Should Disney Buy Netflix?
Walt Disney (DIS) has a lot of problems these days. ESPN is losing viewers; the heir apparent to CEO Bob Iger was just forced out of the company; and one analyst even finds cause for concerns in its booming film business. BTIG’s Richard Greenfield has a solution to all these problems: Disney should buy Netflix (NFLX). He explains why:
Barring a corporate restructuring, the other option for Disney is making large acquisitions to transform its business mix.
Netflix is already a great friend of Disney, in fact, Iger has repeatedly acknowledged how they are in part responsible for Netflix’s success. Disney continues to sell more and more content to Netflix spanning movies and television series, while at the same time struggling to get their own direct-to-consumer content business off-the-ground in the UK.
While we have been quite skeptical that ESPN can go direct-to-consumer, if ESPN were bundled in with Netflix — it would give Netflix the one form of content it does not have in its march to replace linear TV — “live sports.” Combining Disney and Netflix effectively recreates the best of the legacy video bundle, removes the distributor, packaging together great content with best-in-class technology spanning all devices consumers love to use. But the really exciting aspect for Disney, would be to bring in a visionary CEO, who understands the future of content and video programming in Reed Hastings. For Netflix, they get permanent access to the content creation of the world’s most prolific studio. On the other hand, it is quite hard to conceive how Netflix’s great price/value equation is sustainable if it has to incorporate overpriced/inefficient content such as ESPN…
Buying Netflix is an awfully expensive acquire, but it could be Disney’s only hope. Disney’s market cap is currently $157 billion and its enterprise value is $176 billion compared to Netflix’s $45 billion market cap and enterprise value.
We doubt Disney’s board comprehends just how much trouble their broadcast/cable network assets are facing to seek a transaction so near-term dilutive as Netflix, especially given the incredible success they are having content-wise in 2016.
Shares of Walt Disney have dropped 0.3% to $95.87 at 12:19 p.m. today, while Netflix has fallen 1.3% to $103.14.