Scale. Gotta have scale.
I remember when I first heard that term. It was when I started thestreet.com 22 years ago and I would meet with bankers for money and they would say "Jim, you aren't scaling fast enough."
I would say "hey, I am scaling as fast as I can." They, to a person would say, "we're out without more scaling." But, they said, if you spend our money like crazy, if you go for huge scale, we will give you every penny you want and then some "
By the end of these meetings I thought they wanted me to develop psoriasis.
Of course, looking back they were right. If you don't have scale, you don't have heft, if you aren't big enough, if you aren't dominant then you won't win, or worse, you might not even survive.
Scaling can be offensive and it can be defensive. Tomorrow we understand that Walt Disney (DIS) will be buying a big chunk of the Fox (FOXA) empire, namely the studios, the entertainment and the Fox regional sports network.
Disney's in the position I was in 22 years ago. It doesn't matter how much they pay, they will be getting huge scale and they need it, need it badly because even as big as Disney is, the problem is that Apple (AAPL) Facebook (FB) , Alphabet (GOOGL) , Amazon (AMZN) and even Netflix (NFLX) -- the pesky FANG -- might have more scale and therefore get more consumer mindshare worldwide, get more ad dollars and get better programming.
Now, maybe I have learned to love to be scaly, but I think that this is a terrific deal because they will have a hammerlock on sports programming with ESPN and Fox regional sports, perfect for its BAMtech acquisition. Disney will have plenty of potential programming that's not used. And it has an instrument, BAMTech, to broadcast it throughout the world.
They will have a huge amount of programming that you will want to go to and will have every smart TV turned to it.
They will have all sorts of new rides based on Marvel characters, which is some terrific gravy to ladle over the meat.
It's offensive in that Disney will not be left out. You can see their programming regardless of the device so this whole cord cutting conversation ends. Eyeballs are going to go somewhere. Disney has to be wherever they go.
And it's defensive. I am sure Bob Iger is thinking, "what the heck are those people at Alphabet or Amazon thinking?". There's not a lot of beachfront property out there, this is the prime one. Again, Disney had to pay up for it, but it didn't want that beachfront property going to the FANGs. They are getting scale rapidly. They are taking a huge number of ad dollars from the ad pie. They are growing when Disney, as measured by ESPN sign-ups, is shrinking, even though that's a false construct: there's plenty that's working right now for Disney, but its entertainment assets aren't scaling fast enough.
Now, this transaction also gives Disney tremendous optionality. That's another word like scale. If Disney wants to it can package ESPN and Fox Sports and put it on the market or spin it to shareholders. Right now that would actually rally the stock. Or it can be patient and build out BAMTech to be the sports Facebook.
No matter, the good news for Disney is that it has bought time and boxed out the real enemies, the companies that can decide they want to be in Disney's business, which is, alas, the business of getting you to watch them. And those other companies don't care where you watch them.
Now Disney won't have to care either.