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Shopping Netflix

The Wall Street Journal has a piece out this morning with some behind-the-scenes details in the battle for control of Netflix between CEO Reed Hastings and corporate raider Carl Icahn. Netflix has brought in Goldman Sachs and Morgan Stanley, presumably to help evaluate any offers that may materialize now that Icahn has put the company in play, and according to the Journal, “bankers have contacted big media, technology, telecommunications and cable companies to gauge their interest in a Netflix bid.”

The most interesting nugget: Hedge-fund manager Whitney Tilson, who famously and publicly shorted Netflix when it was still riding high, only to reverse course and go long just before the stock collapsed, seems to be holding to his long view. In a note to clients, Tilson said he would be “very disappointed” if the company, whose stock was trading at $79.61 at the time, was sold at $100 a share. “It would have to be a much higher price for me to be happy about giving up this stock,” he wrote.

I still don’t see the case for technology company buying Netflix. As I noted in my previous post on the topic, content services are valuable to technology companies only insofar as they’re proprietary to a particular technology platform, which is at odds with Netflix’s core value proposition of ubiquitous access. Plus, most of Netflix’s profits still come from its fast-declining DVD business, which I can’t imagine any technology company would want, let alone be willing to pay a premium to acquire. It could always be spun off later, I suppose, but who would buy a standalone DVD-by-mail business at this point (other than perhaps Redbox).

The more I think about it, the more I agree with Rich Greenfield of BTIG Research. If anyone makes sense as a buyer for Netflix it would be a content company, particular one that already owns premium cable channels:

Let’s call Netflix what it is today: a premium cable network entering the third stage of its evolution (stage 1 is distributing other people’s old content, stage 2 is distributing other people’s new content and stage 3 is creating your own new content), which just so happens to be distributed via broadband (OTT, over-the-top) and which is trying to expand its network internationally.  In turn, we believe companies that are experts at creating and distributing content should have an interest in acquiring Netflix.

Greenfield likes Comcast and Time Warner; I like Viacom as a buyer. It’s having severe ratings problems at Nickelodeon and MTV and needs to do something big, it needs an OTT/TV Everywhere play, it has content that could add significant value to Netflix if made exclusive (Comedy Central), and it’s leverage with cable operators might help get Netflix onto pay-TV platforms as a premium channel, boosting its subscriber base.

Any others?