Richard Greenfield, an analyst at New York financial services firm BTIG, floated the idea last week that Walt Disney Co. should acquire video streaming service Netflix Inc., saying the deal would be a way to fix what he sees as a big problem for the Mouse House: Cord-cutting is slicing into subscribers of erstwhile cash cow ESPN. The mere mention of those losses by Chief Executive Robert Iger sent shares tumbling last year.
The companies poo-pooed the idea, but the truth is consolidation in this space will likely occur at some point in the near future, and Netflix is the crown jewel.
Los Gatos-based Netflix sports a market cap of $44 billion – Disney’s is upwards of $160 billion, and it had $8 billion in cash at the end of its last fiscal year – so a select group of companies could afford to buy it if it were for sale.
We asked industry insiders why it would or wouldn’t make sense for the Burbank media giant or the streaming service to make a deal if the opportunity presented itself.
5 Reasons a Disney-Netflix Union Is a Good Idea
1. Netflix Would Increase Its Global Footprint.
The streamer provides content to more than 70 million subscribers in more than 190 countries, but Chief Executive Reed Hastings has been leading the charge in the company’s global deployment, “with limited returns,” said Carl Hibbert, a London-based analyst and associate director of media and entertainment research at Futuresource Consulting.
2. Disney’s Netflix Knockoff Would Get a Boost.
Disney already has its own over-the-top service, DisneyLife, which streams its content directly to consumers’ devices, bypassing other carriers. It launched in the United Kingdom in the fall, but has yet to expand to other markets, and currently only features Disney-owned content.
3. Live TV for Netflix Subscribers.
By marrying into the Disney family, Netflix would have access to programming from ABC and ESPN. Viewers would not only be able to watch popular original series such as “House of Cards,” but would get network shows like “Grey’s Anatomy” and sports.
4. Solving the ESPN Problem.
“Access to premium sports still commands a high price,” said Hibbert. Netflix subscribers could help shore up declines in subscribers to ESPN and potentially provide added value for users who might already be paying for premium sports content from services such as DirecTV or U.K. pay-TV broadcaster Sky.
5. Hollywood and Silicon Valley Should Be Friends.
Iger understands the value of tech, having worked with the late Steve Jobs to secure the company’s Pixar acquisition in 2006. Iger, who has served on the Apple Inc. board since 2011 at Jobs’ request, also was one of the first to license content on iTunes.
5 Reasons a Disney-Netflix Union Is a bad Idea
1. Neutral Is the New Black.
An aggregator service such as Netflix, whose original hit shows include “Orange Is the New Black,” needs to be neutral in order to strike content deals with studios and independent content producers. Disney ownership would throw off content acquisition strategy for the streaming service, jeopardize existing licensing relationships, and could make shareholders nervous about potential conflicts of interest.
2. Don’t Bet Against Disney.
Just because ESPN lost a bunch of subscribers is no reason to bet against Disney in any way, shape, or form. “If you bet against Disney six months ago, for example, you would have lost a lot of money,” said Jonathan Taplin, director of the Annenberg Innovation Lab at USC and an expert on new media. The company posted record quarterly earnings of $2.9 billion for its first fiscal quarter in 2016 after the box-office success of “Star Wars: The Force Awakens.”
3. Reed Hastings Is No Bob Iger.
Some reports have speculated that Hastings could provide a potential successor for Iger upon his scheduled retirement in 2018, but Hastings lacks any experience in traditional media. And after Iger’s would-be heir Thomas Staggs announced earlier this month that he would be leaving the company, “Bob might stay a few more years,” said Taplin.
4. ‘ESPN Now’ Is Better Than Disney-Netflix.
There’s a better, less expensive option to replace the 5 percent of ESPN subscribers who dropped the service, Taplin suggested: Disney could sell the best of ESPN to Netflix as a direct-to-consumer service such as HBO Now, and have all of the advantages of Netflix without owning it.
5. Integration Can Be Dicey — and Pricey.
For a company as old as Disney, it can be hard to assimilate new technologies and personnel, as seen with the Maker Studios Inc. acquisition in 2014. The YouTube multichannel network provider cost $500 million, but then failed to meet its growth goals.
