By Joe Flint
This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (December 22, 2017).
21st Century Fox Executive Chairman Rupert Murdoch pushed hard to persuade regulators two decades ago to allow his media company to own both a television studio and a broadcast network. Now he's abandoning the strategy as Fox's rivals have come to embrace it.
Mr. Murdoch's decision to sell the Twentieth Century Fox studio to Walt Disney Co., among other assets, while retaining the Fox broadcast network, has raised fears in Hollywood about the media company's commitment to entertainment programming, and created uncertainty about the network's stability and future.
The proposed $52.4 billion deal with Disney comes as Fox is entering the TV "pilot" season, when new shows are being developed for the next season. This year, the network is under added pressure to find new hits after a prolonged ratings slump.
"Fox Broadcasting is a big unknown right now so, as a producer with a new show about to debut there, that's a concern," said Steve Levitan, the co-creator of ABC's "Modern Family" who has a new sitcom called "LA to Vegas" premiering on Fox next month. "Will they remain a buyer of big, quality dramas and comedies that bring in the types of viewers who will watch our show? I certainly hope so."
Landing talent could also be more difficult. One veteran show producer said if the choice of where to put an actor in a pilot came down to CBS and Fox, it is now an easier call.
Fox's prime time entertainment programming is averaging 4.6 million viewers in the TV season that began in September, through early December, a decline of 8% from the same period a year ago, according to Nielsen. It is second in the coveted demographic of adults aged 18-49 if sports are included.
Besides the Fox channel, Fox Broadcasting includes 28 local television stations whose revenue makes the network profitable.
Fox is banking on several mid-season shows to boost its ratings. In addition to "LA to Vegas," a show about the crew and passengers who fly the LA-Vegas route, the network has a new police drama called "9-1-1" from acclaimed producer Ryan Murphy, the return of the cult hit "The X-Files" and a new musical talent show called "The Four."
When Mr. Murdoch was building out the Fox network in the early 1990s, he persuaded the Federal Communications Commission to allow his company to own both a network and a sister production studio to supply it with shows.
The logic of having a studio and network together, as all of Fox's major rivals do, is arguably even greater now. Networks rely on their in-house studios for content, and the arrangement makes it easier for them to negotiate rights to their shows -- so they can, for example, offer past episodes in an app. That makes the decision to split up the Twentieth Century Fox studio, which Disney is buying, and Fox especially unusual.
On a call with analysts last Thursday, Mr. Murdoch offered few specifics about the future of Fox Broadcasting beyond saying it would continue to make its own shows and acquire content from independent studios.
"People like Warner Bros. and Sony will be looking to us to buy our programs. So I think we're in a strong position for buying -- for getting all the programs we need," Mr. Murdoch said.
A spokesman for 21st Century Fox declined to comment. 21st Century Fox and Wall Street Journal-parent News Corp share common ownership.
"There are independent studios out there more than happy to sell to a network that has really broad reach and is an outstanding platform to get awareness for their content," said Peter Liguori a former senior Fox TV executive and former Tribune Media Chief Executive.
Still, some observers question just how committed 21st Century Fox will be to broadcast television after the deal closes.
"Rupert Murdoch is the ultimate pragmatist. If he believed that broadcast television was a growth business, he would have never parted with the studio," said Sandy Grushow, a former chairman of Fox Entertainment and now chief executive of Phase Two Media, an investment and advisory firm.
Disney would be unable to acquire the Fox network because federal regulations bar one company from owning two major broadcast networks.
Some aspects of the Fox network's economics could get more challenging as a standalone entity. Long-running shows such as "The Simpsons" and "Family Guy" have become very expensive -- they cost between $4 million and $5 million per episode, according to an executive familiar with the matter. If a sister studio isn't benefiting from keeping those shows on the air then the cost may be hard to justify.
One possibility, former Fox executives said, is that a leaner Fox will rely on more unscripted, sports and news content instead of scripted entertainment programming, which is more expensive.
Inside Fox Broadcasting, the general mood is one of anxiety and sadness, according to several company employees. The parent company held multiple town-hall meetings at the Darryl F. Zanuck theater on the Century City lot in Los Angeles late last week to discuss the ramifications of the Disney deal. However, they didn't discuss the fate of Fox in any detail. Senior management said they knew little about the Disney deal, attendees said.
There are also questions about which executives will be steering the ship once the Disney deal closes. Fox Networks Group Chairman Peter Rice, along with executives Dana Walden and Gary Newman who oversee the Fox network and 20th Century Fox Television studio, could end up at Disney or strike out on their own.
Mr. Rice, who oversees a TV unit that includes the broadcast network, compared the deal to an "earthquake" and told attendees that the company was "processing" what it means. "Thirty years ago I would have taken a bet from anyone that I would leave the company before Rupert sold it."
Write to Joe Flint at [email protected]