Netflix Needs Theatrical Distribution/Acquisition To Compete With Disney

Steven Mallas profile picture
Steven Mallas


  • The Disney-Fox merger changes the nature of the media industry.
  • Netflix will need to react aggressively, radically.
  • Netflix will now have to consider getting into the theatrical-release business.
  • The streaming service will also have to think about merger/acquisition possibilities, maybe even with tech giants like Alphabet.

There is no choice now. Netflix (NASDAQ:NFLX) will need to move beyond its debt-funded original-content initiatives that are for subscribers only. The reason: the merger between Disney (DIS) and Fox (FOX) (FOXA), the latter excluding the broadcast network and the news asset.

I'm not suggesting that Netflix is off its growth path immediately. Netflix would always need to invest in other areas of the media spectrum some day, but the future has suddenly become closer. Given the time it takes to change strategic thinking in the corporate boardroom and then act upon it, it would behoove CEO Reed Hastings to begin the conversation if he hasn't already (I would find it difficult to believe that he has not).

Here's where Netflix is now: it has a lot of debt and no cash flow. From the Q3 shareholder letter (.pdf file), we see no free cash whatsoever for the latest quarters; the third quarter itself generated a deficit of $465 million in the metric. Long-term debt as of the end of September was just under $5 billion and current content liabilities are over $4 billion (these numbers will grow over time as further content investments are made; Stranger Things and the like don't come cheap). The company does, however, have over 100 million consumers as a subscriber base and eventual pricing power based on its coveted brand equity. No need to declare the stock a bad long-term investment; I still own it, even in the wake of the Disney news (I also own Disney).

Now, though, shareholders must consider what they want to see from Hastings and the board. Two plans should be made at this point:

  • A comprehensive releasing strategy for theatrical movies that will have day-and-date, near day-and-date or exclusive windowing depending on the specifics of the particular project, one that

This article was written by

Steven Mallas profile picture
I have previously written articles for The Motley Fool, TheStreet, and AOLs BloggingStocks.I also write fiction. I have stories published at Nikki Finke's Hollywood Dementia site, including "The Streaming Service," "The Screenwriterman," "Mygalomorph" and "Spielberg's Last Film."Here is a link to my YA book, "Abner Wilcox Thornberry and The Witch of Wall Street."This is a collection of short horror stories: Tales From Salem, Mass.

Disclosure: I am/we are long AAPL, AMZN, CMCSA, DIS, FB, GOOG, LGF.A, LGF.B, NFLX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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