By Yuna Ko
The entertainment industry has changed significantly from the past to present, from utilizing physical distributions in the forms of CDs or cassette tapes to a digital-base consumption. In doing so, this has also completely changed the landscape of M&A transactions. Especially with the growth of technology, traditional legacy media and entertainment companies have resorted to M&A as a means of survival, as technology giants such as Netflix have invaded their space.
This article argues that technology-driven consolidation in the media and entertainment industry has not merely increased M&A volume, but has fundamentally reshaped deal architecture. As content libraries, platform distribution rights, and data-driven consumer relationships become central sources of firm value, acquirers increasingly favor transaction structures that preserve contractual continuity and intellectual property licensing arrangements over traditional tax-optimized deal forms. In particular, reverse triangular mergers have emerged as the dominant structure for large media transactions because they minimize disruption to licensing agreements, talent contracts, and platform integrations that would otherwise be jeopardized by asset sales or forward mergers.
Background
For decades, the traditional method for legacy media companies to generate revenue was to license their content libraries to the highest bidder, resulting in a passive revenue stream. However, with the rise of streaming services such as Netflix, traditional media firms increasingly face structural pressure to either vertically integrate into streaming distribution or risk marginalization in an industry dominated by platform-based consumption. The outcome of this situation is mergers, and Netflix has been a predominant force in driving M&A activity in the industry.[1]
Starting in 2018, there was a series of mergers which occurred that began reshaping the entertainment industry. One of the first was when AT&T, a media distribution company, bought out Time Warner, a media content company, in a vertical merger for $85.4 billion to fuel HBO Max.[2] The terms of the deal included that AT&T will pay $107.50 per share of Time Warner, half in stock and half in cash, totaling $85.4 billion.[3] There was also Disney acquiring 21st Century Fox for $71.3 billion, with shareholders receiving $38 per share in consideration consisting of half in Disney stock and half in cash.[4]This acquisition would clearly expand Disney’s content library, gaining access to 21st Century Fox’s assets including Marvel properties and even a controlling stake in Hulu.[5] Most recently, in December 2025, Netflix entered into exclusive negotiations to purchase Warner Bros. Discovery’s film and television studios and streaming assets for $82.7 billion, marking the largest entertainment M&A transaction in history.[6] The deal values Warner Bros. Discovery at $27.75 per share, split between $23.25 in cash and $4.50 in Netflix stock.
Once again, the series of mergers that have been occurring since 2018 were not traditional mergers; these were more so strategic survival moves, a move towards owning more content. As Bain & Company stated in their 2025 M&A Report in Media and Entertainment, the new industry norm of survival became “own the consumer, own the IP, or own nothing.”[7] Essentially, companies that could no longer compete with Netflix’s content spending or other big technology giants’ infrastructure were being forced to either find a merger partner or get left behind in the industry. However, after finding a merger partner, the real struggle became structuring these deals.
Case Study of Disney’s 21st Century Fox Acquisition and M&A Structure
Rather than utilizing a stock purchase or an asset purchase which would have required renegotiating numerous contracts, Disney, in acquiring 21st Century Fox, chose a reverse triangular merger structure, in two steps.[8] Choosing a reverse triangular merger was strategic because this would allow 21st Century Fox to keep its corporate identity as the surviving corporation, as a Disney subsidiary.[9] In sum, they created a brand new parent company, to hold both Disney and 21st Century Fox.
First, Fox created a new company named “New Fox,” in which they transferred a portfolio of unwanted assets, including Fox News, Fox Sports, and Fox Broadcasting network.[10] The New Fox shares were distributed to all Fox shareholders, creating shareholder ownership of both the old and new companies. Then, Disney created a shell company which was called “New Disney,” and also created two temporary subsidiaries “WDC Merger Enterprises I” and “WDC Merger Enterprises II,” which then merged into their respective targets: the original Disney company, and the slimmed down 21st Century Fox that remained after the spin off of Fox Corporation.[11] Thus, the old Walt Disney Company was now owned by this “New Disney,” which became the new parent company with both old Disney and now Fox as its subsidiary. The end goal was established, making integration much easier; both companies were separate entities but under one parent, New Disney. Ultimately, New Disney was renamed as “The Walt Disney Company.”
M&A Deal Structures: A Menu to Select for the Problem
1. Reverse Triangular Merger
What exactly is a reverse triangular merger, and why is it beneficial?
A reverse triangular merger is an acquisition structure in which the acquiring company forms a wholly owned subsidiary that merges into the target company[12], with the target company surviving as a subsidiary of the acquiring parent.[13]
One of the greatest advantages of a reverse triangular merger as seen in the case study of Disney’s acquisition of Fox, is continuity. Since the target entity survives the merger, Fox retains its corporate identity, which is critical for them to preserve licenses, distribution agreements, and other contract-based rights. Contracts are automatically preserved, with no need for renegotiation. Although technically board and shareholder approval is required, since the subsidiary is owned entirely by the acquiring parent firm, this makes the process very easy. However, the target company’s board and shareholder approval is also required since the target shareholders receive acquiring company stock in exchange for their shares. Moreover, the complexity of such acquisitions, as demonstrated in the aforementioned case study, leads to higher transaction costs, including mailing proxy statements to its stockholders for approval.[14]
Regarding tax purposes, the IRS treats a reverse triangular merger as if the acquirer had simply bought the target’s stock, meaning the buyer inherits the target’s tax attributes, such as net operating losses and tax credits.[15] However, the IRS also limits how much you can use each year based on the purchase price. So in this type of deal, there is a trading of immediate tax deductions from an asset purchase for the ability to preserve contracts and inherit tax attributes over time. In summary, companies choose this structure when keeping contracts intact and preserving content licenses is more important than maximizing tax benefits, which may apply to most public media companies, including Disney and Fox.
2. Direct Merger
A direct merger, also known as a direct forward merger, is where the assets and liabilities of the target company are transferred to the acquiring company.[16] Company ‘X,’ or the seller merges with company ‘Y,’ or the acquirer, and the two companies become a single entity under Company Y. The consideration goes directly from the acquiring company to the target shareholders. It is one of the most straightforward structures, and the IRS treats this as if the acquiring company is buying an individual asset, allowing tax benefits through depreciation calculation at current market values.[17] However, the downsides include double taxation and liabilities. The double taxation first occurs at the corporate level, then at the shareholder level.[18] Moreover, a direct merger means that the acquiring company not only gets assets, but there is no protection against lawsuits from the old target company, debt, and any hidden liabilities. Ultimately, this may be best suited to small private company acquisitions rather than large public media company mergers. Direct mergers still pose a risk for both parties, so it is critical to assess any tax benefits, known or hidden liabilities, and consider alternative structures and which structure works best in a case by case scenario.
3. Asset Purchase
An asset purchase is the sale of all or substantially all of a company’s property. It is a fundamental change requiring shareholder vote. This leads to the purchaser cherry picking which assets to buy and leaving behind what they do not want, which may be beneficial if there are any liabilities.[19] For example, in media companies, this would allow the buyer to essentially pick out assets such as streaming technology, any specific contracts they value, and the content library, but leave behind any unwanted contracts, old, legacy equipment they do not desire while avoiding certain liabilities. Asset purchases also have the same tax benefits as direct mergers, as they are individual asset transfers that allow for tax deductions based on depreciating current market values.[20] However, this also means everything must be renegotiated unlike earlier in the reverse triangular merger structure, making it extremely time consuming. It also means the buyer would lose any critical intellectual property rights, and have to acquire new regulatory approvals. The cherry picking and tax benefits based on deductions make asset purchases seem very alluring at first, but asset purchases are administratively more difficult, and thus not often used by large corporations.
4. Stock Purchase
In a stock purchase, the transaction is between the buying corporation and target shareholders, in which the seller transfers the target company’s stock to the buyer giving the buyer indirect ownership of the entire business entity.[21] Here, the buyer automatically assumes all liabilities, whether it is unknown or known, since they now own the company and are inheriting everything as is.[22] Buyers will have to protect themselves through their own due diligence and any indemnification clauses or warranties. Compared to an asset purchase, the buyer’s risk is significantly higher; however, in terms of continuity, it is much better, as most contracts will automatically continue unless there is a termination signaled by a separate clause in the contract for change of control[1] .[23]
This method is once again very rare for public, large media companies. Even with due diligence, there are many unknown liability risks, and this structure requires shareholder approval triggering proxy statements, delays, and more uncertainty.[24] Especially in the media industry, there could be a multitude of liability exposure including defamation, and copyright infringement. These claims could be dormant or emerge later which buyers do not want to risk.
Conclusion
The takeover of technology companies has left numerous legacy entertainment industries scrambling to find solutions to survive in an especially fast changing landscape. Starting from 2018, we have seen large and varying deals that have shaped M&A transactions, and although there are a variety of structures to utilize, it makes sense why reverse triangular mergers would be the go-to choice for numerous large sized entertainment companies. Preserving continuity by keeping contracts and content licenses intact, while maintaining corporate separateness and minimizing procedural friction through the use of a wholly owned subsidiary, reflects a dominant transactional preference in modern media mergers.
[1] Jonathan Kendall, Netflix Is Creating a Cordless Nightmare for Traditional Media, INSTITUTIONAL INVESTOR (Oct. 5, 2015), https://www.institutionalinvestor.com/article/2bsux41f56xu0xw2qxvk0/portfolio/netflix-is-creating-a-cordless-nightmare-for-traditional-media#:~:text=No%20wonder%20Netflix%20inspired%20little,to%20revenues%20from%20digital%20licensing.%E2%80%9D.
[2] Greg Roumeliotis & Jessica Toonkel, AT&T to pay $85 billion for Time Warner, create telecom-media giant, REUTERS (Oct. 23, 2016), https://www.reuters.com/article/technology/att-to-pay-85-billion-for-time-warner-create-telecom-media-giant-idUSKCN12M0SI/.
[3] Id.
[4] The Walt Disney Co., The Walt Disney Company Signs Amended Acquisition Agreement To Acquire Twenty-First Century Fox, Inc., For $71.3 Billion In Cash And Stock, THE WALT DISNEY CO. (June 20, 2018), https://thewaltdisneycompany.com/press-releases/the-walt-disney-company-signs-amended-acquisition-agreement-to-acquire-twenty-first-century-fox-inc-for-71-3-billion-in-cash-and-stock/.
[5] Id.
[6] Netflix, NETFLIX TO ACQUIRE WARNER BROS. FOLLOWING THE SEPARATION OF DISCOVERY GLOBAL FOR A TOTAL ENTERPRISE VALUE OF $82.7 BILLION (Equity Value of $72.0 Billion), NETFLIX INVESTORS (Dec. 5, 2025), https://ir.netflix.net/investor-news-and-events/financial-releases/press-release-details/2025/NETFLIX-TO-ACQUIRE-WARNER-BROS–FOLLOWING-THE-SEPARATION-OF-DISCOVERY-GLOBAL-FOR-A-TOTAL-ENTERPRISE-VALUE-OF-82-7-BILLION-Equity-Value-of-72-0-Billion/default.aspx.
[7] Nicole Magoon, Matt Keith & Alex Egan, M&A in Media and Entertainment: Own the Consumer, Own the IP, or Own Nothing, Bain & Co. (Feb. 4, 2025), https://www.bain.com/insights/media-and-entertainment-m-and-a-report-2025/.
[8] United States Securities and Exchange Commission, THE WALT DISNEY COMPANY (Oct. 5, 2018), https://www.sec.gov/Archives/edgar/data/1001039/000119312518294815/d606180d8k.htm.
[9] Id.
[10] Id.
[11] Id.
[12] Will Kenton, Reverse Triangular Merger: Overview and Advantages, INVESTOPEDIA (Feb. 11, 2026), https://www.investopedia.com/terms/r/rtm.asp.
[13] Id.
[14] Theodore W. Grippo, Use of the T Use of the Tax-Free Triangular Mer riangular Merger for the Acquisition of T ger for the Acquisition of Two Corporations with Cross-Ownership, 14 J. Marshall L. Rev. 33 (1980), UIC LAW REVIEW (Fall 1980), https://repository.law.uic.edu/cgi/viewcontent.cgi?article=2338&context=lawreview.
[15] Latham & Watkins LLP, Tax Considerations in Corporate Deal Structures (2016), https://www.lw.com/admin/Upload/Documents/OilAndGasMandA/Tax/Oil-and-Gas_M-and-A_tax.pdf.
[16] James R. Sanders, Merger Structure Rundown: Forward (Direct) Merger, MPL LAW FIRM (March 3, 2023), https://mpl-law.com/merger-structure-rundown-forward-direct-merger/.
[17] Id.
[18] Id.
[19] DeWitt LLP, An Overview of an Asset Purchase vs. Stock Purchase (May 19, 2021), https://dewittllp.com/news/2021/05/19/an-overview-of-an-asset-purchase-vs-stock-purchase.
[20] Byron F. Egan, Asset Acquisitions: Assuming and Avoiding Liabilities, Penn State Law Review (2012), https://www.pennstatelawreview.org/116/3/116%20Penn%20St.%20L.%20Rev.%20913.pdf.
[21] G&G Law LLC, Asset Sale v. Stock Sale: Pros and Cons (Sept. 22, 2025), https://www.gglawoffices.com/2025/09/22/asset-v-stock-purchase-which-one-is-better/.
[22] Id.
[23] Id.
[24] Bloomberg Law, M&A, Drafting Guide – Closing Conditions: Shareholder Approval, https://www.bloomberglaw.com/external/document/XBGIQ1TK000000/m-a-drafting-guide-closing-conditions-shareholder-approval.
