Too bad Netflix isn’t on the block

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3 minute read

A Netflix logo is shown on a TV screen ahead of a Swiss vote on a referendum called "Lex Netflix" in this illustration taken May 9, 2022. Picture taken May 9, 2022.

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NEW YORK, June 23 (Reuters Breakingviews) - Netflix (NFLX.O) is in a little jam. The streaming service behind “Stranger Things” may partner with rivals to manage advertising. Yet history shows that media alliances – including its own – can turn into a tangled mess. A better idea would be an outright Netflix sale, if only that would happen.

Co-Chief Executive Ted Sarandos fittingly confirmed the news on Thursday during the annual advertising confab in Cannes, France. Netflix is moving forward to introduce ads to the $80 billion company’s streaming subscription service in order to support a cheaper package.

The contours of the partnership could result in Netflix tapping ad technology and sales teams with a revenue sharing agreement with big name media firms. Comcast’s (CMCSA.O) NBC Universal, which operates streaming competitor Peacock, and Google, which owns YouTube, may be the top contenders, according to the Wall Street Journal.

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Such arrangements can quickly sour though, especially in the media business. Video service Hulu was launched around the same time that Netflix started to offer its streaming product. But its hydra headed ownership which includes Walt Disney (DIS.N) and Comcast hamstrung growth efforts. Netflix itself initially formed content agreements with other media companies that were too eager to sell movies and TV series to boss Reed Hastings. Those fell apart when executives realized they were competing with themselves.

Instead Netflix could in theory be a tempting takeover target. Its market capitalization has fallen almost 70% from $265 billion at the start of this year. Netflix’s enterprise value is at around 15 times forward EBITDA according to Refinitiv, half its average and at a level not seen since a decade ago.

And while it is finally throwing off cash flow, plugging into a firm with deeper pockets and a studio could help fund its ambitious content machine. The $2.2 trillion, cash flush tech giant Apple (AAPL.O) or even the $172 billion Comcast, home to Universal studio, could be potential buyers if the regulatory environment wasn’t so tough. Too bad for them, Netflix isn’t for sale.

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(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)

CONTEXT NEWS

- Netflix is in talks with several companies for advertising partnerships, co-Chief Executive Ted Sarandos said on Thursday at the Cannes Lions ad conference, Reuters reported. “We are talking to all of them now,” he said.

- Potential partners include Comcast and Alphabet’s Google, the Wall Street Journal reported on June 22, citing people familiar with the matter.

- Netflix said in April that it is open to offering a lower-priced subscription service with advertising. Currently, Netflix is ad-free and charges a monthly fee.

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Editing by Lauren Silva Laughlin and Sharon Lam

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