As DIS stock prices continue to slide, Disney ponders acquiring a multi-billion dollar high tech media company to reassure investors that its best days are not behind them

Why is Disney desperately trying to buy Netflix now?
Updated 10/17/16!

The Walt Disney Company, of late, seems to be itching for another major blockbuster mega-acquisition, desperately seeking a multi-billion dollar media tech company to shore up shaky investor confidence in its own stock.

First, it was Twitter which Disney passed on making a bid last week, and now it's Netflix, both of whom are major digital media tech companies that have a common denominator of offering streaming video content over-the-top, although Twitter is much less known for that than Netflix.

But is Disney's interest in acquiring an expensive digital media tech company such as Netflix, which valued at about $45 billion, for real, or is this all just smoke and mirrors?

Since their third quarter earnings call on August 9th, Disney stocks had been steadily sliding in value, and it's been, by far, the worst performing stock on the Dow Jones Industrial Average this year. So Disney needed something—anything—in the news to make the hemorrhaging stop.


So last week, two rumors conveniently leaked to the news that Disney was considering bidding on Twitter and later Netflix to acquire one of those companies to shore up its business portfolio. Disney opted to pass on Twitter last week, and it's most assured that they will also pass on Netflix very soon. Here's why.

Interest in Shanghai Disneyland has already started to wane in mainland China
Disney has no plans on buying either of these big-time media tech companies because they simply don't have the capital to buy out either company. Disney seems to be throwing its hat in the ring as a publicity stunt to try to keep more of its own shareholders from jumping ship on its own stock.

To some extent, the ploy seems to have worked as Disney stock prices flat-lined when they made the announcement last week, instead of continuing to freefall, but the desired effect of increasing stock prices from a buy-out speculation did not work as Disney stock prices are still stagnant.

Disney's biggest problem seems to be that everybody is jumping ship and selling Disney stocks, which has seen a quarter of its value lost since last fall, because many analysts don't seem to believe there are any built-in growth catalysts in the company now—whether through cable, network TV, movies, theme parks, or movies—in Disney's foreseeable revenue streams to justify buying the stock as a growth investment for the future.


Disney CEO Bob Iger's supposed crowning achievement, the new $5.5 billion Shanghai Disneyland Resort in mainland China which opened last June, is already showing signs of the magic wearing off as the Chinese consumers seemed to have lost interest in going to the park after just the first three months of its operation.

Disney failed to bid on Twitter after all the media hype, suggesting it was
all a publicity stunt
This disappointing outcome was somewhat predictable given the fact that Disney has no significant media penetration inside the cloistered media outlets within Communist China to promote its theme park operations and other businesses.

"It seems like the level of interest the Chinese have in the park has been waning a little bit," said Richard Huang, China entertainment analyst for Nomura Securities.

Chinese media have covered several reports of numerous guest complaints of long lines for popular rides and expensive food, drinks, and souvenirs.

Disney initially estimated Shanghai Disneyland would bring in at least 15 to 30 million visitors a year, but now that estimated is down to 7.3 million visitors a year, according to Nomura, less than half to a quarter of the original forecasts.

Disney has not successfully opened a hit theme park—apart from Disneyland Tokyo which is not owned by the Walt Disney Company—that the company's deceased founder, Walt Disney, did not directly plan.

It also appears that Disney is now locked in a protracted, losing battle against its main rival in mainland China, Dalian Wanda, for supremacy over Chinese tourism Yuan, as the Chinese tourism giant has committed the resources in terms of outcompeting Disney with more theme parks and committing to matching them in quality to crush Disney efforts in the Middle Kingdom.


Dalian Wanda's chairman Wang Jianlin, the richest man in China, also appears to have the distinct advantage of having significantly more political influence and sway among China's top leaders in the politburo than Disney officials to get approval of any business dealings he wants that would be advantageous to Dalian Wanda inside the mainland.

Disney stocks have been down and out for more than a year and will continue this
foreseeable trend well into the future until it finds some kind of growth catalysts
It seems the old way of doing business is no longer working for Disney, so they are looking to shake things up, any way they can, to reinvigorate interest from Wall Street investors in Disney stocks.

Disney has been recently viewed by many Wall Street analysts as a stodgy "old media and entertainment" company, whose best days may be well behind them, as their old ways of distribution and exhibition of content and entertainment, through theaters, cable subscriptions, television, theme parks, and pay-per-view, is slowly losing steam and going the way of the dinosaur.

Today's ever-changing digital media landscape has disrupted the old way of doing business as more and more consumers are finding out that digital distribution of content is far more consumer friendly, less expensive, and more convenient to use than the tradition means of distribution of media content.


It's a consumer's market for TV viewers these days, who can pick and choose what they want to see, how much they want to pay, and when they want to see them in à-la-carte channel selections and on-demand viewing features, an area of distribution that Disney is well behind other global multi-media conglomerates at the moment.

Disney's main rival in mainland China, Wang Jianlin of Dalian Wanda, appears
to have the power, influence and resources to crush Disney in a theme park war
in China
Thus, it is no surprise that Disney is suddenly interested in buying a high-tech, digital Silicon Valley media tech company already in the "over-the-top" digital video streaming business.

Disney badly needs to shake off the pubic's perception that they are a rigid, old-fashioned media company that is entrenched in the old ways of distributing and exhibiting its content because that kind of optics can become a death sentence for any media company these days.

While Disney already has a minority share in Hulu and recently bought a minority one-third share in BAMtech, the video live streaming company for Major League Baseball, for a billion dollars last August, with the option to own the company in the future, those ineffectual business deals don't seem to have been enough to keep Wall Street investors from jumping ship in selling their Disney stocks.

That's because the perception out there about those minor deals is that Disney is merely dipping its toes in the new frontier of digital media, rather than fully embracing the changes that consumers are clamoring for.


So to change that perception among Wall Street observers, Disney has contemplated taking the plunge by buying a major, big-name digital media tech company, such as Twitter, and now Netflix, but no one understands what Disney is trying to do with these potential, very expensive, and over-valued Silicon Valley acquisition targets.

The Disney-Netflix deal is not happening anytime soon
In the case of Twitter, the thought of even bringing in a social media company into the Disney portfolio was just a bad fit. Anyone remember Fox's acquisition of MySpace? Of course, the only thing that seemed to have caught Disney's attention about Twitter was the company live streaming Thursday night NFL games, which competed with its own viewership on ESPN.

Disney has already bowed out of the bidding in acquiring Twitter, but their continuing interest in acquiring Netflix is equally perplexing.

At the moment, Disney doesn't have the capital to outrightly swoop in and buy an over-valued and very pricey media tech company like Netflix, which has a market cap of about $45 billion, so it will have to take out huge loans or wreck its own stock value to acquire that property. That strategy is considered too risky even for Disney.


With staggering losses in cable subscribers from cord cutters over the past few years to its once infallible cash cow cable network ESPN, it's easy to see why Disney is suddenly trying to find an established digital strategy to offset those loses by inheriting someone else's huge digital audience.

All this market uncertainty about Disney stocks is happening because Disney's
traditional means of distribution of its content is being eroded by a changing
digital landscapte
But Disney's direct involvement with Netflix as an owner will run into several foreseeable problems.

First off, government regulators may fight the acquisition on the grounds of previous anti-trust decisions against the movie studios back in 1948.

The U.S. Dept. of Justice back then broke up the old studio system for the exact reason that they didn't want vertical integration by any one movie studio controlling the production, distribution, and exhibition of movies.

Disney, a media content producer, controlling the majority of digital distribution of all movies through its acquisition of Netflix might fit the bill for an anti-trust fight from the U.S. Dept. of Justice.

Even if Disney could clear that lofty government regulatory hurdle, they will still face stiff opposition from all the other studios and media companies who would rather keep Netflix "studio-agnostic." It would not be in the other Hollywood media companies' interests to deal with a digital media distributor that is owned by Disney as that is no different than handing their competitor a large portion of their hard-earned profits.


Studios may balk at allowing their content to be distributed by a Disney-owned Netflix, or they may make it so expensive that Netflix could not continue to do business as they have been doing in the past. Thus, Netflix being acquired by Disney really shows no benefits for either company.

Thus, all these scenarios suggest that Disney's interest in acquiring Netflix is all just publicity stunt to divert investors' interest away from panicking and jumping ship from Disney. Anyone can see Disney never had any intention of buying Netflix. The potential acquisition is inevitably bound to run into a lot of opposition.

Sources:

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