Who’s got the stones to buy Netflix?

Apple, Disney, Microsoft or Apple; one of the biggest questions which has circled the technology industry over the last couple of years is who could possibly acquire Netflix?

The streaming giant, Wall Street’s darling, has almost constantly been talked up as an acquisition target. However, another year has passed and it’s another year where no-one managed to capture the content beast. You have to start to wonder whether it will ever happen, but here we’re going to have a look at who might be in the running.

Netflix numbersWith subscriptions totalling more than 148 million, 2018 revenues exceeding $15.7 billion and operating income up to $1.6 billion, Netflix would certainly be a useful addition to any company. However, with market capitalisation now roughly $143 billion and debt which would make your eyes water, an acquisition would be a scary prospect for almost everyone.

First and foremost, let’s have a look at some of the players who might have been in the equation, but alas, no more.

Disney has been a rumoured acquirer for almost as long as Netflix existed. This is an incredibly successful company, but no-one is immune to the shift tides of the global economy and consumer behaviour. Getting in on the internet craze is something which should be considered critical to Disney, and Netflix would have given them a direct-to-consumer channel. However, there was always a feeling Disney would develop its own proposition organically and this turned out to be the case.

AT&T is another company which might have been in the fray, but its Time Warner acquisition satisfied the content needs of the business. All telcos are searching to get in on the content cash, developing converged offerings, and AT&T is a company which certainly has a big bank account. As mentioned above, the acquisition of Time Warner completes rules this business out.

There are of course others who might have been interested in acquiring the streaming giant, but for various reasons they would not be considered today. Either it would be way too expensive, wouldn’t fit into the company’s objectives or there is already a streaming service present. But now onto the interesting stuff, who could be in the running.

Microsoft logo

Microsoft

From doom to gloom, CEO Satya Nadella has certainly turned fortunes around at Microsoft. Only a few years ago, Microsoft was a shadow of its former self as the declining PC industry hit home hard. A disastrous venture into the world of smartphones was a slight detour but under the cloud-orientated leadership of Nadella, Microsoft is back as a lean, mean tech heavyweight.

Alongside the cloud computing business, Microsoft has also successfully lead the Xbox brand into the digital era. Not only is the platform increasingly evolving into an online gaming landscape, but it also lends itself well to sit alongside the Netflix business. If Microsoft wants to compete with Amazon across the entire digital ecosystem, both consumer and enterprise, it will need to expand the business into more consumer channels.

For Netflix, this might be an interesting tie up as well. Netflix is a business which operates through a single revenue stream at the moment, entertainment, and might be keen to look at new avenues. Gaming and eSports are two segments which align well with Netflix, opening up some interesting synergies with Microsoft’s consumer business.

“Microsoft is at a crossroads,” said independent telco, media and tech analyst Paolo Pescatore. “Its rivals have made big moves in video and it needs to follow suit. The acquisition addresses this and complements its efforts with Xbox. The move also strengthens its growing aspirations in the cloud with Azure, firmly positioning itself against Amazon with AWS and Prime video.”

However, while this is a company which could potentially afford to buy Netflix, you have to wonder whether it actually will. The Netflix culture does not necessarily align with Microsoft, and while diversification into new channels is always attractive, it might be considered too much of a distraction from the cloud computing mission. Nadella has already stated he is targeting the edge computing and AI segments, and considering the bounties on offer there, why bother entertaining an expensive distraction.

Apple Store on 5th Avenue, New York City

Apple

Apple is another company which has billions floating in free cash and assets which could be used to leverage any transaction. It is also a company which has struggled to make any effective mark on the content world, excluding iTunes success. With Netflix, Apple could purchase a very successful brand, broadening the horizons of the business.

The last couple of months have shown Apple is not immune to the dampened smartphone trends. Sales are not roaring the same way they were during yesteryear, perhaps because there has been so little innovation in the segment for years. The last genuine disruption for devices probably came from Apple a decade ago when it ditched the keyboard. Arguably everything else has just been incremental change, while prices are sky-rocketing; the consumer feels abused.

To compensate for the slowdown, CEO Tim Cook has been talking up the software and services business unit. While this has been successful, it seems not enough for investors. Netflix would offer a perfect opportunity for Apple to diversify and tap into the recurring revenues pot which everyone wants to grab.

However, Netflix is a service for anyone and everyone. Apple has traditionally tied services into Apple devices. At CES, we saw the firm expand into openness with new partnerships, but this might be a step too far. Another condemning argument is Apple generally likes to build business organically, or at least acquire to bolster existing products. This would stomp all over this concept.

Alibaba Logo

Alibaba

A Chinese company which has been tearing up trees in the domestic market but struggled to impose itself on the international space, Alibaba has been hoping to replicate the Huawei playbook to dominate the world, but no-where near as successfully.

Perhaps an internationally renowned business is exactly what Alibaba needs to establish itself on the international space. But what is worth noting is this relationship could head the other direction as well; Netflix wouldn’t mind capitalising on the Chinese market.

As with any international business a local business partner is needed to trade in China. Alibaba, with its broad reach across the vast country, could prove to be a very interesting playmate. With Netflix’s Eastern ambitions and Alibaba’s Western dreams, there certainly is dovetail potential.

However, it is very difficult to believe the current US political administration would entertain this idea. Aside from aggression and antagonistic actions, the White House has form in blocking acquisitions which would benefit China, see Broadcom’s attempted acquisition of Qualcomm. This is a completely different argument and segment but considering the escalating trade war between the US and China, it is hard to see any tie up between these two internet giants.

Google Logo

Google

If you’re going to talk about a monstrous acquisition in Silicon Valley, it’s difficult not to mention Google. This is one of the most influential and successful businesses on the planet with cash to burn. And there might just be interest in acquiring Netflix.

Time and time again, Google has shown it is not scared of spending money, a prime example of this is the acquisition of YouTube for $1.65 billion. This might seem like pocket change today, but back in 2006 this was big cash. It seemed like a ridiculous bet for years, but who is laughing now?

The issue with YouTube is the business model. Its advertiser led, open to all and recently there have been some PR blunders with the advert/content alignment. Some content companies have actively avoided the platform, while attempts to create a subscription business have been unsuccessful. This is where Netflix could fit in.

“Google has made numerous failed attempts to crack the paid online video landscape,” said Pescatore. “Content and media owners no longer want to devalue their prized assets by giving it away on YouTube. Acquiring Netflix gives Google a sizeable subscriber base and greater credibility with content and media owners.”

Where there is an opportunity to make money, Google is not scared about big cash outlays. Yes, Netflix is a massive purchase, and there is a lot of debt to consider, but Google is an adventurous and bold enough company to make this work.

However, you have to question whether the US competition authorities would allow two of the largest content platforms to be owned by the same company. There might not necessarily be any direct overlap, but this is a lot of influence to have in one place. Authorities don’t generally like this idea.

Verizon Logo

Verizon

Could Verizon borrow a page from the AT&T playbook and go big on a content acquisition? Perhaps it will struggle to justify the expense to investors, but this one might make sense.

Verizon has been attempting to force its way into the diversification game and so far, it has been a disaster. While AT&T bought Game of Thrones, Verizon went after Yahoo to challenge the likes of Google and Facebook for advertising dollars. A couple of data breaches later, the content and media vision looks like a shambles. Hindsight is always 20/20 but this was a terrible decision.

However, with a 5G rollout to consider, fixed broadband ambitions and burnt fingers from the last content acquisition, you have to wonder whether the team has the stomach to take on such a massive task. Verizon as a business is nothing like Netflix and despite the attractive recurring revenues and value-add opportunities, the integration would be a nightmare. The headache might not be worth the reward.

You also have to wonder whether the telco would be scared off by some of the bold decisions made from a content perspective. Telcos on the whole are quite risk-adverse organizations, something which Netflix certainly isn’t. How many people would have taken a risk and funded content like Stranger Things? And with the release of Bandersnatch, Netflix is entering the new domain of interactive content. You have to be brave and accept considerable risk to make such bets work; we can’t see Verizon adopting this mentality.

Softbank Logo

Softbank Vision Fund

Another with telco heritage, but this is a completely different story.

A couple of years back, Softbank CEO Masayoshi Son had a ridiculous idea which was mocked by many. The creation of a $100 billion investment fund which he would manage seemed unimaginable, but he found the backers, made it profitable and then started up a second-one.

Son is a man to knows how to make money and has the right connections to raise funds for future wonderful ideas. Buying Netflix might sound like an absurd idea, but this is one place we could really see it working.

However, the issue here is the business itself. While Son might be interested in digital ventures which are capable of making profits, the aim of the funds have mainly been directed towards artificial intelligence. Even if Son and his team have bought into other business segments, they are more enterprise orientated. There are smaller bets which have been directed towards the consumer market, but would require an investment on another level.

Tencent Logo

Tencent

Another Chinese company which has big ambitions on the global stage.

This is a business which has been incredibly successful in the Chinese market and used assets effectively in the international markets as well. The purchase of both Epic Games and Supercell have spread the influence of the business further across the world and numerous quarterly results have shown just how strong Tencent’s credentials are in the digital economy.

Tencent would most likely be able to raise the funds to purchase the monster Netflix, while the gaming and entertainment portfolio would work well alongside the streaming brand. Cross selling would be an option, as would embedding more varied content on different platforms. It could be a match made in heaven.

However, you have to bear in mind this is a Chinese company and the political climate is not necessarily in the frame to consider such as transaction. Like Alibaba, Tencent might be viewed as too close to the Chinese government.

No-one

This is an option which is looking increasingly likely. Not only will the business cost a huge amount of money, perhaps a 30-40% premium on market capitalisation, the acquirer will also have to swallow all the debt built-up over the years. There will also have to be enough cash to fuel the content ambitions of Netflix, it reportedly spend $7.5 billion on content last year.

Finally, the acquirer would also have to convince Netflix CEO Reed Hastings, as well as the shareholders, that selling up is the best option.

“If I was a shareholder or Reed Hastings, I’d be wondering whether it is better to be owned by someone else or just carry on what we’re doing now,” said Ed Barton, Practise Lead at Ovum.

“These guys are going down in business school history for what they have done with Netflix already, do they need to sell out to someone else?”

Netflix is growing very quickly and now bringing in some notable profits. The most interesting thing about this business is the potential as well. The US market might be highly saturated, but the international potential is massive. Many countries around the world, most notably in Asia, are just beginning to experience the Netflix euphoria meaning the growth ceiling is still years away.

What this international potential offers Netflix is time, time to explore new opportunities, convergence and diversification. Any business with a single revenue stream, Netflix is solely reliant on subscriptions, sits in a precarious position, but with international growth filling the coffers the team have time to organically create new business streams.

Ultimately, Hastings and his management team have to ask themselves a simple question; is it better to control our own fate or answer to someone else for a bumper payday? We suspect Hastings’ bank account is already bursting and this is a man who is driven by ambition, the need to be the biggest and best, breaking boundaries and creating the unthinkable.

Most of these suitors will probably be thinking they should have acquired Netflix years ago, when the price was a bit more palatable, but would they have been able to drive the same success as Hastings has done flying solo? We suspect not.

Softbank drives forward Vision Fund with $2.25bn GM autonomous vehicle investment

General Motors has become the latest business to catch the attention of Masayoshi Son’s SoftBank Vision Fund, as its autonomous vehicles subsidiary, Cruise, receives a $2.25 billion boost.

The cash will be invested into Cruise in two tranches. At the closing of the transaction, the Vision Fund will invest $900 million, alongside $1.1 billion from parent-company GM, while the remaining $1.35 billion will be invested at the point Cruise’s technology is ready for commercial deployment, this being forecast for early-2019. The total investment will see the Vision Fund holding a 19.6% stake in Cruise.

“Our Cruise and GM teams together have made tremendous progress over the last two years,” said GM CEO Mary Barra. “Teaming up with SoftBank adds an additional strong partner as we pursue our vision of zero crashes, zero emissions and zero congestion.”

“GM has made significant progress toward realizing the dream of completely automated driving to dramatically reduce fatalities, emissions and congestion,” said Michael Ronen, Managing Partner of SoftBank Investment Advisers. “The GM Cruise approach of a fully integrated hardware and software stack gives it a unique competitive advantage. We are very impressed by the advances made by the Cruise and GM teams, and are thrilled to help them lead a historic transformation of the automobile industry.”

The Cruise business was initially founded in 2013, before entering Y Combinator in 2014 to perfect the business model and vision. GM bought Cruise in March 2016 for $581 million to bolster the software capabilities of the automotive giant and accelerate GM’s development of autonomous vehicle technology. Since that point the team has seemingly been making steady progress after largely been left to its own devices by GM, focusing on Level 4 and 5 vehicles in California, Arizona, and Michigan. Back in January, GM filed a Safety Petition with the Department of Transportation for its fourth-generation self-driving Cruise AV, which it claims is first production-ready vehicle able to operate without a driver, steering wheel, pedals or manual controls. The petition stated GM wanted to deploy vehicles in 2019.

While there have unsurprisingly been no updates from the Department of Transport, GM and Cruise are confident the vehicles will meet the standards set. So confident are the team that Cruise CEO Kyle Vogt wrote an article on Medium in September stating the third-generation vehicles would meet the requirements to operate autonomously.

“The car we’re unveiling today is actually our 3rd generation self-driving car, but it’s the first that meets the redundancy and safety requirements we believe are necessary to operate without a driver,” Vogt wrote. “There’s no other car like this in existence. In a few weeks, these cars will be a part of the fleet that carries Cruise employees anywhere in San Francisco using our app. For now, there will still be a human behind the wheel.”

Cruise Car

Vogt is confident in the progress of the business, and it actually pointing to the hardware, not the software, as one of the biggest complications. Of course developing an intelligent system which can interact with and react in real-time to the environment is certainly a complicated task, though the hardware has to be completely redesigned to be suitable for autonomous driving. According to Vogt, retrofitting existing vehicles is not a feasible solution, though some sceptics might point out this is a very convenient claim for the automotive manufacturers.

The GM acquisition has certainly added capital into the Cruise business, joint investments have allowed the workforce to expand by 1,100 over this period, however the seemingly bottomless bank account of competitors is stealing column inches. Google’s Waymo is one project which benefits from such a luxurious financial position, hitting the headlines for the right reasons, and occasionally the wrong ones. Last October, Waymo gained attention for making progress, but admitting its vehicles were unable to turn left.

Combining the steady GM progress, Vogt’s leadership (he did build his first ‘self-driving’ vehicle at 14 using a webcam, computer vision, and a power window motor), friendly faces in the rest of the Vision Fund portfolio and an extra $3.35 billion of capital certainly puts Cruise in a promising position in the autonomous race.

Softbank Vision Fund drops $164 million on maps

Softbank has continued its diversification strategy with another sizeable investment, this time in the big, wide world of mapping technology.

It might not sound like the most exciting arena, but it could be considered one of the most crucial for certain technologies. Whether it is as something as obvious autonomous vehicles, or a bit more subdued like the advertising models associated with social media platforms, accurate location data is critical. And we haven’t even begun to realize the benefits of IoT yet…

The injection of cash from Softbank Vision Fund is directed towards Mapbox, a location data platform for mobile and web applications operating out of Washington DC and Silicon Valley. Many would associate mapping technology with the Googlers, but Mapbox has been quietly accumulated customers and might provide a very viable alternative to the ‘do no evil’ business. An additional $164 million in Series C funding will certainly help mount a challenge.

The platform was initially launched in 2010, and now claims to reach 300 million people each month. When you count the likes of Snapchat, Bloomberg, Lyft or Lonely Planet as customers, the broad footprint starts to make a bit more sense. The team also claim to have 900,000 registered developers, and the cash will be used to build out the automotive unit (including the AI side), AR/VR/Gaming investments and increasing its presence in Southeast Asia, China, and Europe.

“We are mapping and measuring everything,” said Eric Gundersen, CEO of Mapbox. “The SoftBank team understands that location data is transformational to every industry. Additional capital accelerates our speed of capturing the market. This is a step function move that will transform the fundamentals of how everything – people and goods – move through our world.”

It’s an area of the industry which hasn’t received much recognition to date, perhaps because it is being dominated by Google. Just like doing an internet search, when people are looking up a location, Google seems to be the default platform. There is a simple reason for this, it is the best around. And there is another simple reason for that. Google has been investing in this area for quite a while, even before you could make any money from it.

The platform itself was started when a couple of Danish brothers sold their business (Where 2 Technologies) to Google in 2004. The first release was not until 2005, but twelve years later the platform has thousands of employees and contractors directly working in mapping. This is a brilliant example of a company investing in the long-term, a concept which seems to elude most executives.

To start with it was just a free feature for people to find their way. The connected economy wasn’t in full swing, and it was more useful for games than anything else. But with smartphones penetrating the mass market, it started to become a useful little idea. Apps wanted to integrate the platform, businesses could use it for advertising, and little ideas like autonomous driving are now starting to make waves.

Mapping is critical in the digital economy, and now that quirky little feature is looking like a very astute bet from the Googlers. Just like Android, it is a platform which doesn’t make any money directly, but fuels growth and innovation in other areas. Google’s bread and butter revenue machine is search advertising, and now Maps adds an extra dimension. This is on top of all the licensing fees it will be charging developers.

One risk for the industry is that mapping could end up going the same route as operating systems for smartphones. Android dominates this space, which has led to competition concerns in various countries around the world. Google Maps is arguably the most advanced platform out there, so this is certainly a viable concern.

Considering the importance of mapping technologies as a foundation block of the connected economy, this would appear to be a very smart bet from the Softbank team. The only risk is that the Mapbox is not able to compete with the innovative and cut-throat Googlers. Only time will tell, but $164 million will help.