Walt Disney’s widely anticipated deal to buy Twenty-First Century Fox’s entertainment assets reminded CNBC’s Jim Cramer of his experience founding TheStreet.com.
“Scale. Gotta have scale. I remember when I first heard that term, “scale.” It was when I started TheStreet.com 22 years ago. I would meet with bankers, of course begging for money, and they’d say, ‘Jim, you aren’t scaling fast enough,'” the “Mad Money” host recalled.
Being large enough to compete with major industry players is a requirement for any company that wants to secure funding and get ahead, as Cramer later found out.
“If you aren’t dominant, then you won’t win, or worse, you might not even survive,” he said. “Disney’s in the position that I was in 22 years ago. It really doesn’t matter how much they pay, they’ll be getting huge scale, and with this deal, … they need that scale badly.”
So ahead of a potential Thursday deal in which Disney would buy Fox’s movie, television and regional sports network assets, valued at $60 billion according to sources, Cramer broke down the offensive and defensive drivers behind the purchase.
Cramer said the combination of Disney’s ESPN and Fox’s regional sports content would give the entertainment giant a “hammerlock” on sports programming. That side of the deal would bolster Disney’s prospects for BamTech, its digital sports streaming arm, he added.
If the deal goes through, Disney would also get the rights to more key Marvel Comics characters, adding the potential for more film franchises and theme park rides.
The “Mad Money” host argued that the prospective deal is offensive in the sense that it might help Disney overcome its cord-cutting concerns and get its content in front of consumers, no matter where they want to watch it.
“But it’s also defensive,” he said. “There’s not a lot of beachfront property out there. Fox’s entertainment assets are a prime piece of real estate. Again, Disney had to pay up for it, but they didn’t want that beachfront property going to the FANGs,” Cramer’s acronym for Facebook, Amazon, Netflix and Google parent Alphabet.
With Fox’s assets under its belt, Disney could package ESPN and Fox Sports as a separate public company or a unit within the larger parent company. It could use the sports division to build out BamTech into a catch-all sports streaming colossus.
“Either way, Disney has bought itself time and boxed out its real enemies, the digital titans who can decide that they want to take Disney’s business, meaning the business of getting you to watch them,” the “Mad Money” host said. “Netflix and Amazon don’t care whether you watch on TV or your phone or your computer.”
And with this deal, Disney might not have to care, either.
Disclosure: Cramer’s charitable trust owns shares of Alphabet and Facebook.
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