Media Mergers Are Bad News for Netflix — The Motley Fool – tech2.org

Media Mergers Are Bad News for Netflix — The Motley Fool

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Netflix (NASDAQ:NFLX) has been a thorn within the facet of main media corporations for years now, however solely lately have TV and film studios began combating again. Disney (NYSE:DIS) introduced plans to take its movies off Netflix earlier this 12 months, opting to supply a direct-to-consumer streaming service of its personal. 21st Century Fox (NASDAQ:FOXA) hasn’t been renewing its hottest TV collection on the streaming service, because it strikes to supply its personal commercial-free viewing expertise distributed by pay-TV suppliers. And different media corporations like Time Warner (NYSE:TWX) have thought-about extending the window between a present’s authentic air date and when it exhibits up on streaming providers like Netflix.

The latest report that Disney held talks with Fox to accumulate its movie studio and a few of its cable networks ought to concern Netflix traders. Even although the Disney-Fox deal is lifeless, there’s nonetheless a substantial quantity of merger and acquisition speak all through the media trade. As media corporations be a part of forces, they acquire larger leverage over Netflix and will produce extra competitors within the streaming video-on-demand (SVOD) market.

Front desk at Netflix Los Gatos office.

Image supply: Netflix.

Let’s make a deal

The media trade is stuffed with merger talks. Earlier this 12 months Discovery (NASDAQ: DISCA) agreed to merge with Scripps (NASDAQ: SNI). Meanwhile, AT&T (NYSE:T) remains to be making an attempt to achieve regulatory approval for its acquisition of Time Warner. The mbadive impetus is the accelerating pattern of cord-cutting. As extra shoppers flock towards stand-alone providers like Netflix, cable and media corporations are on the lookout for methods to battle again. The greatest means for them to do this is by bundling extra merchandise collectively:

  • Discovery and Scripps maintain extra negotiating leverage over distributors collectively than they do individually.
  • AT&T can present low-cost pay-TV service and free HBO as an add-on to its high wi-fi service plans with its acquisitions of DIRECTV and Time Warner.
  • A mixed Fox and Disney would have extra content material to draw viewers to Disney’s forthcoming direct-to-consumer product, in addition to the extra negotiating leverage discovered within the Discovery-Scripps deal.

Netflix is simply one other distributor

Netflix is simply one other distributor for media corporations, and merged companies is not going to have as a lot incentive to license content material to Netflix as earlier than:

  • Traditional TV distributors like AT&T could discover it extra economical to forego licensing content material rights to Netflix if it retains extra individuals from reducing the wire.
  • Horizontally merged corporations like Discovery-Scripps could possibly negotiate larger distribution charges, incentivizing related habits. It might additionally allow the corporate to cost Netflix extra or require Netflix to take extra content material.
  • Combined corporations have a larger capacity to supply a service much like Netflix. Hulu is the results of three (now 4) main media corporations coming collectively. AT&T is already producing content material solely for DIRECTV Now subscribers.

As such, Netflix might discover itself paying extra for licensed content material, or not having the ability to license among the greatest content material in any respect.

Isn’t Netflix all about originals now, anyway?

Now that it is about 5 years into its authentic content material technique, Netflix is definitely much less reliant on licensed content material than earlier than. But subscribers nonetheless like to binge on reruns. In truth, latest information from Nielsen indicated 80% of time spent on streaming providers goes towards watching back-catalog content material. That ratio could be decrease for Netflix in comparison with different streaming providers, however it nonetheless exhibits the significance of licensed content material for Netflix.

What’s extra, the highest media corporations’ strikes towards their very own direct-to-consumer providers creates direct competitors to Netflix. Not solely will the SVOD chief be unable to license the highest content material, shoppers could decide to subscribe to Disney and FX’s streaming providers as an alternative of Netflix to look at the exhibits they like most.

For its half, Netflix says its authentic content material technique is paying off and produces subscriber development within the type of new prospects becoming a member of and retaining previous prospects from leaving. But as extra corporations merge and extra direct-to-consumer choices hit the market, it will be essential to control Netflix’s content material catalog and the way it impacts subscriber development.

Adam Levy has no place in any of the shares talked about. The Motley Fool owns shares of and recommends Netflix and Walt Disney. The Motley Fool recommends Scripps Networks Interactive and Time Warner. The Motley Fool has a disclosure coverage.

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