According to a new report from Todd Juenger of Bernstein Research, Rupert Murdoch and Twenty-First Century Fox Inc (NASDAQ:FOXA) are looking for more than just operational synergies with the recently announced Time Warner Inc (NYSE:TWX) deal. He says Murdoch and Fox have got their eye on Netflix, Inc. (NASDAQ:NFLX) and are likely looking to set up their own video-on-demand service to compete with the streaming giant.
Fox – Time Warner: Operational synergies only part of the story
Analysts have commented that a Twenty-First Century Fox Inc (NASDAQ:FOXA) – Time Warner Inc (NYSE:TWX) merger would lead to significant operational synergies for the acquirer, especially in terms of sports and consolidation and elimination of cost redundancies.
Juenger agrees with this assessment and offers a ballpark figure to quantify the savings. “While these synergies (and others) are significant, and in our view enough to make the deal accretive up to ~$100/share for Fox.”
Fox preparing for future VOD world with Time Warner deal
Juenger says Twenty-First Century Fox Inc (NASDAQ:FOXA) is getting ready for a” future world where the majority of video entertainment is consumed on-demand, and the majority of live TV viewing is sports.” Logically extending his argument, he says Fox is “assembling the wherewithal to create its own SVOD-like service, if necessary, to make sure there is a strong number two player behind Netflix.”
He argues it just makes sense that content owners like Fox need a competitive number two streaming video on demand player to keep Netflix honest in terms of pricing for content licenses. However, the general consensus so far is that Amazon Prime Video is not living up to its expectations.
The next hope to compete with Netflix, Inc. (NASDAQ:NFLX) is Hulu+, which Fox owns a large minority stake in, as does Disney. Moreover, Twenty-First Century Fox Inc (NASDAQ:FOXA) has an extensive library of TV series that could possibly be made a part of the new service (although it would require negotiating complex fair market-tested arms-length deals).
Juenger says it’s a distinct possibility that that Murdoch is looking to the SVOD future with the Time Warner Inc (NYSE:TWX) deal, and clearly bringing Time Warner’s content assets into the Fox fold would certainly be adding a major part of the puzzle.