DIS Walt Disney Co

By Erich Schwartzel 

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 (August 19, 2019).

LOS ANGELES -- About three months after Walt Disney Co. acquired Twentieth Century Fox, the two studios hosted a red-carpet premiere in Hollywood for the X-Men movie "Dark Phoenix," the first major Fox offering since the merger.

Before the event this summer, Disney sent Fox executives and staffers a 13-page memo outlining exactly how the event should go. Men were to shave, and women were to "wear light makeup." Workers were encouraged to wear a wristwatch since using a phone, either to check the time or to take pictures, was a strict no-no. And Fox employees were to make sure the movie's stars weren't chewing gum on the red carpet, according to the memo, which was seen by The Wall Street Journal.

It was one of the few detailed communications Fox workers had received in the roughly year-and-a-half since Disney agreed to buy the entertainment assets of 21st Century Fox for $71.3 billion, including Twentieth Century Fox. So when Disney Chief Executive Robert Iger told Wall Street analysts this month that Fox films had dragged down a record year for his studio, some Fox executives pointed the finger back at Disney.

Mr. Iger said the Fox studio's performance "was well below where it had been, and well below where we hoped it would be when we made the acquisition." He put most of the blame on a protracted acquisition process, with 17 months passing from when the deal was announced in late 2017 to its closing in March. Fox executives, however, privately say it had more to do with uncertainty and indecisiveness stemming from Disney's lack of communication during that time.

The clashing views highlight an issue common in large acquisitions, particularly ones that drag on due to regulatory scrutiny or other complications. Such delays and uncertainty often lead to a talent exodus, employee anxiety and corporate paralysis at the company being acquired.

In this case, Disney was preparing to absorb not only a movie studio, but also a major television-production operation, overseas subscription-TV providers and a controlling stake in Hulu, the streaming service. Disney is leaning on the Fox film and television library to bolster the separate streaming service it is creating to compete against Netflix Inc.

After the deal closed, the challenge of integrating Fox was compounded by the poor performance of its movie lineup. The collective box-office gross of Fox's six 2019 releases -- about $240 million -- is still around $100 million less than Disney's "Avengers: Endgame" made in its opening weekend.

"Dark Phoenix" flopped terribly, forcing Disney to take an impairment charge. It was the biggest bomb on a Fox slate that also included the misfires "Stuber," "The Kid Who Would Be King" and last week's "The Art of Racing in the Rain," all of which came and went with dismal showings.

Layoffs and attrition since the deal's announcement left Fox's marketing and publicity departments depleted, resulting in advertising campaigns that some employees describe as creatively uninspired, paint-by-numbers operations. As Fox continues to release movies left on its calendar, there are still some employees remaining in those divisions, but many offices look abandoned, said current and former Fox employees.

Some employees announced their intention to leave Fox just hours after news of the Disney deal broke. Others left more gradually, many decamping to the competitor that inspired Disney to buy Fox in the first place: Netflix.

On his call with analysts, Mr. Iger laid most of the blame on the extended lag before the deal closed. "That's a long period of time for a business that relies on constant decision-making and constant attention to detail," he said. "Often, decision-making can grind to a halt or certainly slow down."

Current and former Fox executives don't dispute that work at the studio slowed, but several said it was also due to a lack of communication on Disney's part about how the Fox studio would fit into the larger company and which executives would stay after the deal closed.

Disney executives didn't address large groups of Fox employees to outline the way forward, these people say. With many Fox executives unsure of their future at Disney, their subordinates were also left weighing whether to stick around.

Disney was barred from discussing hiring plans or any broader strategy with Fox before the deal closed due to rules tied to the acquisition, a person familiar with the situation said. Since the closing, Disney executives have been meeting with their Fox studio counterparts, and Mr. Iger said his company is at work "applying the same discipline and creative standards behind the success of Disney, Pixar, Marvel and Lucasfilm."

Fox's woes are partly a result of Disney's own success. The latter's record-setting year of megahits--"Captain Marvel," "Toy Story 4" and "The Lion King" among them -- have sucked up so much box-office oxygen that many midsize movies released by rivals have struggled.

Fans are eager for Disney's more successful teams to get their hands on certain Fox characters. At the Comic-Con International fan gathering in San Diego earlier this summer, Marvel Studios head Kevin Feige teased that his team would be making a movie with the Fantastic Four -- a comic book Fox failed twice at turning into a viable franchise. Fans in the auditorium erupted in cheers.

The rest of the year could brighten up for Fox. The car-racing drama "Ford vs. Ferrari," starring Matt Damon and Christian Bale, is building good buzz among awards pundits, but it isn't the type of movie that can generate blockbuster returns like "The Martian" or "Deadpool," previous Fox hits.

Disney is likely to mine Fox's extensive library of older movie titles for shows on Disney+, its forthcoming family-oriented streaming service. It already has reboots of Fox movies like "Home Alone" and "Night at the Museum" in development for the service, which will launch in November.

Mr. Iger, for one, is looking ahead.

"As I said a few times," he told Wall Street analysts, "we analyzed the 21st Century Fox opportunity entirely through the lens of our future business."

Write to Erich Schwartzel at erich.schwartzel@wsj.com

(END) Dow Jones Newswires

August 19, 2019 02:47 ET (06:47 GMT)

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