Netflix Should Buy Tidal
Updated: Aug 2, 2019
Media and entertainment companies have been making major deals lately . Disney (DIS) acquiring 21 Century Fox is the biggest and latest, before that there was the AT&T (T) acquisition of Time Warner. Were these moves done to provide a better entertainment experience to viewers or to increase shareholder wealth? The answer to that question is anyone's guess, but it is clear not making a move in the industry is a good way to lose viewers and market capitalization.
Wall Street's entertainment move maker over the past decade had been Netflix. Netflix (NFLX) reshaped the media industry, and it reshaped how Wall Street and investors viewed and valued the media industry.
As of this writing Netflix has a market capitalization of $160 billion. Disney's market capitalization is $250 billion, which is a 56% premium to Netflix. Netflix doesn't have theme parks world wide or signature cartoon characters, it doesnt have ABC, The Disney Channel, Disney Junior, Disney XD, FreeForm, Hulu, ESPN, and now Disney+ to push content through. It's Netflix vs All of Disney, and Wall Street has valued Disney at a 56% premium to Netflix because of Disney +.
At the beginning of 2019 and prior to Disney's detailed layout of its streaming service the market caps of Disney and Netflix were a lot closer, with Disney at around $161 billion and Netflix at $116 billion.
To close the gap on Disney, Netflix needs to make a move, and the smart move would be to acquire a streaming platform to integrate with it's already successful video streaming platform. If done correctly, Netflix could create it's own walled garden of entertainment. Our thoughts are that Netflix should target Tidal specifically.
Because Tidal is cheap in comparison to Spotify. Tidal's last major headline came two plus years ago when Sprint invested $200 million for a third of the company, which valued Tidal at $600 million. Spotify as of this writing is valued at $26 billion.
Acquiring Tidal or another streaming service like Napster (formally Rhapsody) wouldn't exclusively be a play to acquire subscribers, it would also be a play to acquire new services which could enhance the already great product that Netflix has.
Netflix aligning itself with a streaming service opens up a number of things it could do with it's content. Netflix movie soundtracks and scores could be made available for streaming on it's own platform. Millie Bobbi Brown or Caleb McLaughlin could share a playlist of music they listened to while filming. Songs that play in the background of Netflix movies and shows could be identified on screen, and made available for listening to later through the mobile app. There are many ways to mix talent, movies, television, and music to enhance the user experience.
The other case for Netflix purchasing Tidal and having a music streaming arm is it allows Netflix users to stay in the ecosystem longer. Being able to go from watching Netflix at home to then listening to a Netflix streaming service when you're on the go would be a win for Netflix.
Music streaming accounted for $8.9 billion in revenue in 2018. If Netflix is able to carve out a slice of the music streaming pie for itself, its shareholders could benefit tremendously in the future.
A Win For Consumers & Shareholders
Netflix has been the entertainment industries innovator for the last 10 years, albeit by not being very innovative. They simply provided a new way to consume content, tons of content, lots of original titles, several hit shows, and the people subscribed. But recently the companies that stood by while Netflix increased in value are getting innovative in an effort to boost shareholder value, and capture viewers/subscribers. Acquiring a music streaming service to blend with it's video streaming service could put Netflix back in the role as the industry leader, the entertainment company at the top.
Why Apple Wont Acquire Netflix
While there have been many articles written about Apple buying Netflix and why Apple should buy Netflix, that won't happen. Media production (specifically television and film) is expensive and a grind. Apple has become accustom to instant successes. Apple spending hundreds of millions of dollars on content to possibly get one hit show or one hit special doesn't fit with what the company does. Apple is a luxury brand that spends years developing their products, Netflix throws spaghetti at the wall to see what sticks. Those two cultures couldn't work together.
A Good Acquisition
Good companies tend to fall apart when they begin making acquisitions for the sake of making an acquisition, or making acquisitions to please Wall Street analysts. Netflix acquiring a streaming service wouldn't be that type of acquisition. A streaming service would mesh well with what Netflix already does. It could enhance the platform and provide Netflix users with a better entertainment experience, it could also boost shareholder value.