We welcome again The Leisure Technique Man for the second a part of a two-part collection wanting into mergers and acquisitions because it pertains to Netflix. On this half, they’ll be having a look into 9 targets for Netflix to both purchase or merge with together with loads of apparent candidates however just a few surprises.
My last article was a warning to all these trying to sail the “mergers and acquisitions” (M&A) waters trying to find buried treasure: it ain’t simple. Unhealthy technique sharks and paying-too-much pirates are lurking over each wave. Nonetheless, when you search glory in shopping for different, often smaller firms, superb, I’ll give it you a map to search out M&A treasure.
The subject is just too rattling attractive to disregard.
I’ve damaged potential Netflix merger and acquisition choices into 4 buckets: Movie, TV, Wildcards, and “Being Acquired”.
Movie Studios
Why would Netflix need to personal a film studio? Two causes, one Netflix would doubtless settle for and one which they wouldn’t. First, shopping for a whole library of historic content material might be cheaper than constructing it from scratch. When Disney purchased Fox, for instance, they didn’t simply get the long run movies, however they received the Predator, Avatar, and Aliens franchises. And the rights to rerun them on their streaming providers till the tip of time.
The explanation Netflix wouldn’t agree with—however possibly ought to—is that even mighty Netflix might be taught a factor or two from the normal studios. In fact, Netflix has proven they will make numerous good films too—Fowl Field, Extraction, Enola Holmes—however arguably even their prime movies wouldn’t be blockbusters on the field workplace. (Once more I don’t suppose Ted Sarandos would purchase this.)
Sony Photos
The Logic
Sony is the final of the “six majors” that doesn’t have its personal streaming platform (High-quality, they owned Crackle, however most folk don’t know what Crackle is…). They’ve a deep library and Netflix simply licensed their movies for years sooner or later. Should you’re already paying that a lot, you may as properly personal the studio.
The Draw back
Sony doesn’t have a streamer as a result of its IP might be the weakest of the foremost studios. Furthermore, its greatest IP is rented from Disney (Spider-Man through Marvel). Furthermore, even when Netflix purchased Sony, Disney simply purchased all of the library home windows Sony didn’t promote to Netflix, that means Netflix must wait 5 years to manage the whole movie library once more.
The Worth Tag
It’s a bit harder to take a position since Sony Photos is owned by the Sony Company so doesn’t have a clear market capitalization to match. Based on analysis I’ve read, and together with the TV enterprise, I’d put the vary at one thing like $5-10 billion. (Although if a real shopping for course of opened up, they most likely have probably the most room to develop on this valuation.
Lionsgate
The Logic
After Sony Photos, Lionsgate is the highest-grossing studio accessible on the open market. Lionsgate is “technically” a mini-major—that means a studio not thought-about one of many massive six within the 2000s—however some years within the 2010s, notably in the course of the run of The Starvation Video games/Twilight, it truly bested among the majors in home field workplace spending. Proudly owning Lionsgate would imply including just a few massive franchises to Netflix’s coffers, together with The Starvation Video games, Twilight, Noticed and John Wick collection.
The Draw back
Lionsgate owns Starz, which is more and more distinguished as a streamer in its personal proper. If Netflix purchased Lionsgate, it’s unclear what, if something, it will do with Starz. Netflix would doubtless spin it off—a troublesome promote with out Lionsgate connected—or shut it down—which implies paying for an asset you propose to kill. Additionally, whereas Lionsgate does have some franchises, it solely has twenty years of movies, which is smaller than many of the main studios.
The Worth Tag
Since Lionsgate is publicly traded, we are able to lookup its inventory value immediately. On this case, it at the moment has a market capitalization of $3.2 billion (as of Could 10th), so put the vary at $3-5 billion, with once more an opportunity for a bidding battle to push costs up.
MGM
The Logic
Frankly, MGM is a zombie studio. They aren’t a serious studio anymore with no studio lot and a tiny share of the annual field workplace. Their greatest declare to fame is the James Bond franchise, however they don’t fully-own that, as they produce the movies with Eon Productions. They do have a historic legacy and, with that, some library titles. I’ll admit, this can be a weak rationale to argue Netflix should purchase them! Most likely the most effective factor going for MGM is that its personal fairness homeowners want to promote them to get a return on shopping for the distressed property.
The Draw back
It seems MGM doesn’t personal as a lot of their catalogue as they suppose, having offered massive parts in previous a long time throughout instances of unhealthy money circulate. Specifically, MGM offered the 2 crown jewels of the 1930s, The Wizard of Ozand Gone with the Wind, to Ted Turner in 1985, that means most historic titles are owned by AT&T/Warner Media.) Like Lionsgate, MGM additionally owns EPIX, a legacy cable and streaming enterprise.
The Worth Tag
MGM is at the moment privately held, which makes speculating on their price ticket a little bit harder. As just lately as 2020, rumors swirled that Apple looked at buying MGM and the worth was round $5 billion. This could possibly be excessive, relying on the property MGM nonetheless owns, however is an effective place to begin.
Smaller Movie Studios
There are fairly just a few smaller studios and manufacturing homes that might add to Netflix’s catalogue, from A24 to STX Leisure to numerous others. The attraction is Netflix would instantly achieve an expanded distribution capability in the event that they plan to maintain releasing movies in theaters, just like the Military of the Lifeless, which is debuting in Cinemark theaters this week.
The Verdict?
What’s is the likeliest acquisition of the movie bunch? I’d put it at a close to tie between Sony and Lionsgate. Each have various things going for them.
Sony comes with a a lot increased price ticket, but in addition a a lot deeper library, together with TV and movie. Put it like this: if Netflix is already paying $500 million over the following few years to hire Seinfeld and possibly $1 billion to hire Sony’s first window films, why not pay 5 instances as a lot to personal the studio and its catalog eternally? Toss in the truth that Sony (the conglomerate) has been rumored to need to promote for years, and this isn’t a stretch. Whereas it will take time to wind down licensing offers, that isn’t an insurmountable hurdle.
That stated, it’s expensive, which is the place Lionsgate is available in. If Netflix might add Lionsgate for less than $5 billion, that’s lower than 2.5% of their present market capitalization. Even right this moment, Lionsgate might be the “pound for pound” most useful movie acquisition.
Tv Studios
Much like movie, Netflix produces plenty of TV, so shopping for one of many main TV studios might assist increase that footprint. Arguably library tv exhibits like NCIS, Breaking Unhealthy, and Home Hunters are much more useful than library movies.
ViacomCBS
The Logic
Frankly, it’s superb we’ve gotten this many phrases in and I haven’t talked about promoting ViacomCBS but. Relating to the M&A hypothesis, ViacomCBS is the goal everybody desires to promote. ViacomCBS ought to merge with Verizon! Or Amazon! Or Apple! Or break up once more! The attraction is that ViacomCBS has tons of nice property (Paramount with Mission Inconceivable and Star Trek, CBS’s channel and library, reside sports activities) and most analysts suppose they’re poorly run, which offers a price creation alternative. If Netflix might personal ViacomCBS, they may add tons of useful content material to their coffers.
The Draw back
Nicely, CBS is large. Not when it comes to inventory value or market capitalization, however when it comes to property, channels, distribution and other people. Engorging an organization of this dimension would take Netflix’s focus for the following few years. In the meantime, the rightful query could be if Netflix might deal with incorporating their property whereas winding down the money flows of ViacomCBS’ legacy companies. To not point out, what do you do with Paramount+ post-merger? Whereas studios typically declare synergy when shopping for rivals, most of the time, the mergers don’t lead to efficiencies.
The Worth Tag
ViacomCBS has a market capitalization of about $25 billion. Nevertheless it has gone on a curler coaster of a 12 months, with inventory value as excessive as $101 {dollars} to as little as $10 within the interval between March 2020 and March 2021, that means their “worth” has swung from $6.5 billion all the best way as much as $65 billion. Proper now, they’re buying and selling about the place they had been once they merged, at round $40 a share.
Discovery
The Logic
I’ve been advocating that Netflix buy Discovery for years now. The logic right here is identical as others—low cost content material—however as a substitute of specializing in buzzy scripted originals, deal with the senseless, actuality fare that makes up an enormous chunk of viewing on TV and streaming. Discovery has oodles of that they usually’ve been aggressively pushing their wares on Discovery+, which launched in January. Discovery itself has bulked up, having purchased rival unscripted cable conglomerate Scripps in March of 2018.
The Draw back
Nicely, now this deal can’t occur. A pre-Warner Media Discovery was viable, however now they’re most likely too massive and unwilling to do a merger with Netflix, until Netflix overpaid tremendously. (Should you learn yesterday’s article, I had completed this text earlier than the merger information of final week.)
The Verdict?
Going into this, I assumed TV could be the higher content material alternative, however with all of the difficult additions of cable and streaming, I don’t actually see it. To not point out, the TV panorama is far more consolidated than movie, with many of the greatest property in large rival streamers like Disney, Comcast, and AT&T. If Netflix might purchase a library by itself, I feel they might soar at that, but it surely doesn’t actually exist.
The most suitable choice, although, continues to be Discovery. Its streamer is younger sufficient that Netflix might add in all its content material and subscribers pretty simply. In the meantime, getting $10 billion per 12 months in further income isn’t horrible to assist fund all their manufacturing.
One concern with each TV and movie, although, is that if a bidding battle ensues. All these costs are present valuations. If rumors leak that Netflix is wanting severely at Sony, Lionsgate, Discovery or ViacomCBS, Amazon and Apple might gauge curiosity too, rising costs for everybody. Take into account these beginning factors.
Wildcard Acquisitions & Mergers
If Netflix decides to look previous content material, they may bulk up their distribution (principally streaming) or they may diversify into different kinds of streaming content material.
DAZN
The Logic
If Netflix’s purpose is to be TV, one of many evident weaknesses of their portfolio is reside occasions, particularly sports activities. Not that Netflix doesn’t notice the worth of reside sports activities—they repeatedly run sports activities documentaries like The Final Dance or Components One: The Drive to Survive—however their “on-demand” platform simply doesn’t work properly for precise video games. Furthermore, with little or no reside streaming, Netflix would want to construct the programming functionality in home. Shopping for a streamer like DAZN solves that downside.
The Draw back
Sports activities is a double-edged sword. Whereas Disney grew fats off ESPN’s buyer charges within the 2000s, they despatched plenty of that income proper again to the sports activities leagues to purchase the rights. (Sports activities rights are rising at 5% per year.) On this manner, sports activities are a little bit of a hamster wheel, as you must hold paying increasingly to maintain sports activities rights. Additionally, DAZN is at the moment losing money—reportedly $1-1.5 billion per 12 months on $300 million in income—so shopping for DAZN might push off money circulate positivity properly into the long run.
The Worth Tag
DAZN’s is privately managed by billionaire Len Blavatnik, who has funded its losses up to now. They’ve sought outdoors funding twice—together with as much as $1 billion final 12 months—however didn’t shut any offers. This implies the worth for this agency might range wildly, relying on how totally different firms view its potential and its rumored eight million world subscribers. Name it anyplace from $2 billion to $20 billion, relying on their financials and an acquirer’s imaginative and prescient of future progress.
(Relatedly, FuboTV is a digital bundle of channels targeted on sports activities. They’re one of many lone impartial streamers on the market and are publicly traded, at the moment at a price round $2 billion market capitalization.)
Attempt to Discover a “FAST” To Purchase
The Logic
Final week, information leaked that Netflix was unveiling a “play now” button to rapidly play content material for people pissed off with the “countless” scroll. That is Netflix responding to the rise of “FASTs”, free, ad-supported, streaming TV providers like PlutoTV, Tubi or Xumo. These firms present a handy channel information like cable TV of outdated, and numerous reruns. Shopping for considered one of these firms might present Netflix a car to ship promoting (which Wall Road desperately desires) and reside TV in a single go.
The Draw back
Quite a lot of the main FASTs have already been bought. (ViacomCBS owns Pluto, Fox owns Tubi, and Comast owns Xumo.) Additional, some tech firms have a head begin on Netflix, with Amazon having IMDb TV, Comcast having Peacock, and Roku having The Roku Channel, all free, ad-supported providers.
The Worth Tag
It could rely on the corporate, however most of the FASTs offered for tons of of thousands and thousands of {dollars} just a few years again, which feels eminently low cost in present phrases. Doubtless, although, the adoption of streaming has raised these costs, and many of the leaders in free-streaming have already been bought. Netflix might probably pry one unfastened in the event that they over-pay Fox for Tubi, for instance, however scanning the sector there are not any apparent FAST performs left. (Or they may purchase ViacomCBS and get Pluto within the deal.)
Roku
The Logic
The distribution wars could also be as fierce because the streaming wars. The concern for Netflix could possibly be that tech giants like Apple and Amazon will more and more put Netflix in poor places on their working methods to prioritize their very own providers, or different streamers who pay extra. Furthermore, all these massive tech companies wish to take a minimize of Netflix’s month-to-month subscriber charges. If Netflix owned Roku—the most important good gadget within the US—it might assist stage the taking part in subject.
The Draw back/The Worth Tag
That is the costliest possibility on the board just because Roku has been having an unbelievable 12 months in streaming. Their market capitalization is as much as $40 billion, and was properly over $60 billion just a few months in the past. The draw back is whether or not or not Roku can increase internationally and whether or not they can proceed their success promoting units, or whether or not TV producers themselves will hone in on the working system market. To not point out battling Amazon and Apple.
Spotify
The Logic
I warned you there could be some loopy choices into account, and right here’s the craziest. The best clarification is that Spotify struggles to earn money. Netflix struggles to earn money. Put them collectively and you’ve got the buzziest, must-have subscription for everybody below the age of 40…that hardly makes cash.
The info implications of this merger would excite the market probably the most. If understanding what you watch is effective, understanding what you watch and pay attention could possibly be much more useful. The ad-targeting could be the stuff of marketer’s goals.
The Draw back
That is mixture for mixture’s sake. It could be unclear if the mixed entities actually do have any synergy. However that’s what M&A hypothesis is for! Loopy combos that don’t actually make sense in actual life, however really feel good on paper.
The Worth Tag
Nevermind after I stated Roku was the priciest possibility on the board, Spotify has it beat at about $44 billion. Which means Netflix might simply swallow it, however it will dilute their shareholders considerably or must be a merger, not an acquisition.
Who might purchase Netflix?
As enormous as Netflix is—by market capitalization, it’s one of many prime 50 firms globally—has by no means stopped rumors that as a substitute of it getting bought, it might put itself up on the market. The issue is, frankly, Netflix has been too profitable. Since its inventory value did so properly, it’s nearly too massive to purchase.
However two firms might possibly swing it.
Apple
The Logic
Apple desires in to the streaming gaming and it’s unclear what number of of us are trying out Apple TV+. Shopping for Netflix solves that downside: the most important gadget maker by income instantly will get the world’s largest streamer by subscribers. A win-win. And Apple is sitting on tons of of billions in money, to allow them to afford it.
The Draw back
The federal authorities may hate it. Certain, a former President is accumulating massive paychecks from Netflix, however that may not cease President Biden from telling Apple that it’s too massive. If the US Division of Justice let this merger by way of, it will mainly undercut any claims they’re nervous about consolidation in tech.
Fb
The Logic
Mark Zuckerberg has tried to get into streaming video just a few instances, with Fb Watch being probably the most well-known instance. And but every effort has failed to achieve traction. Very similar to the Spotify merger, think about what Fb might do with focused advertisements if it might hyperlink everybody’s Fb profile with their Netflix viewing historical past. Greater than Apple, the potential synergies are enormous.
The Draw back
Along with the antitrust worries, the privateness worries might hurt the Netflix model severely. Certain, you belief Netflix together with your viewing historical past, however Fb? Plus, Fb might screw up the combination as they’ve with previous acquisitions. Plus, whereas Netflix appears to be like reasonably priced, even the trace of merger talks might ship its inventory value hovering.
(The Leisure Technique Man writes below this pseudonym at his eponymous web site. A former exec at a streaming firm, he prefers writing to sending emails/attending conferences, so he launched his personal web site. Sign up for his newsletter at Substack for normal ideas and evaluation on the enterprise, technique and economics of the media and leisure business.)