Abstract
One of the most fascinating empirical cases on digital disruptions reshaping the strategic rules of competition within an established industry is global entertainment. The streaming revolution exposed even media behemoths like Disney to a “digital tsunami” which triggered a spectacular investment boom, comparable with the railways in the 1860s or the car industry in the 1940s. Netflix is nowadays the global market leader in film streaming, having lured more than 200 million subscribers on its platform. Netflix’s 10C Business Design will be benchmarked with Disney’s lately strategy revitalization by its multi-billion 21st Century Fox (TFCF) acquisition and the introduction of its own streaming platform Disney+. After the discussion of the different Business Designs of the streaming endgame contenders, the strength of subscription-based video-on-demand (SVoD) platforms is assessed by applying again the eight platform value drivers, as defined within Chap. 1. Besides the mandatory investments to scale technologically entertainment platforms, also significant content investments (originals) are part of most streaming platforms’ DNA. Such investments are in contradiction to the typical asset-light characteristic of platforms, but are a crucial ingredient of their competitive advantage. The Reverse DCF valuation of Netflix, embedded in “the streaming gambit” picture of the future, supplements the discussion of entertainment streaming platforms.
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Notes
- 1.
The conceptual framework of off- to online platform retaliation strategies has been introduced and described within Chap. 1 on platform strategies.
- 2.
As part of the transactions, AT&T will receive a $43 billion upfront payment as a mix of cash, stocks, and sold-off debt. Besides, AT&T shareholders will own 71% of the new, merged entity with Discovery. The transaction therefore values WarnerMedia at about $100 billion (Economist, 2021b). The Discovery/WarnerMedia combination’s indicative enterprise value will approach $150 billion (Financial Times, 2021b).
- 3.
After the acquisition of the outstanding capital stock of 21st Century Fox, Inc. the acquired business was subsequently renamed TFCF Corporation (TFCF) (Walt Disney, 2019). Therefore, in the following, TFCF will be used as abbreviation to describe the acquired company, its assets, or the transaction between Disney TFCF.
- 4.
This is an important detail, as sometimes the transactions is wrongly perceived as if Disney acquired the listed TFCF with all its assets. Transaction multiples applied on “Fox old” comprising all assets are therefore misleading.
- 5.
More precisely and as set forth in the Merger Agreement, at the effective time of the Acquisition, each shareholder of TFCF had the choice to exchange shares of TFCF common stock in par for $51.572626 in cash (the “cash consideration”) or alternatively in 0.4517 shares of common stock of the new holding company “New Disney,” defined as TWDC Holdco (the “stock consideration”), incorporating both transaction partners’ assets (Twenty-First Century Fox, 2019).
- 6.
In 2006, Hulu partnered with a portfolio of high-caliber media and social network firms like AOL, NBC Universal, Comcast, Facebook, MSN, Myspace, and Yahoo! to distribute their content and to build a viable competitor by its reach to Netflix. Disney joined in as stakeholder in 2009, giving HULU rights to content from both ABC and Disney Channel for an equity stake of 30%.
- 7.
The financial diagnostics model is applied in the Netflix case study by an in-depth assessment of Netflix’s audited financial statements and SEC reporting, especially the 10-K reports for the last 10 years 2010–2020. A more detailed discussion and breakdown of the financial assessment will be provided within the Reverse DCF valuation subchapter.
- 8.
Therefore, and especially for benchmarking, normalization, and valuation purpose, the FY2018 might be an important reference point.
- 9.
The latest World Economic Outlook update in May 2021 was especially bullish, increasing its growth predictions for the world economy to 5.6% for 2021 and 4.5% in 2022.
- 10.
Within the financial formulas, the NASDAQ capital market abbreviation for Netflix “NFLX” will be used.
- 11.
A recent study of a leading investment bank used a subscriber bandwidth of 500–535 million subscribers as a 10-year forward estimate, which was perceived to be too bullish for the contested streaming ecosystem and potential regional market access limitations.
- 12.
The EBIT margin of 27% in Q1 is expected to be not sustainable during the year due to higher content investments and costs targeted throughout the year but should improve significantly year over year to 23%.
- 13.
The normalized margin assumes a US/international standard tax rate of 25%. This assumption is higher than the actual realized tax rate of Netflix.
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Feix, T. (2021). The Streaming Revolution in Global Media and the Down of an Epic Battle. In: Valuing Digital Business Designs and Platforms. Future of Business and Finance. Springer, Cham. https://doi.org/10.1007/978-3-030-83632-0_4
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