Walt Disney Co DIS's acquisition of most of Twenty-First Century Fox Inc FOXA's entertainment assets will have an effect on Netflix, Inc. NFLX, but the actual impact is a matter of debate among Wall Street analysts and investors.
The Analyst
Bank of America Merrill Lynch's Nat Schindler maintains a Buy rating on Netflix's stock with an unchanged $225 price target.
The Thesis
Disney's acquisition of Fox's entertainment properties is likely to fit with its plans to offer consumers its own over-the-top video streaming service, Schindler said in a research report. (See Schindler's track record here.)
Until then, some of Disney and Fox's content will continue streaming on Netflix. After that point, Netflix has both the necessary resources and sufficient time on its hand to offset the impact with its own higher value original content, the analyst said.
Netflix has guided for 50 percent of its library to consist of original content by 2019. The streaming subscription service has anticipated the loss of Disney and Fox's content for some time, so the Disney and Fox tie-up is "nothing new" and "mostly anticipated," Schindler said.
The Hulu Factor
Disney's acquisition implies it will assume Fox's stake in Hulu, making Disney the majority owner of the rival streaming platform, the analyst said.
No specific plans regarding Hulu have been announced, but Disney suggested that Hulu's adult-focused content is a much better fit for Fox and FX's more mature content, according to BofA.
Disney could end up keeping Hulu separate from its own streaming service, but offer it as a potential add-on, Schindler said.
"One of the questions in our mind is how Disney will continue to preserve their high quality family-friendly brand with a more global streaming platform for the wide variety of content they own?" the analyst said.
"We think Netflix remains in a strong position to benefit from cord cutting and that a Disney/Fox direct-to-consumer product will be additive to the streaming environment," Schindler said. "With that said, competition for original content could intensify & the loss of Fox/Disney content, while already anticipated, is a negative for Netflix."
Price Action
Shares of Netflix were trading down slightly at $189.66 at the time of publication.
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Photo courtesy of Netflix.
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