How Netflix May Impact the Next Big Media Merger

David Zaslav - Getty - H 2019
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"No way they buy all of Viacom to get Paramount," analyst Steven Birenberg speculates about the streaming giant.

Discovery says it isn’t interested in selling to CBS, or linking up with CBS and Viacom should those two eventually merge. But some analysts are saying that it’s something all three media companies should consider.

Meanwhile, insiders speculate that Netflix may be in the mix because it might want a piece of Paramount, owned by Viacom.

Viacom selling off Paramount is an old idea, floated in earnest three years ago when Wall Street figured it was worth about $5.5 billion. At the time, Viacom was also considering selling off just a portion of the studio to a strategic investor that brought something besides money to the table, like an Asian conglomerate with connections to the huge Chinese market.

Netflix would qualify as a strategic partner, as it is a large purchaser of premium content that is about to lose Disney as a supplier, and perhaps WarnerMedia and NBCUniversal, as all three are gearing up to compete with streaming services of their own.

Viacom vice chairwoman Shari Redstone “could unlock tremendous value for Viacom shareholders by spinning off Paramount into a separate equity and doing a stock-for-stock deal with Netflix,” says Ben Weiss, chief investment officer of 8th & Jackson Capital Management.

“Paramount shareholders could piggyback on Netflix's tremendous lead in global streaming; Netflix could unearth enormous value from the Paramount library. Keep your friends close, and your enemies closer,” adds Weiss.

“Bringing a larger production vehicle in-house to give immediate scale and help manage the massive content spend could make sense. No way they buy all of Viacom to get Paramount,” adds Steven Birenberg, founder of Northlake Capital Management.

Netflix is a $149 billion company and could easily afford to purchase all or part of Paramount via its rich stock, but Jimmy Schaeffler of the Carmel Group thinks Netflix would be wise to buy all of Viacom — valued north of $12 billion — including MTV, Comedy Central, Nickelodeon, BET and Spike TV.

“To really obtain completive value and scope, a Netflix will have to buy big,” says Schaeffler. “Something huge in the broadcast world, for example, would put it immediately on par with a rival ABC, NBC or Fox. Thus, a Netflix is most likely to covet a full bundle of Viacom, CBS and Paramount, for sure, not just Paramount or another of those assets by itself. That's the play.”

If CBS, Viacom and Discovery were to combine with Netflix taking a stake, it “would be icing on the cake. And what a pastry that would be,” says Schaeffler.

Alas, though, Discovery, run by CEO David Zaslav, nixed the idea advanced Thursday by CNBC that it’s interested in merging with CBS, Viacom or any other company.

"The CNBC story is inaccurate. Discovery is not for sale," David Leavy, Discovery's chief corporate operations officer said in a statement. "We remain extremely confident in our growth strategy in the U.S. and globally as we continue to build the leading portfolio of superfan brands in every market around the world."

Too bad, says Birenberg, because a CBS-Discovery hookup would be particularly valuable.

“The CBS broadcast network would help protect Discovery cable nets in affiliation negotiations and would also add reach for selling ads across both platforms,” he says. “Discovery international assets shore up a weakness for CBS. A combined firm would also have scale necessary for upcoming NFL rights and escalating programming spend more generally.”

When former CBS CEO Les Moonves sued National Amusements, controlled by Shari and Sumner Redstone, to loosen its grip on CBS and force it to merge with Viacom, Shari Redstone agreed not to suggest such a transaction for two years. Plus, CBS is seeking a permanent replacement for Moonves and certainly current CEO Joe Ianniello is in the mix, but a merger would have vast implications for upper management.

Birenberg suggests Zaslav could run a combined CBS-Discovery.

“Zaslav spent two decades at NBCU, albeit on the cable network side. Nonetheless, he could solve the CBS CEO search problem. So, yes, a CBS-Discovery deal makes sense but can it happen before a CBS-Viacom deal? A simultaneous three-way deal seems too much to negotiate,” he says.