Here’s why an Amazon deal for CBS doesn’t look likely to happen anytime soon


Since the advent of video streaming barely a decade ago, the media landscape has undergone a paradigm shift, and the companies that once ruled the roost are scrambling to scale up. Some of the biggest names in entertainment are looking for like-minded partners for fear of being overtaken by streaming giants As Netflix (NASDAQ: NFLX) and its biggest video competitor, Amazon (NASDAQ: AMZN), the home of Prime Video.

While AT&T finally obtained the right to acquire Time Warner, the challenge continues Between Disney and Comcast to see who takes 21st century fox to the ball.

An analyst recently suggested that Amazon make an offer for SCS (NASDAQ: VIAC) to acquire its library of content and a series of blockbuster shows. But it’s a little more complicated than it looks.

Image source: Getty Images.

Play matchmaker?

Michael Nathanson, founding partner and senior research analyst at MoffettNathanson, has suggested that the most effective way for Amazon to expand its library of content would be to buy a media company – and he thinks CBS is a likely candidate. In a note to customers, Nathanson wrote:

Rather than developing it over time, we question whether Amazon would adopt a ‘buy’ model and seek to acquire a traditional media company with content creation skills, in-depth proprietary content libraries, marketing capabilities. booming sports production and OTT ambitions. Of all the companies available, CBS makes the most sense.

The OTT (over-the-top) platforms in question, CBS All-Access and Showtime, have a total of approximately 5 million subscribers. Nathanson said that while Amazon Prime Video is a hit with the 18- to 34-year-old population, the main reason it lags behind its streaming rival is Netflix’s massive and growing content library. He believes Netflix’s lead would make creating a worthy competitor a time-consuming proposition, which could be accelerated by an acquisition.

CBS could do the trick, with some of the most watched shows on TV including NICSand CSI (and several spinoffs from each) and The Big Bang Theory – currently the most popular comedy on television – as well as standards like 60 minutes and popular procedural crime dramas like Hawaii Five-O and Criminal minds. Its programming has beaten all other major networks, gaining the most coveted 18-49 viewers from advertisers in 13 of the past 14 years. The company also owns about 80% of its programs.

We don’t know what Amazon thinks, but if it were to go down that route, before it can consider acquiring CBS, there is a soap opera plot that would need to be resolved.

Couple cuddling on the sofa smiling while watching TV with a man holding remote control.

Worthy of TV must-haves

Here’s the background: National Amusements is controlled by media mogul Sumner Redstone and his daughter Shari, and in turn owns 80% of the voting shares of both. Viacom (NASDAQ: VIAB) and CBS – which respectively represent 10% and 9% of the shares of these companies.

The pair lobbied for CBS, which was doing very well on its own, to acquire Viacom, which it did not. The Redstones are hoping CBS can save the black sheep of the media family, but CBS doesn’t want to grapple with its ailing brother.

Last month, the CBS board, headed by CEO Leslie Moonves, filed a lawsuit against National Amusements, trying to block the merger. The lawsuit argues that the company is in breach of its fiduciary duty and that the combination carries “a significant threat of irreparable and irreversible harm to the company and its shareholders.” The evidence to date seems to support this theory. Since talks began in mid-20017, CBS shares have fallen nearly 20%, which CBS noted in its lawsuit.

While the lawsuit unfolds in court, CBS’s board of directors planned to issue a dividend of Class A voting shares to all shareholders, which would deprive the Redstones of their voting majority. National Amusements has sought to cancel the dividend by requiring a qualified majority vote of the board of directors. A group of shareholders then filed another lawsuit – and a judge’s ruling last week cleared the two trials, both of which are slated to begin in October.

Courtroom drama

We’ll have to wait for the outcome of both trials to see if Amazon is even remotely interested in courting CBS. Amazon has already shown that it isn’t averse to doing massive deals if it believes there is a strategic fit and competitive advantage to be had (ahem, Whole Foods).

Until then, Amazon will just have to build its library the old-fashioned way – one show at a time.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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