Good evening, I'm William D. Cohan.

Welcome back to Dry Powder. Today, I'm talking with my colleague Matt Belloni about whether Netflix is overvalued, Blackstone's Hollywood acquisition spree, and what entertainment assets the private equity giants may be targeting next. 

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Have a great Thanksgiving,

Bill

Private Equity's Hollywood Dreams

A Thanksgiving digestif with Matt Belloni about the media’s subscriber obsession, Netflix vs. Tesla, Apollo’s entertainment goals, and, of course, this season of Succession.

Matt Belloni: Earnings season for Big Media just ended, and the takeaway is that streaming services are slowing. At least for Disney and ViacomCBS, that has translated into drops in share price. The market largely values subscription creation, presumably on the theory that only three or four global services will survive this arms race. Meanwhile, Netflix, the leader in the category, is now more valuable than Disney, even though its subs are slowing, too. I’ll again ask the age-old question: Is Netflix overvalued?  

William D. Cohan: I don’t want to draw a comparison between Netflix and Tesla, but the graveyards are full of people who shorted both of them. Nearly ten years ago, I wrote a piece for Vanity Fair about Reed Hastings, Ted Sarandos and Netflix. It was just after Reed announced he was splitting the company into two pieces—a streaming service and his then-dominant DVD-by-mail service (remember Qwikster, anyone?). Netflix’s stock tanked and Reed fell on his sword and abandoned the split. I’ll never forget meeting Sarandos in his L.A. office. He had no handlers or entourages. He shared with me a copy of a script for a show Netflix had bought, written by Beau Willimon: House of Cards. At that time, Netflix’s stock was trading at around $65 a share. Carl Icahn, the billionaire corporate raider, decided to load up on Netflix stock. No leverage. No saber-rattling. No takeover talk. Just looking at a stock that had been beaten down, and thinking it would recover. Soon enough, the stock was at $350 a share. Icahn had made six times his money. So, bet against Netflix? I don’t think so.

Belloni: Any other media stocks you like right now? Even in this overheated market, Roku is a company I think might be undervalued. It’s one of the key streaming video gatekeepers, it just announced an ambitious original content initiative, it’s got earnings momentum, and for some reason the share price has dropped 30 percent this year.   

Cohan: Well, I don’t like to pick stocks, especially overpriced/highly valued media stocks at the top of a 12-year bull market. It’s hard to know where value resides these days, since many stocks are at or near their 52-week highs, even after today’s drop. As we have discussed before, though, I don’t understand the trading on Discovery—which is down 15 percent year to date, and down some two-thirds from its March high at the time of the announcement of the WarnerMedia deal. I can’t figure out why investors have soured so much on the prospects of this merger, with David Zaslav running the combined companies...

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