Fox’s $22 billion binge

Fox just found a new favorite channel. The company announced a roughly $22 billion deal to acquire Roku, funded with a combination of cash on hand and new debt, including a $12 billion loan.

The move expands a media empire that already includes Fox News, Fox Sports, and Tubi, which Fox acquired for $400 million in 2020, and comes seven years after Fox sold much of its entertainment business to Disney in a $71 billion deal.

The ad-vantage

The acquisition doubles down on one of the fastest-growing corners of media: ad-supported streaming. Like Tubi, Roku operates its own free, ad-supported streaming service through The Roku Channel, giving Fox another avenue to reach viewers as consumers increasingly opt for cheaper streaming options. According to Antenna, ad-supported plans now account for nearly half of all premium streaming sign-ups in the US, up from 39% just two years ago.

But Roku’s biggest value may be its distribution. Its software powers smart TVs and streaming devices used by more than 100 million households worldwide, making it the largest connected-TV platform with roughly a quarter of the market. (That footprint allows Fox to push its sports and news programming to cord-cutters).

The financial math helps, too: Fox expects the combined company to generate about $400 million in annual cost savings. The $12 billion loan could weigh on the balance sheet, though, if ad revenue stumbles.

Mixed reviews

Roku shares fell 15.22% today after jumping roughly 20% last Friday when reports of the talks first surfaced, suggesting much of the takeover premium had already been priced in. Some shareholders may also have preferred an all-cash offer.

The deal could also complicate Roku’s role as streaming’s neutral middleman. Roku serves as a gateway to nearly every major streaming service, and some analysts worry rival media companies may be less comfortable relying on a platform owned by Fox.

Whether those fears are justified remains to be seen, as the deal is expected to close in the first half of next year. For now, investors may be changing the channel, but Fox is betting they’ll eventually tune back in.—SY