Bob Iger has spoken.
The Walt Disney (DIS) CEO made his sentiments known about rival Netflix’s (NFLX) bid for fellow competitor Warner Bros. Discovery (WBD). It seems he isn’t too happy about the $72 billion offering.
Not that Iger flat-out said it’s a horrible proposition. But it’s easy to read between the lines with words like:
If I were a regulator looking at this combination, I’d look at a few things. First of all, I would look at what the impact is on the consumer. Will one company end up pricing leverage that might be considered a negative or damaging to the consumer, and with a significant amount of streaming subscriptions across the world? Does that ultimately give Netflix pricing leverage over the consumer that… might not necessarily be healthy?
And on the topic of what it might mean for movie theaters:
They require not only volume but [also]… interaction with these films and these movie companies that give them the ability to monetize successfully. That’s a very, very important global business. We’ve been certainly participating in it in a very big way. We’ve had 33 $1 billion films in the last 20 years. So we’re mindful of protecting the health of that business. It’s very important to what I’ll call the media ecosystem globally.
But let’s back up a minute…
In case you missed the news – Warner Bros. Discovery is for sale.
The company – which owns the Warner Bros. studio, the HBO brand, and the streaming platform HBO Max – is in the process of being acquired by Netflix for $83 billion. And while the current deal was approved by the WBD board earlier this month, there’s also another offer. Paramount Skydance (PSKY) launched a hostile bid, valuing the company at $108 billion. And – as Iger alluded to – the whole thing is likely to catch the attention of antitrust regulators.
Of course, Iger would want to throw cold water on the deal. Netflix, after all, is a massive competitor. The WBD deal would just make it more massive.
In other words, it’s okay for traditional media entertainment companies like Disney to enter Netflix’s streaming world. But it’s not okay for Netflix to turn around and try a similar stunt.
That potential hypocrisy aside, Iger is right in pointing out that this deal – if it’s approved – could be an enormous game-changer for the media landscape.
It’s just that he’s so focused on his own situation that he’s missing the biggest change of all.
Will Federal Regulators Approve the Netflix Deal?
Netflix’s reason behind its play for Warner Bros. is simple. It’s not the 2010s anymore.
These days, Netflix has other competitors in streaming to worry about – Apple (AAPL), Amazon (AMZN), and the aforementioned Disney, to name just a few. And then there’s YouTube, owned by Alphabet (GOOG), the most-visited video-hosting site in the U.S.
Media is a crowded market these days…
And while Netflix is still the king of streaming – with 81.4 million subscribers in the U.S. alone – it knows it will need to take big swings to maintain that dominance. That’s what the WBD deal is about.
And while Iger might have his own self-interested reasons for trying to quash the deal, he’s not wrong. It would impact several industries in profound ways.
Will movie theaters suffer? It’s possible.
But… industries come and go. That’s the price of progress sometimes.
Besides, Netflix CEO Ted Sarandos says Warner Bros. would stay “deeply committed” to releasing movies in theaters on his watch. So, unless the Justice Department wants to call him a liar, that concern isn’t a reason to kill the deal.
Then, there’s the possibility that Netflix might “end up pricing leverage” that’s “negative or damaging to the consumer.”
While valid, it’s rich coming from Iger. His own Disney+ platform has increased subscription prices by 170% since it launched in 2019.
The multifaceted company has also been allowed to buy up everything from Pixar to Marvel, Lucasfilm, ESPN, ABC, National Geographic, FX Networks, and Hulu. So, there’s clearly a precedent – which Disney itself set – established for Netflix to capitalize on.
Will the deal go through, though? That is indeed the question, with a big fat “maybe” for an answer.
But if it does, it would make Netflix a significant landholder in Hollywood circles. And that could potentially lead to a whole new real estate investment trust (“REIT”) that I, for one, would love to see.
An Enormously Powerful Real Estate Play
To quote CRE Daily:
Netflix’s $72 billion bid to acquire Warner Bros. isn’t just a streaming play – it’s a real estate power move. The deal could make Netflix one of the largest owners of studio space globally, with major implications for the CRE market.
It’s an interesting insight.
A Big Tech player – a purveyor of digital streaming – would become a major owner of good old brick-and-mortar buildings.
I hope this goes a long way in demonstrating the resilient power of real estate.
If the deal closes, Netflix would likely control more production real estate than any other entertainment company in Los Angeles. It would encompass 97 million square feet of office, industrial, and studio space around the globe, largely in the U.S. and U.K.
That includes the 2.6-million-square-foot Burbank Studio complex and about 3 million square feet of commercial real estate (“CRE”) in the L.A. region. Warner Bros.’ holdings there include more than 30 soundstages, large set-building facilities… and the iconic WB-branded water tower.
Those would be massive asset acquisitions for a company that currently rents most of its space.
Then again, I’m not sure if it minds that setup. It certainly has the money to buy other properties, yet it hasn’t.
I have to imagine that’s a strategic decision on its part. And a Warner Bros. takeover might not change that stance one bit.
In which case, Netflix could acquire all those properties, turn around and sell them away in a sale-leaseback deal. This is when a business sells its property to a landlord with the express and immediate purpose of renting it back from them.
That way, it gets a quick infusion of cash it can use to pay off debt, invest in growth… or help finance a huge acquisition.
I can tell you right now that there are plenty of landlords out there who would love to lease to Netflix. Some of them are even big enough to take on a Warner Bros.-sized property bundle, such as:
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Realty Income (O)
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VICI Properties (VICI)
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Blackstone (BX)
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Blue Owl Capital (OWL)
Or, as I wrote about Six Entertainment Flags (FUN) a few weeks ago, Netflix could spin off all those properties into a new REIT altogether.
A Netflix REIT? That’s interesting!
For now, we watch and wait.
But if the deal does go through, and Netflix does execute a sale-leaseback of its newly bought studio assets, keep an eye on the above-mentioned companies as potential suitors. That would add even more rent-producing assets to their already impressive portfolios.
As always, we’ll keep Wide Moat readers apprised as things develop.
Regards,
Brad Thomas
Editor, Wide Moat Daily
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