The times they are a-changing when the owners of three of the four major networks can be doing a merger dance while their market capitalizations are surpassed by an upstart.
That’s what is happening. While Comcast Corporation (NASDAQ:CMCSA) and Walt Disney Co (NYSE:DIS) wait for a court ruling that may give the go-ahead for huge media mergers, like their proposals to buy most of Twenty-First Century Fox Inc (NASDAQ:FOXA), Netflix, Inc. (NASDAQ:NFLX) is becoming more valuable than either one of them.
When the market opens June 11, Netflix will have a market cap of $156 billion, Disney $154 billion, Comcast $147 billion and Fox $73 billion.
This doesn’t mean Netflix is bigger than anyone involved in this deal. It means the market thinks more of its prospects and the market is often right.
It should be noted that AT&T Inc. (NYSE:T), whose proposed merger with Time Warner Corp. (NYSE:TWX) is due to have its fate decided late on June 12, by Judge Richard J. Leon, has a bigger market cap than any of these companies, opening for trade June 11 at nearly $208 billion, with Time Warner worth almost $75 billion more.
What Wall Street values is the customer relationship. AT&T, with both wired and wireless networks, has the biggest one on the board, consumers paying as much as $400 per month to get AT&T Wireless and U-Verse cable and Internet services. Not only that, but the end of net neutrality means AT&T can force its entertainment assets on its customers, slowing down the signals of rivals or charging high prices for them while it “gives away” access to what it owns.
If Leon rules that the merger can go ahead, and the Trump Administration doesn’t throw a wrench in the works with an appeal, it creates a new sense of urgency around the war for Fox. It puts the loser in that match-up far behind the winner.
This is especially true if the winner is Comcast, which is expected to table an all-cash offer for the Fox assets on June 13, after the judge rules. Disney is bidding $52.4 billion in stock for the Fox assets, giving Fox shareholders about one-fourth of the combined company. The value of Disney’s physical assets in March was about $98 billion.
Comcast’s all-cash bid of $60 billion means its debt level, already $63 billion, would skyrocket, approaching the level of AT&T’s $133 billion. Yes, but AT&T has $433 billion in physical assets, Comcast just $190 billion.
The Internet Is High Card
While Netflix has a higher market cap than Comcast or Disney, that’s on just $20 billion of assets. The market is valuing internet subscription revenue far more highly than that coming from entertainment or even Internet access.
Changing that is what ending net neutrality is all about, since we haven’t even discussed the elephant in the room — Amazon.com, Inc. (NASDAQ:AMZN). With a market cap of $817 billion, and with $177 billion in revenue last year (AT&T had $160 billion) Amazon could clear the whole board.
If the winner of the Fox assets decides to favor its own content over Amazon’s, as it could, Amazon and rival Alphabet Inc (NASDAQ:GOOGL), with $782 billion in market cap and $111 billion in revenue last year, would likely have something to say about it.
The Bottom Line
In the fast-changing media landscape, the Comcast-Disney battle for Fox is a sideshow. That’s what the market seems to be saying, based on the relative valuations of the players in the game, and on the sidelines. It’s something to keep in mind as the story unfolds in the next few weeks.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at [email protected] or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AMZN and T.