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Wall Street Abuzz with Rumors: Will Disney Acquire Netflix?

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A week after speculations that media behemoth, The Walt Disney Company (DIS - Free Report) may be a potential contender to acquire Twitter, Inc. (TWTR - Free Report) – a popular microblogging site – another buyout rumor has surfaced. Per media reports, Disney may make an attempt to buy Netflix, Inc. (NFLX - Free Report) , the online streaming giant. The buzz in the market was enough to send shares of Netflix up 4.1% yesterday. However, shares of Disney dipped 0.4%.

Industry experts believe that Disney may be looking to add new businesses to its media and entertainment portfolio after a drastic change was noted in the viewership preference from traditional television to subscription video-on-demand and online streaming. They think that amid such a scenario, Netflix may be the right choice for Disney to enhance its direct-to-consumer streaming model. However, the relationship between the two will not be a new one.

Effective this September, Netflix holds exclusive streaming rights of films under the Disney brand as well as its subsidiaries – Marvel, Lucas Films and Pixar. Disney’s fans will now be able to view all the new releases on Netflix. Well, the deal seems feasible as Netflix dominates the subscription video-on-demand services with an impressive lineup of original content, and Disney can use this platform to rein in its dwindling subscriber base due to increasing cord-cutters.

Indeed the cord-cutting issue has put a serious strain on Disney, which hinges on its cable networks like ESPN for a bulk of its revenue. Disney’s primary cash cow – ESPN – has come under a lot of pressure as the Pay TV landscape continues to alter owing to the migration of subscribers to online TV since consumers do not want to pay for large bundles of channels.

Disney’s primary problem is that viewers are ditching their expensive cable subscriptions for online pay TV accounts, and the acquisition of Netflix may provide a lifeline. On the other hand, Netflix will enjoy a wider subscriber base as more and more die-hard fans of Disney sign up for the service.

Disney currently carries a Zacks Rank #3 (Hold). A better-ranked stock in the space is Media General, Inc. . Shares of this Zacks Rank #2 (Buy) company have gained over 9% in the past three months. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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