Disney’s (DIS) Bob Iger has issues.
He’s facing disruptive forces that are upending his business. And he and his board need to find a successor. These are massive challenges. It seems as if Iger must choose between presiding over the demise of his audience or cannibalizing his business and ruining his margins. And of course that makes finding the next CEO a mighty challenge, too. Who would want to jump into that?
But there may be a big honking solution staring Iger and Disney right in the face. It would be costly, but of course great deals usually aren’t cheap.
The internet boom hit Disney hard
First some background: The disruption to Iger’s TV networks and movie studios in particular, of course comes from the digital revolution. And this is seismic, as Disney at its core has been running the same business for 80 years now. Its first feature, “Snow White and the Seven Dwarfs,” was released in December 1937. ABC and ESPN, its TV networks, came along decades later, but have been incredibly stable cash cows for many years, until recently.
The point is that Disney, though it had ups and downs, has been predicated on distributing its content on TV and movie screens. (Leaving aside its sizable parks business.) Along comes the internet and boom, suddenly all bets are off.
The evidence is in full relief. Movie viewership is way down. The number of movie theater tickets sold has declined from 1.4 billion in 2009 to 886 million this year (annualized.) A slight rise in ticket prices has trended below even anemic inflation during the same period. As for ESPN, subscribers there have dropped from 100 million in 2011 to 88 million today. There are various points to be made that mitigate the decline—ESPN charges more now, the core viewers remain—but still the trend is disturbing at the very least.
In response, Iger has recently announced the creation of two over-the-top streaming services, a la Netflix (NFLX) (remember that name), one for sports and one for entertainment. Iger has said the entertainment stream won’t be ready until late 2019 (way too far away if you ask me) and would include Disney’s core movie properties like “Star Wars” and Marvel films, which likely means they will be removed from Netflix which pays Disney good coin for these rights. So the strategy here is to say goodbye to Netflix’s cash and hope that the new proprietary stream makes up for the loss. Oh and by the way, Disney will have to spend billions building and running the networks.
Meanwhile as discussed, the company needs a new CEO. Iger, 66, who’s tried to retire before but had to put that off when heir apparent Tom Staggs fell out of favor, now says he still stay on until 2019. He became CEO in 2005!
A most perfect way for Iger to exit
So no here’s my solution to this conundrum, albeit a very pricy one.
Disney buys Netflix.
In that case Disney doesn’t have to build any kind of over-the-top service and saves all those billions and doesn’t take that risk. Yes, it loses all the revenue from Netflix for streaming, but it then gets all of Netflix revenue, right? It could build its sports/ESPN service on the Netflix platform, too.
And maybe most important, in Reed Hastings, 56, Disney would get probably the best-qualified person in the business as his successor. Could it be done? Yes. Netflix is pricey with a market cap of $76 billion and revenue of only about $9 billion last year, but of course it’s growing like crazy (internationally too). Disney’s market cap by the way is about $150 billion, so yes this deal is doable. And Bob Iger has shown he has the fortitude and acumen to pull off sizable deals (Pixar, Marvel, Lucasfilm.) This would be his biggest ever, but I would argue it would be a most perfect way to exit, stage left, from the Mouse House.
Disney buying Netflix and bringing along CEO Reed Hastings would get Disney out its box and might well be the greatest acqui-hire of all time.
Andy Serwer is editor-in-chief of Yahoo Finance.