Aged 55, Lachlan Murdoch has finally pulled on his big boy pants. His plans for Fox to spend $US22 billion ($31 billion) to acquire a company of almost equivalent value are a bold and risky strategy to cement his position at the empire’s helm – and one that has already unnerved investors.
It marks the first major move since last year’s resolution of the Murdoch sovereign succession and secession drama, placing Lachlan in charge of the empire and farewelling sibling ownership. It also comes hot on the heels of brother James’ $US300 million deal for a significant chunk of Vox Media last month.
Rupert Murdoch downsized his media empire in 2019 after selling its studio and a chunk of cable assets to Disney. Lachlan appears to have a new mantra: Make Murdochs Great Again.
But the target, Roku, is no cutting-edge tech stock. It is a glorified set-top box content aggregator with an experiential homepage TV guide that takes a lot of friction out of sitting in front of the television and navigating cable, free-to-air TV and streaming services.
Insert a Roku stick and a dumb television becomes a smart one. Buying the company may not be as smart.
To be sure, Roku is a strong earnings generator, with $US4.74 billion in revenue, and will give Fox some handy screen real estate and 100 million customer accounts. Fox Corp, meanwhile, is the jewel in the Murdoch empire’s crown because of its highly successful news and sports content, including ownership of the leading conservative voice in the US, Fox News.
Roku, which makes most of its money by clipping tickets on streaming subscriptions and selling rolled-up advertising packages, was novel and exciting maybe 10 or 15 years ago.
As such, Lachlan’s first real sans-family foray is such a “Dad” acquisition. Murdoch’s News Corp even tried to create its own streaming aggregation platform. It was called Hubbl and despite its elaborate and expensive launch, it was a commercial failure.
It is an acquisition that isn’t breaking new ground but providing Fox with more commercial power in the current media landscape.
With an offer price of $US22 billion, Roku is a big swing for Fox at a price that departs from Rupert Murdoch’s traditional modus operandi of bargain buying.
And it is the hefty price tag which has raised the eyebrows of investors, who marked Fox shares down by around 17 per cent when the deal was announced.
It is being financed using Fox cash and the equity in Fox’s non-voting shares – so as not to dilute Murdoch’s controlling shareholding – a structure straight out of Rupert Murdoch’s playbook. So whether the price or the strategy is popular with other Fox shareholders, the deal will get done.
The major risk in this strategy – other than Fox potentially overpaying – is how nicely Fox will play with other companies in the streaming ecosystem.
Roku has been a neutral player, happy to carry all streaming services and not play favourites.
Insert a Roku stick and a dumb television becomes a smart one. Buying the company may not be as smart.
With its ownership in the hands of a content provider, Roku’s harmonious position as a sort of Switzerland might be tested if one of the streaming heavyweights, such as Netflix or Paramount, decides to flex its muscles.
This deal does demonstrate Lachlan Murdoch’s recognition that linear television is dying a protracted death and that cable television is following the same trajectory.
It does provide some future-proofing for Fox.
Whether history judges the deal kindly or cruelly depends on whether Fox has overpaid by buying a former meme stock that is trading on a price to earnings ratio of more than 100 times. That’s frothy by most measures!
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