Analysis People that invest in Netflix and people that invest in Disney should never meet each other – they would not get on. But it seems there is a danger, according to the Wall Street Journal, that the two shall be thrown together in an unholy Alliance.
While we can totally see the logic of such a deal, and how theoretically it could benefit both of their strategies, all it would really end up doing is paying off those nice guys at Netflix a ton of money and let them go off and think about something else to invest in. It would eventually kill Netflix through a culture clash.
Instead Disney should be thinking about taking a strategic large minority shareholding in Netflix and here’s why.
An acquisition would immediately turn Netflix into a kind of Hulu – waiting for crumbs to be assigned from the high table, and unable to plow its own furrow with original content. A Disney owned Netflix would almost certainly be told what to do, what content it could create, and be charged with making sure that content could go on a Disney channel without anyone raising an eyebrow.
Castrating Netflix like that would make it more like Hulu, which has insufficient access to content from its conventional contentdriven owners, but at least it has its own separate management team which can independently craft fresh content. Would the content engine at Disney allow Netflix to continue to carve its own niche or would it request that Netflix maximized its own Disney content? You see what we mean.
We really don’t know how CEO Bob Iger gets Disney to make money from such a deal. In the past it has bungled chance after chance of having its own channel – in 2003 it tested disposable DVDs, so that people could buy and stream movies without keeping them. Duh!
In 2004 Moviebeam was supposed to beam ONLY Disney content into American homes – it was expensive, poorly marketed and even more poorly positioned. Movielink, for those who remember, was the first SVoD, but it was priced incorrectly and came to a shuddering halt, despite deals with ISPs as resellers like Time Warner Cable.
And since then it has joined every online club in the book – including offering exclusive deals to Netflix, and left well alone in the distribution channel – Its strategy is to partner, not to own – and it has thrived.
Which is why Faultline suggests that Disney should be thinking about taking a strategic large minority shareholding in Netflix. It can offer content, advice and it can smash down doors which even Netflix cannot get through, and raise its own share price through this share ownership, as Netflix floats higher. Eventually Netflix would become big enough to buy Disney, not the other way around.
The other major issue is ESPN. If Disney wanted to have expertise in coming up with a strategy which left most of its ESPN content in play, and began experimenting with online, it can just as easily partner with Netflix as own it. Because the value is in EPSN. And one of the subtleties of Netflix is understanding that live content is really valuable and not getting caught up in a fight it cannot win for sports rights.
Disney already has a $1bn deal with BAMTech, the video streamer formed by Major League Baseball – what will Netflix give it except an understanding of even greater scale.
But, and this is a big but – we would despair even further if Disney tried to build its own Netflix, so better to place its future in the hands of not one SVoD player, but in the hands of many, which has been its strategy to date. Everyone could see that it would be crazy for ESPN to sign a deal with say Comcast for exclusive rights to ESPN – it would get less money, have less leverage and run the gauntlet of regulatory scrutiny. So why do the same with the largest movie streamer in the world?
We figure the truth is that Disney has asked, and that so far Netflix is trying to work out how to say no politely enough that it does not prejudice its Disney contracts the next time they come up for renegotiation.
It is easy for US analysts to point out that Netflix is in play. For years we have said the same and it was – but now that its value has risen to $46 billion or more, it only falls into the scope of a handful or media companies the size of Disney, Apple, AT&T and Comcast. No-one else has the money or the business fit for it, and in every case if one of these bought Netflix, it would make no sense.
Copyright © 2016, Faultline
Faultline is published by Rethink Research, a London-based publishing and consulting firm. This weekly newsletter is an assessment of the impact of the week's events in the world of digital media. Faultline is where media meets technology. Subscription details here.