The Dividend Cafe - The Murdoch Dynasty - A Business Worth a Thousand Words

Episode Date: May 8, 2026

Today's Post - https://bahnsen.co/3QMkXSl David Bahnsen analyzes Rupert Murdoch’s 2019 sale of major 21st Century Fox entertainment assets to Disney for $71.3B, emphasizing not the politics of the parties but the business logic and investing takeaways. He contrasts Disney’s struggles since the deal with Fox’s stronger stock performance, arguing the outcome reflects capital intensity and duration risk: Disney bought scale and IP to compete in streaming, requiring heavy reinvestment amid intense competition and limited margin of safety, while Murdoch kept Fox’s news and sports assets (Fox News, Fox Business, broadcast and sports rights) as more durable, real-time, less disrupted businesses with higher margins. Bahnsen connects this to dividend growth investing as a shorter-duration equity profile that “gets paid now,” helping de-risk unknowns versus long-duration, capital-heavy bets like streaming content. 00:00 Welcome and Setup 01:10 Polarization Disclaimers 03:32 The 2019 Fox Disney Deal 05:13 Stock Performance Aftermath 06:48 Disney’s IP Playbook 08:25 Murdoch Keeps News Sports 10:59 Streaming Wars and Capital Risk 12:52 Capital Light Durability Lesson 15:17 Duration Risk and Dividends 18:16 Dividend Growth Takeaways 19:30 Closing Thoughts Links mentioned in this episode: DividendCafe.com TheBahnsenGroup.com

Welcome to the Dividing Cafe, weekly market commentary focused on dividends in your portfolio and dividends in your understanding of economic life. Hello and welcome to the Dividendon Cafe. I am your host, David Bonson, and we are doing something a little bit different today, but very exciting. We're going to look at a particular business transaction, a really big one, a pretty famous one with a lot of people and companies that you've heard of involved. and I'm going to look at not only the story of this transaction, but try to extract a business principle from it that applies to us. I'm going to look at the investment takeaways that are particularly relevant to us at the Bonson Group as dividend growth investors and how we feel about the types of companies we look at. Now, what's ironic in the example I'm using is that none of the companies involved are ones that we own or have ever owned, but that doesn't change the

fact that what is kind of going on under the surface in this particular story, besides it being historical and current and interesting, it really does actually allow for us to extract some takeaways that matter to the way we believe in investing money and the way we want our clients to think about long-term investing opportunity. The genesis of this inspiration, I did not decide to talk today about a controversial figure like Rupert Murdoch because I want the hate mail I'm going to go get. It's okay because I'm not going to read it, so don't worry about sending it. But I'm not doing a puff piece on Rupert Murdoch, nor am I saying anything critical of him. I'm describing a business transaction.

But I am aware that Rupert Murdoch is a very polarizing figure that a lot of people hate him and a lot of people love them. And I'm not writing about that. So if you want my opinions on Rupert Murdoch, I guess you can ask for him, but I'm not even sure I have them because it's just outside the scope of things I have time to deal with or think about or care about. I certainly have opinions about modern media. I have opinions about what Fox News is doing versus what MSNBC or CNN are doing or what have you. But Rupert Murdoch, and by the way, Rupert's not just controversial because he happens to have a conservative right-leaning news news news news news. network with Fox News. He's controversial at his personal life. He's controversial in other tactics. He's done in tabloid journalism. You know, he owns a very credible establishment newspaper like the Wall Street Journal, but he also owns something which is more of a guilty pleasure like the New York

Post. So listen, I'm just trying to get this out of the way. You can have all kinds of opinions about Rupert Murdoch. And I'm going to talk about a major major transaction he did, which is now about seven years ago, but I'm not really doing it in any context of Rupert himself and Fox News and all those things. Likewise, Disney, which is the counterparty in the transaction, a lot of people have strong opinions on them. And this is not really about Disney as a company or certainly an ideology or a politics or anything like that. So I put that disclaimer out there because we are living in time and I assure you my inbox is a reflection of it or at least what people tell me. I don't read a lot of the stuff anymore where people are ignoring what I'm saying about the intent.

Listen, I get it. People have strong opinions on things and it can be emotive. But this is a transaction that you should have strong opinions about or at least an interest in learning as an investor. Because in 2019, Rupert Murdoch, who is the chair and primary shareholder of Fox, which now is the Fox Corporation is a different company than it was prior to 2019. What he owned before this transaction with Disney included the legacy 20th century Fox Studios, which went back to 1915, one of the most iconic film studios in America. And you look at a lot of the television programming.

In the movie studio and in the TV studio alone, the IP, such. brands as the Simpsons, Planet of the Apes, the Marvel characters. Even though Disney had bought Lucasfilm, Fox still had the distribution rights of Star Wars and the first six movies in the three different trilogies of Star Wars. They owned a big piece of Hulu that then moved over to Disney, who was another shareholder in the Hulu streaming ecosystem. So there was a lot involved in, oh, National Geographic Magazine. There was a big India broadcasting.

So it's a slew of products, but they bought it. Disney bought it for $71.3 billion. And I think that the story here is not what Rupert Murdoch sold, but why. Not what Disney bought, but why. But then what Rupert didn't sell and why. And that's what I want to get into here. today with my disclaimers out of the way. First of all, let's kind of beat the story a little bit by just going to part of the conclusion, not in the why, but the what. And I'm going to put a chart

up on the screen right now that reflects the stock price of Disney since the transaction and the stock price of Fox. And what you see, you know, we're talking about a seven-year period where I don't think the market is tripled, but it's over two and a half times, almost tripled. and Disney is down, is lower than it was before this transaction, and Fox is almost doubled. Now, by the way, people could say, yeah, but remember, Disney must have gotten hammered during the COVID period because they have all these theme parks,

and the world was shut down for a year or a year and a half or whatever it was. But actually, if you look at the chart, the piece where Disney stock was up a bunch was during the COVID lockdowns, Probably because of anticipation that they were building out a successful streaming network and that the theme parks were going to reopen and it was a forward-looking optimism that then didn't really pay off. But what you do see is clearly evidenced in the stocks that Disney has dramatically struggled since the $71 billion transaction and that Fox has done quite well.

Now, the point here is to evaluate why, and I'll reiterate my prior disclaimer, that we don't own either these companies. And nothing I'm saying today is a case for or against either company. It's to extract something different. As far as Disney's expensive purchase of the Fox assets, allow me to defend Disney a little bit by pointing out that they spent what was at the time considered a ton of money on Pixar Animation Studios, on Marvel, on Lucasfilm, and that they have made a ton of money on all three of those transactions. Their ability to buy IP and monetize it in multiple channels because of television, because of film, because of new screen content they can generate.

Now, of course, this is into a streaming ecosystem that has a subscriber base, but then with merchandising, toys and the theme parks. So these guys have a wonderful track record, and I believe the rough estimates. It's a little bit hard to get exact numbers because of how you define some of the monetization from things like merchandising and toys. But they've got an ROI on the Lucas film of about three times, and a marvel of higher than that, and a Pixar getting close to six times their money. So they still own it.

They've recapped their money and made significant return on investment. Now, they paid a ton of money to Rupert Murdoch for these Fox assets. But again, what they were buying, I mentioned Planet of the Apes and the Simpsons and some of those things. But you're talking about the Marvel characters, Avatar, there's significant IP that they'll try to monetize for years and years. What was not sold in the deal is the Fox News Network, the Fox Business Network, the Brought, Fox broadcast channel that has the sports rights with NFL and Major League Baseball. What essentially took place was a decision by Rupert Murdoch to say there is going to be a massive need for more capital to continue building entertainment assets that the old cable network

model was dead or at least heavily disrupted by Netflix by streaming. So all at once, there was going to now be a massive new level of capital intensity into the technology and into content creation. All the while, there was going to be far greater competition. More were coming in in these so-called streaming wars. Netflix was there first, but there were now going to be multiple new players coming in, all true enough. But what did not require significant reinvention, new capital intensity, etc., was new. in sports. That there was kind of a durability, a real-time component to how these things came, opinion, politics, that these things were far less risky in how they get produced and distributed

and less susceptible to the disruption of streaming. And so he held on to the boring assets. Now, they weren't boring to him. My understanding is he likes those assets. They're not boring to a lot of you. A lot of Americans clearly like their news channels and their politics, and they certainly, thank God, love their sports. But those things were going to have less capital intensity and a greater durability, a greater repeatability going into the future. But the kind of complexity and unpredictability was going to be on more of these entertainment-oriented assets and scripted content. So all at once, both parties were doing exactly what they wanted. Disney says we need. We need. scale to compete in streaming and we need more content to create scale, we're going to buy

a very elegant portfolio of content. And they did that. They paid a lot for it. And Rupert said, I'm going to sell that content, but keep the more durable and differentiated types of content assets. Well, all at once, what you saw was this play out more or less exactly how Ruper would have wanted. There was significant cost that had to go into competing and streaming. The streaming model itself got very disrupted and competitive and, let's just say, there was some overinvestment and some malinvestment amongst a lot of the players. The multiples did not hold. And this is all on top of it happening after what was a high premium purchase paid. So there wasn't a lot of margin of safety in the multiple and the value

and then you had just this massive need for new technology. Now, I want to be clear, I am not saying that in five years, 10 years, people may not look back at it and go, this kind of panned out better for Disney. But the math is the math. The more time that goes by, the more compressed the IRA is, the internal rate of return is a byproduct of not only the return on investment, but the time that goes therewith.

And you are just dealing with a. significant capital reinvestment need. That is very hard for cash flow generation. So now you have Fox essentially focusing with about double the cash flow margins and double the operating profit margins for more Disney is. And Disney's had been even lower. They're starting to get some benefit to scale from this because this huge capital investment, not to mention the need to just recoup the money spent on the investment. What Rupert Murdoch did was more or less move the risk of the streaming wars and the capital intensity that was going to take to stay in that particular content game, he moved that risk to Disney shareholders. He de-risked it from him, his family,

and the shareholders of the Fox Company. And I think that what it spoke to was this capital light model. It's not a perfect analogy. I could do another dividend cafe, and I probably will, on how this applied to the hospitality assets after Reagan's second tax bill in 1986 fundamentally changed the hotel business back in the mid to late 80s, where the Marriots and eventually the Hilton's and Hyattes of the world

moved to much less of a brick and mortar in capital intensity business model, holding hard assets and land brick and mortar and moving to a light model that involved management companies and getting fees to go run companies instead of owning the underlying asset. Well, content is a little different than real estate, but the point is the same that you got a durability of cash flows in this Fox model And you happen to have gotten it in an element that didn't require a ton of reinvestment. There isn't going to be a big change in the way news gets broadcast. People still want it real time by definition. Same with sports.

These are live events where what is going to satisfy consumers with science fiction movies. First of all, I don't really understand that to begin with, but I certainly don't understand what it's going to be next year or in three years, et cetera. And there is a, in the streaming world, there's a big, need to go put out a lot of new product where some of it's going to fail and it's expensive, but you put enough out that the successors, the successful ones pay for the failed ones. That's the story of media. And then I'll defend Disney in another place too.

And I make this comment in divinacet.com.com. There's a link to articles that I wrote earlier in the year using the Paramount Viacom story over the last 30 years. most of these media companies and failed mergers and other things that are vanity projects that get away from dividend growth as a sustainable business model and the way they reward shareholders. Most of them came from with really excessive leverage. Disney has leverage. They borrow money to fund a lot of these capital expenditures, but it's very sober leverage, very reasonable.

Relative to the amount of assets and the amount of EBITDA that backs the leverage, it's not reckless. but it's capitally intense. It requires ongoing reinvestment. And so what you refer to here in bonds is long duration assets means it's a long dated bond. You're not going to get paid back your principal for a long time. And then a one year bond is a short duration bond. But duration doesn't just apply to fixed income assets. Duration is a dynamic that it applies in equity, in risk taking. and there's a lot of things out there that people are trying to get a big return on with a long duration asset, that over time the growth profile here is going to pay off. And then you get things like in technology or in semiconductors or what people hope will be the case in AI or hyper-scaling

that you're getting a short-term return on a long-duration expectation. In other words, a lot of these stocks are up a lot now because they believe that what these investments are going to be later, is going to all pay off. But in this Disney case, it's a long duration play on content scale streaming. Stock prices are not pricing in it ahead of time. And so it's a different type of risk. I think in the dividend growth world, there's a mentality that has to be a little bit more like the way Murdoch was thinking in 2019, which is that you want to be getting paid now. You can always take risk now that will be risk later and maybe get paid off later, expand duration. However, for investors that want current cash flow, or for investors that want future cash flow, but want a

certain type of risk and reward relationship along the way, the types of companies that exist in our universe as dividend growers, those longer duration plays that come with the type of risk that we saw evidenced in a mega acquisition in 2019 with Disney buying the IP from Fox, it's very difficult to make those investments all make sense. And it's very difficult to know all the risk you face, because that's what a definition of a long duration asset is. It doesn't just mean, here's the risk, we know what it is, and we know how you're going to get paid off for it. You just got to wait a while. That's a lot easier. The problem with long duration is what you don't know, along the way. So what we do know in the risk we take with investments we have now with current

dividend growers are operational risk and things in the here and now, but are being remedied and addressed and evidenced in management confidence through current dividend. There's always different challenges in running a business. But when your payoff is long duration, you not only have the execution risk that all businesses, short and long duration have, but you have the unknown risk that you can't factor in that might come in and you don't have the benefit of de-risking along the way with current cash flow. And so I think that this speaks to one of the reasons we like dividend growth investments so much. It's a shorter duration equity profile. It's a different risk-reward profile. We're amortizing the investment as we go, if you will. In other words,

we're getting paid as we go in de-risking because of the unknowns. but all the while there isn't the same capital intensity that the more we make, the more we have to go put into the business. Now, some of our investments have higher CAPEX needs than others. Not very many investments are as capital light as some of the tech investments from 10 and 15 years ago. But there is very little more capital intensive than media content in a scripted content a day and age of streaming. What Murdoch did in this deal was differentiate between the type of cost. content that was capital-intense and the type that wasn't. And it's paid off very well for him and his family and their investors, but it speaks to a payoff we believe in very much, too, as dividend

growth investors that focuses on what we know, what is durable, what's repeatable, managing a risk-reward relationship and managing a duration profile within equity investments. It makes us dividend and growth investors. And I will tell you, sometimes the payoff of the payoff of of the news and a great sports game can be much better than the payoff of a blockbuster movie, let alone the risk of a flop. Thank you for listening. Thank you for watching. And thank you for reading the Dividend Cafe.

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