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Is Hollywood doomed to become Silicon Valley South?

Rumors are whirling that Disney is in play and could become part of Apple. Call it the summer silly season if you want, but it’s not totally crazy. And what applies to Disney applies to its smaller competitors in the media industry. Could we see piles of cash pouring out of Silicon Valley to buy out Hollywood?

In this issue:

  • Could Bob serve up Disney to Apple?

  • Other media companies are tempting targets

  • But who would want them?

Is Bob Iger putting Disney into play?

The chattering classes in Hollywood and on Wall Street went into a frenzy back in July when Disney CEO Bob Iger told CNBC that the company’s linear TV channels “may not be core” to its business, adding that the traditional broadcast and cable business model is “definitely broken.”

Iger quickly softened his language, but he wasn’t wrong. Declining subscriber numbers and a disrupted ad market have put broadcast and cable TV in a tight spot. Besides its branded channels, Disney operates ABC, ESPN, FX Networks, and two TV joint ventures: National Geographic and A+E Networks.

Wall Street increasingly sees linear TV distribution as an albatross around the media industry’s neck, even though streaming operations are burning through cash. As Iger tries to right the Disney ship, it isn’t surprising that he would look at some deal to reduce that burden.

In the previous issue of the Stream Report, we discussed Iger’s hopes to find a partner to help transition ESPN from linear to streaming. But analysts speculate that carving out the linear TV operations would set Disney up for a sale — with Apple the most popular candidate for buyer.

Why an Apple/Disney merger doesn’t make sense

The thing is, Apple doesn’t really do big mergers. The tech giant prefers buying small companies to bring in new talent and technology. Apple’s largest deal was its $3 billion acquisition of Beats Electronics in 2014.

Another ding against the merger idea is the lack of synergy. Combining two companies is expensive, but there won’t be much to cut.

Finally, there’s the Biden Administration’s skepticism of big mergers. The Federal Trade Commission and Justice Department have gone after mega-mergers even when there’s little risk of monopolization.

But maybe it does?

On the other hand, Apple can certainly afford it. Disney plays a prominent role in American culture but doesn’t dominate American business. Apple’s $2,780 billion market cap dwarfs Disney’s $147 billion valuation.

Despite their different markets, the two companies share similar cultures. They both obsess over the customer experience. They are both control freaks when it comes to intellectual property. Apple founder Steve Jobs was Disney’s largest individual shareholder, and Bob Iger sat on Apple’s Board of Directors.

The FTC (Federal Trade Commission) may not be much of an issue. This wouldn’t be a horizontal merger. Apple TV+ is a boutique operation whose entertainment market share is a blip compared to Disney’s. In addition, the FTC has lost every attempt to block vertical mergers like Microsoft’s acquisition of game producer Activision-Blizzard.

Disney would gain from folding itself into a large corporate parent with much deeper technological resources. At the same time, Apple’s future is increasingly tied to services. Acquiring Disney would turn its streaming operation from boutique to mega. Keep in mind, bringing in Dr. Dre and Jimmy Iovine from Beats created the Apple Music streaming juggernaut.

One final thing to consider: Apple may have no choice. Disney putting itself in play is a one-time “black swan” event. Keeping anybody else from buying the House of the Mouse may be worth the sticker shock.

Big Tech can afford to gobble up Hollywood

Disney rumors get the most press because, well, it’s Disney. But all the forces at play are pushing the other media companies. Some are more exposed to linear TV than Disney. Only Netflix has the technology chops to match its Silicon Valley neighbors.

None of the media companies are big fish compared to the tech giants:

Market Caps for Tech and Media Companies

Note that half of Sony’s revenue comes from gaming, music, movies, and TV. A third of Comcast’s revenue comes from NBCUniversal’s film, TV, music, and theme park operations.

Our takeaway: Given the alternatives, maybe AppleDisney isn’t too bad?

If Disney is a merger and acquisition candidate, so are its competitors. The last wave of consolidation brought us Comcast/NBC/Universal, Warner Bros./Discovery, and Disney/21st Century Fox. However, trust-busters will probably block any further consolidation “in the family.”

Looking at the companies large enough to gobble up content producers, Apple is one of the few that could. Alphabet/Google and Meta/Facebook already wear multiple targets from American, European, and Chinese regulators. Big acquisitions aren’t in the cards.

Amazon bought MGM last year, a move that significantly improved Prime Video’s catalog but would make further purchases tricky. NVIDIA is too busy raking in cash from AI. Tesla stock is tangled up with Twitter/X (but it’s Musk, so ¯\(ツ)/¯). Walmart spent the past decade getting out of the streaming business.

So that leaves one other candidate for rescuing Hollywood: Wall Street-backed hedge funds.

Because that’s how you get quality content at affordable prices, right? Right?

The Watchlist

Put your camping shoes on and get your jazz hands ready, Theater Camp is streaming now on Hulu.

Looking for a new, earth-friendly place to shop? Take a peek at Holi! The newly launched marketplace sells sustainable products from shoes to skincare to chocolates, all at affordable prices. Find something you like and get free shipping when you spend over $40.

See if love is strong enough to reach the skies in Love at First Sight, the rom-com coming to Netflix, Friday, September 15th.

American Horror Story returns Wednesday, September 20th on FX and Hulu, with its newest season, Delicate.

The Sex Education crew is tackling sixth form in the final season of the series, hitting Netflix, Thursday, September 21st.

Return to the John Wick universe in The Continental. The spin-off series following a young Winston fights its way onto Peacock, Friday, September 22nd.

A young woman is forced to fight for her life when extraterrestrial beings invade her childhood home in Hulu’s No One Will Save You. The original film releases on Friday, September 22nd.

Wes Anderson’s adaptation of Roald Dahl’s The Wonderful Story of Henry Sugar drops onto Netflix, Wednesday, September 27th.

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