Wall Street Weighs in on Netflix Deal Chatter

Netflix red Envelope - H 2011
Getty Images

Netflix red Envelope - H 2011

"Netflix could be a prime target for any sort of M&A," including deals involving entertainment companies, says Miller Tabak analyst David Joyce, while others caution that bankers are simply encouraging acquisition talk.

NEW YORK - Netflix deal chatter could remain in the headlines in 2012, according to Wall Street observers, even though some say a sale of the company or part of it may never happen.

On Monday, a report said that Verizon was looking at buying the streaming video service provider, but some Wall Street observers had their doubts.

"Netflix could be a prime target for any sort of M&A," Miller Tabak analyst David Joyce told The Hollywood Reporter. Or at least M&A talk.

In a report on Tuesday, Joyce wrote: "With Netflix’s strategy missteps and subsequent stock plummet, that has opened up potential opportunities for telco video distribution companies or online e-commerce companies to consider adding this company with 22 million-plus subscribers to their reach."

He mentioned DirecTV - since satellite TV competitor Dish Network earlier this year acquired Blockbuster - Amazon, Google, AT&T, Microsoft and Wal-Mart as other companies that could take a look if Netflix was on the market.

"Also, we would think that entertainment companies could become interested in buying Netflix as a means of protecting but enhancing the TV ecosystem, instead of Netflix's current role as a disruptor," Joyce said. "Netflix would become a part of the windowing scheme."

The New York Post on Tuesday also suggested that entertainment companies could get involved in a deal with Netflix, but simply buy  a minority stake in the firm.

Some on Wall Street wonder though if the deal talk is being encouraged mostly by bankers looking to get deal activity going. "It will be hard for Netflix to accept deals near current stock prices after it was worth $300 just a few months ago," said one observer.

"It's just cheaper to buy the subs than to buy the business," said Janney Capital Markets analyst Tony Wible. "You don't only have to buy in excess of $4 billion for the equity, but they also have $4.5 billion in content obligations."

Adding those two together, "you would pay roughly $400 per subscriber," Wible estimated. "Somebody could actually win the subs by paying only $100 per sub either as a cash bounty or by giving away service for 12 months for that cost. That would be $2.2 billion if you got all of Netflix's 22 million subs. But you don't even need all the subs."

That said, Wible said that companies have always made bad deals in corporate history. "Microsoft has a history, but I don't see that happening," he said.

Netflix hasn't come out and signaled any interest in deals. A spokesman said Tuesday that the company doesn't comment on rumors or speculation. But some say the company could benefit from a stock boost on any deal rumors. "I image they would lose talent if they cannot reverse the current momentum," said one observer.

Email: Georg.Szalai@thr.com

Twitter: @georgzalai