By Cliff Edwards and
Michael White -
Nov 1, 2012 1:03 AM ET
Exclusive: Icahn Says Netflix Can Be Consolidated
Carl Icahn took a 10 percent stake in
Netflix Inc. (NFLX), putting the world’s largest video streaming
service in play and signaling a potential end to its days as an
The 76-year-old investor disclosed yesterday a
$168.9 million bet on Netflix, buying stock and options representing
5.54 million shares. The Los Gatos, California-based company posted its
biggest gain since January after Icahn said deep- pocketed competitors
Amazon.com Inc. (AMZN) and
Verizon Communications Inc. (VZ) were potential suitors.
Netflix has been the most aggressive player in
establishing the market for online video, building a subscriber base of
25.1 million U.S. customers and nearly 5 million internationally. Its
dominant hold positions the company as the biggest prize in a market
that Icahn sees as ripe for consolidation. As consumers turn to the
Internet for TV shows and movies, rivals must spend billions to overtake
Netflix, or pay to acquire it.
“This could be a great jumping off point for
them,” Icahn said in an interview on Bloomberg Television. “There’s so
many possible combinations.”
Netflix surged 14 percent to $79.24 yesterday in
New York, its highest close in more than three months. It was the
biggest advance since Jan. 26, pushing the stock to a gain for the year.
Joris Evers, a spokesman for Netflix, declined to
comment on Icahn’s stake.
Robert Varettoni, a spokesman for New York- based Verizon, declined
to comment on whether the telecommunications company is interested in
Netflix. Drew Herdener, an Amazon spokesman in Seattle, didn’t respond
to a telephone request for comment.
Netflix is far ahead of its rivals. The company
turned its DVD-by-mail service into the top subscription streaming
destination for movies and TV shows, with a $7.99 monthly fee for
unlimited use, doling out billions for rights to films and television
Hulu LLC, owned by
News Corp. (NWSA),
Walt Disney Co. (DIS) and
Comcast Corp. (CMCSA), said last month it had 2 million paid users
to its Hulu Plus service.
Amazon, the world’s biggest online retailer, ties
its video subscription to the $79-a-year Prime service, which offers
free shipping. Prime had 3 million to 5 million customers in October
2011, with a goal to reach as many as 10 million by October 2013, people
familiar with the matter said in February. In September, it added movies
Viacom Inc. (VIAB)’s Paramount Pictures, Metro-Goldwyn-Mayer and
Lions Gate Entertainment Corp. (LGF) in a deal with the Epix pay-TV
Verizon and Bellevue, Washington-based
Coinstar Inc. (CSTR), owner of the Redbox video kiosks, plan to
start their Redbox Instant service year-end. The venture will combine
subscription streaming, video-on-demand and the sale of digital copies
with access to Redbox DVD rental machines.
Icahn, an activist who has pressed for buyouts and
management changes at some companies he held stakes in, praised Netflix
Chief Executive Officer
Reed Hastings for expanding internationally and developing original
series. In a
filing, Icahn said the company may have appeal to larger buyers.
“I think Reed Hastings is a smart guy,” said
Icahn, who had invested in the competing Blockbuster video-rental store.
Icahn probably isn’t seeking a change in Netflix’s
direction, said Daniel Ernst, an analyst with Hudson Square Research in
Buying Netflix shares, which crossed $300 in July
2011, at less than $60 could make Icahn a winner whether or not a buyer
emerges, Ernst said. The investor hasn’t publicly agitated for change at
Take-Two Interactive Software Inc. (TTWO), where he is the
second-largest shareholder with 7.9 percent.
“If you’re someone like Icahn, who doesn’t need to
listen to markets, that probably means it sounds like a good strategy,”
said Ernst, who rates Netflix a “buy.” “He also probably thinks another
strategic buyer might like it, too.”
The investor has made several large bets in media.
Lions Gate, Icahn sought to win control of the independent film and
TV studio, selling his stake when he failed to win seats on the board.
Icahn was also the largest shareholder at MGM
Holdings Inc., the parent for the
Metro-Goldwyn-Mayer (MGMB) film studio, before agreeing in August to
sell some 17.6 million shares back to the company for about $590
Last year, Icahn returned all of the money he
managed on behalf of outside investors, citing concerns about the
economy and unrest in the Middle East. The
hedge funds had about $5.4 billion of assets as of June 30,
consisting of money invested on behalf of Icahn and his publicly traded
A buyer for Netflix would face numerous
challenges. Domestic subscriber growth is slowing, the company is losing
money from its international expansion and it has at least $5 billion in
content obligations, including $2.1 billion over the next 12 months,
according to its Oct. 23 third quarter report.
Those multiyear commitments would make it
difficult to cut costs, said
Eric Wold, a B. Riley & Co. analyst in
San Francisco who recommends selling the stock.
“You are getting a significant subscriber base,
but subscribers can cancel at any time without a penalty, so there’s no
long-term security there,” Wold said. “They have content, but 80 percent
is not exclusive, so you can get the content from someone else at a
To contact the reporters on this story: Cliff
Edwards in San Francisco at
Michael White in
Los Angeles at
To contact the editor responsible for this story:
Anthony Palazzo at