Disney’s acquisition of 20th Century Fox at the end of 2017 has already begun to shake things up in the entertainment industry, but the business could change even further this year. According to Citi analysts Jim Suva and Asiya Merchant, there is a 40 percent chance Apple will buy streaming giant Netflix.
Suva and Merchant sent a memo to clients in December outlining some of their predictions for the coming year, and the Apple/Netflix merger came in at a 40 percent likelihood. The reasoning is relatively thin and circumstantial, as either company has even hinted at the possibility, but they’re running with the prediction anyway. It all begins with the recent changes in the corporate tax code that was recently signed by President Trump.
According to Business Insider, the changes to the corporate tax code will provide companies with a one-time opportunity to bring back cash they have stored overseas without having to pay full taxes on it. Apple has an estimated $252 billion—about 90 percent of its cash, according to Citi—in foreign holdings, which it can now bring back to the U.S. It would reportedly take just one third of that sum to buy Netflix, which remains one of the few independent media companies.
"The firm has too much cash—nearly $250 billion—growing at $50 billion a year. This is a good problem to have," Suva and Merchant told their clients. "Historically, Apple has avoided repatriating cash to the US to avoid high taxation. As such, tax reform may allow Apple to put this cash to use. With over 90 percent of its cash sitting overseas, a one-time 10 percent repatriation tax would give Apple $220 billion for M&A or buybacks."
So, Apple has the means, but what would be the motive? Historically, Apple has failed rather spectacularly at creating original streaming content. It certainly succeeds in creating the hardware with which people stream stuff, and has also had success with apps like the iTunes Store or the App Store that facilitate the streaming content. Apple has a demonstrated interest in breaking out into the streaming market—last year the company green-lit a drama produced by and starring Reese Witherspoon and Jennifer Aniston as well as a Steven Spielberg and Bryan Fuller project—so it’s not completely out of the question that Apple would want to acquire the streaming giant.
Although it might seem farfetched, Citi did predict that Disney would buy 20th Century Fox, and gave it a 20-30 percent chance of happening. And, as we all now know, that deal really did happen. All we mere mortals without $200 billion can do is speculate about what a huge company like Apple would do to Netflix. While it have certainly missed the mark on more than one occasion, Netflix remains one of the few places in the entertainment industry that is still willing to take major risks and bankroll projects that might be considered risky or against the grain.
