Organizational Strategy / Technology

Could Netflix Become a Disney Company?

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In today’s world, you would struggle to find someone who has never heard of Netflix. Popular among all age groups (especially college students), one of the largest online streaming companies in the world Netflix is linked to potential acquisition rumors that have recently surfaced in the news. Fellow media giant Disney is believed to be looking for a major company to add to its already impressive repertoire of successful companies. Up until the last few days, the news has suggested that Disney’s main target was Twitter, however, recently there have been whispers that Disney has turned its attention to Netflix. There have been criticisms of a Twitter acquisition that argue that the social media company is too small of a company to make a significant impact on Disney’s financial performance, whereas Netflix could transform Disney into a powerhouse almost immediately.

Disney’s most recent big-name acquisitions include companies such as Pixar, Lucasfilm, and Marvel, but the company still faces many challenges in the media field. One of Disney’s biggest assets is its ownership of ESPN, arguably the largest sports news platform in the world. ESPN accounts for an extremely large portion of Disney’s profits, and with the recent boom in online streaming, ESPN has begun to lose subscribers as well as profits, which has caused investors to become uneasy. This uneasiness has even come after rumors surfaced that ESPN was looking to launch their own online streaming service.

With Disney’s stock remaining relatively stagnant over the past few years, the company is under some pressure to make a move to assert their position as a media giant. With that said, what better way to do so than acquiring one of the largest names in online streaming.

“Adding those 80 million subscribers and Netflix’s global market penetration to Disney would make a huge amount of sense, and would put to rest the whispers about Disney’s future in one fell swoop.” Matthew Ingram of Fortune said.

A deal of this magnitude would make perfect sense for a company like Disney to become more involved in the streaming business, which would be extremely beneficial to the future success of ESPN as well. The acquisition rumors have even begun to cause a slight increase in Netflix stock, as investors are preparing for the possibility that this deal might occur. In an attempt to determine that validity of these rumors, MarketWatch asked a Netflix spokeswoman about the swirling rumors, but per company policy, “the company doesn’t comment on rumors and declined to say anything further.”

In a way, an acquisition by Disney would even make sense for Netflix. Netflix spends annually more than $6 billion to provide new content to its subscribers, which is an extremely large sum of money, even to a major world-wide company like Netflix. Because of that annual spending as well as concerns regarding their “lackluster growth,” there may be no better time for Disney to swoop in and acquire Netflix. With that being said, the price that Disney would have to pay to acquire Netflix would be no small amount. With a current market value estimated at $45 billion, Disney would have to pay an extremely pretty penny to acquire this streaming giant. You might think that a company like Disney would be able to afford such an investment, but with their own net worth being somewhere around $150 billion, they would have to shell out at least 30% of their own net worth in this proposed deal. Even for a major company like Disney, this would be a tough acquisition to pull off. But because of the recent uneasiness that surrounds ESPN, decreases in network ratings, as well as multiple other factors, acquiring Netflix just might be the thing that puts Disney back on the right track.

 

Sources:

http://fortune.com/2016/10/04/disney-acquisition-netflix/

http://www.marketwatch.com/story/disney-remains-center-of-merger-talk-this-time-its-netflix-2016-10-03

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