aim to achieve a larger boy audience because with their prior lineup of princesses and fairies, there was not a boy based outlet that Disney had aside from ESPN which did not apply to boys but more teenagers and adult males. It is fair to assume that acquiring Marvel was Disney’s most significant move in expanding their male audience.

In 2012 another one of Disney’s shell-shocking studio purchases surfaced and that was for the ownership of LucasFilms; LucasFilms, owned by George Lucas, is most known for their making of both the Star Wars and Indian Jones franchisees. With the Disney/LucasFilms $4,000,500,000 deal, Disney announced Star Wars Episode 7: “The announcement notes that Star Wars Episode 7 is scheduled for release in 2015, with more films expected to follow” (Savitz, 2012). The Star Wars franchise as a whole, including box office sales, memorabilia, home video sales, and more, is worth $30,570,000,000[10]. That alone is justification enough to buy LucasArts. Releasing another Star Wars film would not only add to the existing value of the Star Wars franchise but would also give Disney a franchise with a pre-existing, loyal market. Disney has seemed to have other ideas in mind though. In April 2013 Kotaku.com, among other sources reported Disney shutting down Lucasarts and cancelling all pre-existing projects except Star Wars Episode 7, “‘After evaluating our position in the games market, we’ve decided to shift LucasArts from an internal development to a licensing model, minimizing the company’s risk while achieving a broader portfolio of quality Star Wars games,’ LucasArts parent company LucasFilm said in a statement. ‘As a result of this change, we’ve had layoffs across the organization. We are incredibly appreciative and proud of the talented teams who have been developing our new titles’” (Schreier, 2013). What Disney plans on doing is licensing out the LucasArts’ properties and names to other studios and companies so they can wreak the profits of the franchises with little risk of their own.

Disney Studios’ attempt to build a vertical monopoly, much like Apple, has become very apparent over the last fifteen to twenty years. Historically Disney has appealed more to a female audience with their movies revolving around princesses and fairies but with their acquiring of EPSN, Marvel Entertainment and LucasFilm Disney as successfully found a way to appeal to the male audience. At a young age Marvel is there with their superhero films and comics; in the teenage years Star Wars, a LucasFilms title, is both appealing and engulfing with movies, video games, card games, action figures and much more; When those teenagers grow up and shy away from the fantasy heroes and find interest in sports, Disney is there once again with ESPN, the leader for sports news and entertainment. Disney has successfully secured “The Worldwide Leader in Sports”[11], Marvel’s 5000 comic book characters and LucasFilms legendary Star Wars franchise.

[1] http://www.the-numbers.com/market/2012/distributors

[2] http://www.forbes.com/sites/kurtbadenhausen/2012/11/09/why-espn-is-the-worlds-most-valuable-media-property-and-worth-40-billion/

[3] http://www.forbes.com/companies/walt-disney/

[4] http://www.forbes.com/companies/espn/

[5] http://www.forbes.com/sites/scottmendelson/2013/05/05/weekend-box-office-iron-man-3-debuts-with-scorching-175-million/

[6] http://boxofficemojo.com/movies/?id=spiderman3.htm

[7] http://boxofficemojo.com/movies/?id=avengers11.htm

[8] http://www.nytimes.com/2009/09/01/business/media/01disney.html?_r=0

[9] Editor Anthony Palazzo graduated the University of California with a BA in Latin American Studies and later graduated Columbia University with a MS in Journalism

[10] http://247wallst.com/special-report/2012/02/10/the-force-star-wars-franchise-worth-over-30-billion-and-growing/

[11] http://espn.go.com/

Works Cited:

Badenhausen, K. (2012, December 9). Forbes. Retrieved September 15, 2013

Fabrikant, G. (1995, August 1). The New York Times. Retrieved September 15, 2013, from http://www.nytimes.com/1995/08/01/business/media-business-merger-walt-disney-acquire-abc-19-billion-deal-build-giant-for.html?pagewanted=all&src=pm

Iger, B. (2009, August 28). The New York Times. (C. Staff, Interviewer) Retrieved September 17, 2013, from NYTIMES: http://www.nytimes.com/video/2009/08/31/business/1247464315390/disney-chief-discusses-marvel-deal.html

Savitz, E. (2012, October 10). Forbes. Retrieved from Mickey, Meet Yoda: Disney To Buy Lucasfilm For $4.05 Billion: http://www.forbes.com/sites/ericsavitz/2012/10/30/mickey-meet-yoda-disney-to-buy-lucasfilm-for-4-05-billion/

Schreier, J. (2013, April 3). Kotaku. Retrieved from Disney Shuts Down LucasArts, Cancels Star Wars 1313 And Star Wars: First Assault: http://kotaku.com/disney-shuts-down-lucasarts-468473749