NEW YORK (TheStreet) -- Billionaire activist investor Carl Icahn has acquired a 10% stake in Netflix(NFLX) - Get Report, saying publicly that he views the popular online video site as a takeover target for larger media, tech and telecommunications giants.
Shareholders are typically paid a hefty premium over the market price of their stock when their company is acquired, and Icahn is a brilliant investor. He knows the video entertainment business well, and he has numerous facts to back him up on this one. But I doubt he'll be received well by Netflix founder and CEO Reed Hastings.
That's where I suspect this is all headed -- a public tussle between Icahn and Hastings over the sale of Netflix. Right now, Icahn is talking nice about Hastings, praising him for expanding internationally and developing original series and calling him a "smart guy."
But anyone who has watched Icahn closely over the years knows that he typically buys big stakes in companies because he sees an opportunity to push them in a new direction that will raise their market value in a short span of time.
Usually, this situation is the result of a management team that is resistant to heading in Icahn's preferred direction. When they refuse to heed his advice, Icahn then accuses them of acting against the interests of shareholders and embarks on a campaign to build shareholder support and force their hand.
More often than not, Icahn gets what he wants, and he has amassed a sizeable fortune to prove it. In many cases, company leaders that resist Icahn wind up being shown the door. As a result, it's not uncommon for companies to hire armies of lawyers, bankers and public relations operatives to thwart his efforts, and no corporate executive on the planet -- least of all Netflix's Hastings -- is happy to hear that Icahn has taken an interest in their shares.
It's the corporate equivalent of finding out that Tom Brady has taken an interest in your girlfriend, and he's taking her out for a night on the town. Don't wait up!
It's the beginning of the end.
You could easily detect the apprehension and wariness in the response to Icahn's move from a Netflix spokesman: "We have many shareholders, now including Mr. Icahn, and we're always open to their perspective on how to build on our success."
Translation: We have zero interest in anything Icahn has to say.
Netflix is Hastings' baby. It's a groundbreaking, digital media phenomenon that he built from scratch into a multibillion-dollar enterprise with over 30 million subscribers, a wildly popular brand and a gigantic leadership position at the forefront of a consumer technology revolution in how people enjoy video entertainment--one of the largest, most prestigious and coveted businesses on the planet.
Do you really think Hastings wants to sell his baby to
Icahn knows perfectly well that Hastings isn't going to like being pressured to sell Netflix. He also knows that many deep-pocketed companies are salivating to own Netflix, or at least watch from afar while it gets neutered by a new set of corporate overlords.
Just look at Netflix's nearest direct competitor, Hulu, which is owned by media giants
. It has a mere two million paid subscribers, and its CEO Jason Kilar is constantly having his wings clipped by his old media parents as they strive to look cool by embracing technology while also keeping the online video genie in the bottle.
Netflix has been a new source of business for many media companies, but those benefits are far outweighed by the fact that it has also been a royal pain in the industry's ass.
The more time consumers spend watching good shows and movies on Netflix for $8 a month, the more they resent the fact that they're also paying over $50 a month for traditional pay-TV service, which entails enduring hours of advertising (or fast-forwarding advertising) and navigating the maze of worthless channels, arbitrary schedules and chitty-chitty-bang-bang technological interfaces and hardware.
When it comes to digesting entertainment in the digital age, it's abundantly clear that the Internet is the delivery medium of the future. In delaying progress towards that future to protect their financial interests, media conglomerates and telecommunications giants are doing their jobs (and I sympathize with them for that), but they're also delaying the inevitable.
Netflix, meanwhile, is doing its part to speed things along, and consumers know that instinctually. That's why they still subscribe to Netflix even after the media industry yanked all the good content from its streaming service, having realized they were tempting too many people to drop pay-TV altogether and use Netflix to move to an online-video-only home entertainment set-up.
An acquisition of Netflix by a tech company like
could give it much-needed financial heft to push its agenda. Perhaps Hastings could stomach that outcome and cash in his chips, but a sale to a media company or a telecommunications or cable company would be surrender.
For Icahn and many Netflix shareholders, though, only the price tag matters, and that's why this could get real interesting real fast.
At the time of publication the author had positions in GOOG, AAPL and MSFT.
This article was written by an independent contributor, separate from TheStreet's regular news coverage.
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