The media and entertainment industries have been rife with M&A this year and Netflix Inc.'s (NFLX) - Get Netflix, Inc. (NFLX) Report Chief Content Officer, Ted Sarandos, doesn't expect that trend to slow down in 2018.
"I do think further consolidation in media companies will happen," Sarandos said at Monday's UBS Global Media and Communications Conference in midtown Manhattan. "It's not just a matter of strategy, but a matter of survival in some cases."
In the past few years, the TV and movie landscape has become increasingly fragmented, as consumers have more options than ever to view content. This has, in part, served as a catalyst behind the recent wave of consolidation among broadband, cable and traditional media companies, including Time Warner Inc.'s (TWX) $85.4 billion sale to AT&T Inc. (T) - Get AT&T Inc. Report , proposed in 2016; Discovery Communications Inc.'s (DISCA) - Get Discovery, Inc. Class A Report $11.9 billion bid for Scripps Networks Interactive in July; and Sinclair Broadcast Group's proposed $3.9 billion purchase of Tribune Media, among others.
Another megadeal that could be waiting in the wings would involve Walt Disney Co. (DIS) - Get Walt Disney Company Report buying most of 21st Century Fox's (FOXA) - Get Fox Corporation Class A Report entertainment assets. The rumored bid, which is still in preliminary stages, could also involve Comcast Corp. (CMCSA) - Get Comcast Corporation Class A Report and Verizon Communications Inc. (VZ) - Get Verizon Communications Inc. Report making a play.
These deals have the potential to impact Netflix, as more and more companies consider launching their own direct-to-consumer offerings that could go head-to-head with the streaming giant. Disney has already made moves to create an ad-free, direct-to-consumer app that would house all of its Marvel and Star Wars films, among other content. The company is also launching an ESPN streaming platform.
"I'm not sure what Disney is doing and I'm not positive Disney knows either," Sarandos explained. "...[Star Wars, Walt Disney and Pixar] are really destination brands for sure and Disney has been really good at being a destination company. They've also been a really effective third party seller, so it will be interesting to see if this is a boutique operation or if its going to be some mix of that thing."
Industry watchers continue to suggest that Netflix should compete to own streaming rights for sports programming, but Sarandos shut down that idea. Tech giants like Amazon.com Inc. (AMZN) - Get Amazon.com, Inc. Report , Facebook Inc. (FB) - Get Facebook, Inc. Class A Report and Twitter Inc. (TWTR) - Get Twitter, Inc. Report have engaged in bidding wars over the rights to professional sports like NFL and MLB, but so far, Netflix has steered clear.
"The reason why I've been less attracted to sports is I think the leagues have almost uncheckable pricing power and ultimately will go direct to consumer," he said. "I honestly believe the prize is to take the NFl direct and MLB direct to the consumer and that gives them unbelievable pricing power that I'm not attracted to."
Instead, Netflix is doubling down its efforts on content spending. The company expects to spend between $7 billion and $8 billion on content in 2018, up from $6 billion this year. That includes shelling out cash on TV and movies, as well as expanding its focus on content specific to international markets, Sarandos noted.
Sarandos also pointed to some projects that aren't working out as well for the company. Netflix doesn't plan on entering China "anytime soon," Sarandos said, due to the difficult operational environment for Western media companies. Netflix has repeatedly failed to enter the Chinese market and, as a result, has settled for licensing deals with Baidu's (BIDU) - Get Baidu, Inc. Sponsored ADR Class A Report streaming subsidiary, iQIYI.
Additionally, Sarandos announced that Netflix would begin producing a sixth and final season of the company's hit political drama House of Cards in 2018. The eight episode season will not include lead actor Kevin Spacey, who has been embroiled in sexual assault allegations, and will instead star Robin Wright. The season will bring some "closure" to fans, Sarandos said.
Netflix has been a major force behind the recent disruption of the TV space and Sarandos is hoping a similar trend will start to take shape in the movie industry. The company is ramping up its focus on original movie production, with plans to release 80 original films this year. The company still uses a "direct-to-Netflix" strategy because the theatrical release market is a "lousy business," he added.
"[There's a] debate of whether a movie for Netflix is really a movie," Sarandos said. "That's a generational debate. The question is, can you shake up the market enough so that it comes to expect big theatrical releases to be on Netflix?"
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