- Netflix has been ramping up acquisitions for the first time in its 25-year history.
- Its soaring share price has some company watchers saying the timing’s good for a bigger deal.
- Here’s who leads its deal-making and what the streaming giant could buy next.
Deals have been a low priority at Netflix for much of the company’s 25-year history.
Like many other tech-rooted companies, Netflix has historically been more of a builder than buyer. The company took pride in its tech prowess, and cofounder Reed Hastings believed hiring top talent and having them grow businesses in-house was the best way to meet Netflix’s exact specifications, even if it cost more than a straightforward acquisition.
But as it looks to add subscribers, as well as grow beyond subscriptions, the streaming giant has quietly cranked up its M&A.
A few things happened to stoke the M&A machine.
Netflix had started producing original films and series to ensure it had a reliable source of programming, informed by its data showing what was popular on the service. But the limits of its content expertise began to show. Its homegrown animation arm was costly and shows struggled to break through, and it turned to acquisitions to help boost its franchise building. It then delved further into M&A to kickstart its games business.
And more M&A could be on the horizon. With the share price roaring back 130% this year after a bruising 2022, some company watchers point out that Netflix now has stock that could make sense to use as currency for a big acquisition like Paramount or another studio. They also have speculated that it could look at gaming, advertising, or sports companies.
It’s not always clear what Netflix is interested in, but it’s now seen as a potential buyer, said a banker who’s had conversations with the company: “They’re open for business — that’s a new evolution.”
Insider talked with nine people familiar with the company’s strategy, including former Netflix execs, to learn what’s changed, who’s in charge, and what kind of deals could be next.
Netflix started doing deals to boost its content production
Netflix has used M&A as a way to propel its efforts to build franchises around well-known content. It started in 2017 with the acquisition of comic book company Millarworld (though its first project, adaptation “Jupiter’s Legacy,” was canceled after one season).
A year later, Netflix got into the Roald Dahl business — licensing 16 titles by the iconic author with plans to adapt them into series and specials. The streamer’s move to acquire the whole Dahl catalog in 2021 signaled a more ambitious strategy to create a “universe” of filmed and live entertainment, and also accelerate Netflix’s push into new business lines like games and consumer products.
One year later, the streamer acquired Australian animation studio Animal Logic — whose work has included the Lego movies, “Peter Rabbit” and “Happy Feet” — to accelerate its animation output.
Games were another M&A catalyst. Netflix started launching mobile video games in 2021 as a way to keep users entertained, and started buying studios to accelerate the game development process, which can take years.
Netflix acquired four gaming studios, starting with Night School Studio in 2021 and most recently adding Spry Fox in 2022. And the streamer hasn’t completely abandoned its build-from-within strategy, as it also announced plans last fall to build its own gaming studio in Finland.
All told, Netflix has acquired eight content and gaming companies since 2017, four of them in 2022 alone. It has also picked up a visual effects studio, Scanline VFX; an LA theater; some billboards; and property to build an $850 million production studio in New Jersey.
Most of Netflix’s acquisitions are believed to have been in the tens of millions, an insider estimated. Netflix didn’t disclose what it paid for Roald Dahl, but reports pegged the projected spending on shows via the 2018 licensing deal at $500 million to $1 billion and the 2021 company acquisition at around $500 million.
In the spring of 2022, Netflix announced its first subscriber loss in a decade and warned of more losses, sending its stock price plunging. That year, Netflix began to build an advertising business, sparking speculation it might buy an adtech company to help it scale up. Netflix had also begun to feel pressure from big competitors like Disney and Warner Bros. Discovery that had streamers armed with libraries rich in IP like Star Wars, DC Comics, and Harry Potter that Netflix lacked.
Netflix has a small, methodical deals team
Deals are handled by a small number of Netflix’s most senior execs who are known to be fast and methodical in their approach.
Leading M&A is Spencer Wang, VP of finance, IR, and corporate development. He joined Netflix in 2015 after 16 years on Wall Street as an analyst specializing in internet and media. He recently was elevated to the Lstaff, a group of 25 Netflix business heads who debate its biggest initiatives.
Working on Wang’s team is Michael Porter, VP of corporate development and content strategy. Spencer Neumann, CFO and Wang’s boss, will sign off on deals. The banker who’d had conversations with the company said that given Netflix’s strong in-house expertise — and with its deal sizes being relatively small — it isn’t known to use banks to execute deals (though bankers approach the company with potential deals).
Apart from Neumann and Wang, co-CEOs Greg Peters and Ted Sarandos are closely involved in key M&A decisions. Chief content officer Bela Bajaria and film chair Scott Stuber come in on content deals, while games VP Mike Verdu has a hand in gaming company acquisitions.
On earnings calls, Netflix execs have stuck to the mantra that they’re builders, not buyers. But the company looks at M&A all the time and is increasingly pitched by banks.
“They’re curious,” said Jay MacDonald, CEO of Digital Capital Advisors. “They’re listening. They want to know what’s going on.”
When asked what makes a good acquisition for Netflix, leadership has been fairly consistent. The company looks at M&A as a way to accelerate its growth, like IP that it can develop into films and series, film and TV libraries, and gaming, Wang said on a July 2021 earnings call.
Future M&A could center on content, advertising, and sports
The people familiar with Netflix’s strategy said it’s logical to assume the company will continue to look for more gaming companies and IP like Roald Dahl.
With sports being an essential element of many streamers’ content plays now — see Amazon’s NFL coverage and Apple’s MLB and MLS deals — Netflix has discussed buying smaller assets like the World Surf League, The Wall Street Journal reported. It’s a way for Netflix to get involved in sports without paying the soaring costs of big-name sports rights.
And now that Netflix is in the ads business, with the goal of it driving at least 10% of its revenue, many industry observers assume the company will eventually build its own adtech or buy an adtech firm; it currently has a deal with Microsoft to provide that support, but the pact expires in 2024, Digiday reported, which some observers think strengthens the case for buying adtech.
A company that automates product placement or measures ads’ impact could also make sense for Netflix, said Ana Milicevic, cofounder of Sparrow Advisers, an adtech consultancy.
The big question is whether Netflix has the appetite for something much bigger. With the media and entertainment industries seemingly on an inevitable march toward consolidation, there’s been internal debate about what role Netflix should play, with some wanting it to make bigger moves, former employees said.
Hastings and co-CEO Ted Sarandos at one point were interested in buying a big studio to solidify Netflix’s presence in Hollywood but didn’t want the associated declining linear businesses, said a person familiar with Sarandos’ thinking.
Netflix has explored Paramount for its studio business, and with Paramount on shaky ground, Wells Fargo recently called its breakup “inevitable,” stirring speculation of a sale. Netflix also looked at MGM before Amazon bought it for an eye-popping $8.5 billion. And there were conversations about buying a Korean studio, a knowledgeable source said. (Netflix ended up doing a partnership in 2019 with that company, Studio Dragon, and its parent CJ ENM.)
Then there’s the question of whether Netflix could really go big in video games, which have newly demonstrated their potential to translate to scripted TV and film hits (see: “The Last of Us,” “The Super Mario Bros. Movie”). If Microsoft succeeds in its $69 billion bid for Activision Blizzard, Netflix could look no further than Epic Games, whose Fortnite game Hastings has held up as the streamer’s biggest competitor for eyeballs outside of TV.
But leadership has been steadfast that Netflix’s M&A mantra hasn’t changed.
“We’re builders versus buyers,” Sarandos said at a December UBS conference. “So I think we’ll probably lean on that for a while.”
This article was first published June 21 and has been updated.
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