A merger between Disney and Netflix makes sense on a number of levels, according to one report from a Wall Street financial analyst today. That position is noteworthy considering Disney content is conspicuous in its absence from Netflix’s recently announced video-downloading service.
“A very popular question we receive from investors is ‘What do you think of the idea of Disney acquiring Netflix?’” wrote Bernstein financial analysts including Todd Juenger in a report issued this morning. “We stress that we are not calling for a deal, nor do we have any knowledge one is being or will ever be contemplated. [This sentence was written in bold in the original report.] But investors are asking what we think, so we thought it best to publish our answer, which is: we are (perhaps surprisingly) open to it.”
The Bernstein analysts pegged a possible financial transaction between Netflix and Disney at around $70 billion. They pointed out that there are a wide range of arguments against such a deal—including that Disney could well build its own streaming video infrastructure for much less than $70 billion.
However, the analysts noted that “it would take a long time. The investment cost would be running through Disney's P&L for all those years. Disney would be competing with Netflix (and Hulu) all along the way (and ever after).”
The analysts also said that, if Disney does acquire Netflix, the company would likely divest its share of Hulu. They also noted that Disney’s investment into streaming technology company BAMTech could be a “safety net”—essentially a Plan B if the company’s purchase of Netflix proves unsuccessful.
“To us, the question all boils down to whether Disney is better off competing with Netflix, harvesting the linear network model as long as possible while transitioning to its own, home-grown, on-demand model(s) … Versus acquiring Netflix and immediately becoming the dominant (unassailable?) scale leader in global, on-demand, direct-to-consumer entertainment,” the analysts wrote. “We're not saying the choice is obvious (in either direction). We are not endorsing a deal. But we are not not endorsing one, either.”
The report from Bernstein is particularly significant in light of Netflix’s new video-downloading service that doesn’t offer content from Disney. As Recode reported, a Netflix representative said Disney content like Zootopia, as well as Netflix exclusives made in conjunction with Disney like Marvel’s Jessica Jones and Luke Cage, isn’t available to download. The publication said a Disney representative didn’t comment on the situation.
Disney has long been rumored to be considering its own SVOD service, which could reflect the company’s aversion toward Netflix’s downloading service. However, the situation could also stem from continued negotiations between Netflix and Disney’s management over a possible merger—though, to be clear, that’s pure speculation.