In October the market lit up with news that Disney was considering an acquisition of Netflix. In fact, the proposed transaction seemed to make a lot of sense. Netflix is a ‘new’ media company with a stable of hit shows, millions of subscribers, and distribution deals with almost every major studio in Hollywood. This includes Disney, which has agreed to make all their movies available on Netflix. In addition, ‘old’ media company is in the process of building their own streaming service – DisneyLife.
From the outside, the deal would seem to make sense for both parties. But since the initial report in October, there has been no movement by either side. According to sources, the delay is largely due to strategic conversations within Disney and Netflix might not be the only acquisition.
In fact, Twitter is another company which Disney is said to be considering. While a deal for Twitter would be less expensive for Disney, it is hard to see how an acquisition of the Twitter would help the Mouse. While the microblogging site and its Periscope division might be a nice add-on for marketing and brand extensions, it does little to help Disney’s core businesses of media and entertainment. Even Twitter’s attempts at live streaming NFL games have been met with lackluster ratings.
On the other hand, Netflix has been able to hit it out of the park with several its original productions – House of Cards and Orange is the New Black – and the company has acted as the prime disruptor of media distribution. Remember Blockbuster?
As such, an acquisition might make perfect sense as it would position Disney as the penultimate movie production and distribution company in the world. This might be where the trouble starts. Any such deal would be complicated by regulatory oversight, which would include antitrust and data privacy reviews. In addition, potential changes to the Federal Communication Commission’s (FCC) ‘net neutrality’ rules would significantly alter Netflix’ market cap.
Given these variables Disney might choose to pass, or they might decide to wait for regulatory clarity before making a formal offer. In the meantime, the Mouse will continue to expand the scope of DisneyLife and add more content via competing sites such as Hulu and Amazon.
While shares of Netflix have been trending up during the post-election rally, it is still below highs reached in October when news of Disney’s interest in the company first surfaced.