Harvard 2020 Case Winner

Providentia Capital
Aanand Negi | Kunal Vats | Ojas Jhamb | Raghav Nath | Sparsh Sehgal
Shaheed Sukhdev College of Business Studies, University of Delhi
New Delhi, 20th March, 2020
Conquering the Subscription Video

on Demand Market
Table of Contents
Executive Summary
I. Industry Analysis
II. Company Overview
1. Amazon
2. Netflix
III. Strategic Fit
IV. Financial Analysis
1. Comparable
2. Discounted Cashflow
V. Acquisition Feasibility
VI. Alternative Solution
1. Evaluating the Alternatives
2. Post-Acquisition Strategy
3. Financial Feasibility
VII. Conclusion
Appendix
Bibliography
Executive Industry Company Strategic Financial Acquisition Alternative

Conclusion
summary Analysis Overview Fit Analysis Feasibility Solution
Table of Abbreviations
Abbreviation Explanation Abbreviation Explanation

SVOD Subscription Video On Demand APAC Asia-pacific
OTT Over The Top INR Indian National Rupee
MVPD Multichannel Video Programming Distributor UX User Experience
CDN Content Delivery Network UI User Interface
HHI Herfindahl Hirschman Index OCA Open Connect Appliances
EV Estimated Value ISP Internet Service Provider
LTM Last Twelve Months E&M Evaluation And Management
NTM Next Twelve Months AVOD Advertising Video On Demand
FAANG Facebook, Amazon, Apple, Netflix And Google YoY Year On Year
OIBDA Operating Income Before Depreciation And Amortization CAGR Compounded Annual Growth Rate
FTC Federal Trade Commission Ecomm Electronic Commerce
USD United States Dollar Pharma Pharmaceutical
EUR Euro VR Virtual Reality
AWS Amazon Web Services AR Augmented Reality
Tech Technology 3D Three Dimensional
R&D Research and Development EBITDA Earnings Before Interest, Tax, Depreciation And
Algo Algorithm Amortization
Mn Million
Bn Billion
EMEA Europe, the Middle East and Africa

Conclusion
I. Executive Summary

Conclusion
Executive Summary
whose products and brand will have strategic value for GM in the
future EV landscape
ShouldAmazon acquireNetflix?
Amazon should not acquire Netflix Amazon should acquire ViacomCBS
The capital market currently overvalues Netflix by 43.42% The Capital Market severely undervalues ViacomCBS by
80%.
Netflix Management is not open to an acquisition which results
in a hefty premium The owners may be looking to sell, which results in a
smaller premium
This premium is not justified by the relatively limited synergies
that emerge The synergies that arise are far more significant than those
that arrive with Netflix
The transaction is not financially feasible and would lead to
destruction of wealth The transaction is financially feasible through a reasonable
issue of debt

Conclusion
II. Industry Analysis

Conclusion
Industry Analysis – Segmenting the Industry (1/2)
The Over-the-Top (OTT) Services Industry is the newest major sub-Industry under Key Definitions
the Global Entertainment & Media (E&M) Industry umbrella…
Entertainment & Media Market
Entertainment & Media E&M Market comprises production,
broadcasting and marketing of audio and video
Industry content including music, TV, movies,
advertising and publishing; it comprises
auxiliary services such as cabling and ticketing
as well
Over the Top Market

Media companies that offer audio and video
content using Over the top (OTT) bypassing
cable, broadcast television or telecomm
channels; includes Video on Demand,
Livestreaming, Game Streaming etc.
Back-end Media Broadcast Media OTT Services Subscription Video on Demand Market
Services Ex. Television, Cable Ex. Internet based Music Media companies that offer online video
Ex. Scripting, Recording, Networks, Movie Halls etc. or Video Streaming content comprising movies, sitcoms, sports
Production Encoding, etc. using the OTT model and charge a
Distribution etc. regular subscription fees for the same.
Analysis in the Next Slide

Conclusion
Industry Analysis – Segmenting the Industry (2/2)
The Subscription Video on Demand (SVOD) Market is a Key Portion of the OTT Industry…
Streaming Platforms SVODs form a major portion of the OTT market

and are supported by numerous auxiliary Video Management
services such as Distribution and Management.
Subscription Video on Demand Digital Rights Management
Sports
Encoding & Transcoding
Gaming
Mapping
User Generated Content the
Video Distribution
Gaming
IPTV Distribution
Internet Protocol TV
Content Delivery Network
Virtual MVPD
OTT
Industry*
Multichannel Networks Streaming Devices
*company list is non-exhaustive

Conclusion
Over-the-Top is Rising to Prominence in the Global E&M Segment
OTT Video is Poised to Attract Higher Investments as it’s backed by Data Consumption Growth and Favourable Consumer Patterns…
OTT Video is projected to have the highest CAGR in the TMT Sector… Consumers are Spending more and more Hours Watching Streamed Content…
Pools of Growth in the TMT Sector
250 27
Average Weekly Video Content Consumption (in hours)
Global Revenue Growth (in $ bn)
23 Live Broadcast TV Streaming Video

200 22 22
Mobile 20
150
Internet 17
16
17
15 15
10
100 Video
Fixed OTT 8
7
8
Games
50 Broadband Video
Pay TV
0
Japan United States Germany France Brazil United China
-2% 0% 2% 4% 6% 8% 10% 12% 14% 16% Kingdom
-50
Forecasted CAGR 2018-23 …and with each passing year, Digital Revenues account for a higher percentage
of the E&M
…and Data Consumption is Rising across the Globe (2018-23 CAGR) Global Data
Consumption Global Digital Revenues as a % of Total Revenues Actual Forecasted
CAGR is 26.4% 55.4%

50.5% 53.1%
43.9% 47.0%
40.7% 58.9% 60.3% 61.6%
57.3%
44.90% 40.90%
32.60% 32.60%
23.60%
Nigeria India Indonesia China US

Sources: PwC Global E&M Outlook 2019; Deloitte Digital Trends Survey 2018 2014 2015 2016 2017 2018 2019 2020P 2021P 2022P 2023P

Conclusion
SVODs are Changing the Dynamics of the E&M Industry
The USA exemplifies the Changes that the OTTs can bring to the Incumbent Traditional Players…
Majority of American Consumers already prefer Online Streaming over TV Cable…
1
1 Online Streaming Subscribers 2 TV Cable Subscribers 82% of the US Households surveyed by Flixed and BusinessOfApps that
had both Online Streaming and Cable TV Subscriptions stated that they
find Online Streaming content more entertaining than TV Cable content.
82.0% 18.0% 65.6% 34.4% 2
65.6% of only TV Cable Subscriber Households stated that they would
find Online Streaming more entertaining than their TV Cable content.
Online Streaming Services TV Cable
…and 34.9 million USA Households are expected to “Cut the Cord” to Traditional Non-Pay TV Households in the US will rise to 56.1 million by 2023, this includes
Cable by 2023 and Switch wholly to OTT Driven Video on Demand Content “Cord-Cutters” and “Cord-Nevers”, ie new Households that Never had Cable TV
Cord Cutter Households in the USA (in millions) 34.9 Cord-Cutters: 120 Pay TV vs Non-Pay TV Households in the US, 2013-23
35 31.8 60.0% Households that 100.5 100.5 99.6 97.7
28.6 had Cable TV but 94.3
Households (in millions)

30 100 90.3
50.0% switched wholly 86.5
25.3 82.9
79.4
25 to SVODs 76 72.7
21.9 40.0% 80
20
27.1% 60
24.8% 30.0%
22.4% Cord-Nevers:
15 19.9% 40.2
17.3% Households that 31.6
36
52.3
56.1
20.0% 40 26.9 48.3
10 never had Cable 22 23.6 44.3
20.6
TV in the first
5 10.0% 20
place and have
0 0.0%
been using
0
2019 2020 2021 2022 2023 SVODs since the
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Cord Cutter Households % of US households beginning.
Pay TV Non-Pay TV
Sources: Emarketer; BusinessOfApps

Conclusion
SVODs are Disrupting the Incumbent Media Players
Media and Tech Conglomerates are Launching their own Video OTTs to adapt to the Changing Market and Hop onto the Wealth Creation Bandwagon
Capital Markets Value SVODs such as Netflix higher than Netflix was the best performing stock in the S&P 500 for the decade 2010-19 with a
Traditional Media Incumbents such as Disney & Comcast… whopping return of 4181% against the index’s return of mere 189%, exemplifying that the
Netflix Disney Comcast technology driven SVOD and OTT Industries are highly valued by the Capital Markets.
P/E Ratios of Netflix, Disney & Comcast Seeking Greater Shareholder Wealth, Tech as well as Media Conglomerates have
78.35
entered the OTT Industry in 2010s or are soon planning to enter…
Conglomerate OTT Service Launch Date
24.35
15.89 12th November 2019 for USA & Canada
12th March 2020 for India
24th March 2020 for UK, Germany, France
P/E Ratio etc.
P/BV Ratios of Netflix, Disney & Comcast
May 2020
19.28
15th April 2020 for Xfinity & Flex

2.77 2.47 Customers; 15th July 2020 for the US
P/BV Ratio
September 2019
P/S Ratios of Netflix, Disney & Comcast
7.25
7th September 2006 for Downloading
Purchased Content and 22nd February
2011 for rebranding into an OTT Service
3.3
1.9
1st November 2019
P/S Ratio Media Conglomerates Tech Conglomerates

Conclusion
Content is King – Content is the Valuable Commodity
Media Conglomerates launching their own Video OTTs has lead to Content Wars and Exclusivity
Media Conglomerates pose a Threat to Streamers such as Media Houses have a Large Scale of Operations as they own Gigantic Amounts of Content…
Netflix and Prime Video… Disney Owns
Several Content
“Netflix will lose one of its most streamed shows, “The Assets & Rights
Office” to NBC for its new Streaming Service Peacock.”
– The Verge
“Disney will not be renewing its 2016 contract with

Netflix that gave the streaming service access to Disney
movies including “Pirates of the Caribbean,” “The
Incredibles 2,” “Thor,” and several “Star Wars” films.” –
USC Annenberg Media
Disney+ has Gained 28.6 million subscribers in its first 90 days and could disrupt
Netflix and other Video Streamers if all its Content is put on Disney+
Similarly, Giants such as Comcast and AT&T owned WarnerMedia could also pull off Content
“FRIENDS won’t be available on Netflix starting 2020 as for their Streaming Services Peacock and HBO MAX respectively…
it will be available on WarnerMedia (AT&T)’s streaming
service HBO MAX from May 2020” – CNBC
Note: Map of Disney is not Exhaustive and only covers major Content Assets
And much more… And much more…
that may be jointly or wholly owned.
Conclusion
Streaming Companies are turning into Content Producers
Media Conglomerates launching their own Video OTTs have Compelled the Streamers to Invest in Content
Streaming Companies are now Investing Heavily into Original …and are Quickly Becoming a Major Player in the E&M Industry
Content… Share in Original Content Expenditure Emmy Nominations - OTT vs Traditional
Original Content Spending in 2019 (in USD billion)
To put things into Perspective, more
MGM 0.8 Streaming Companies than one fourth of all Content
Google (Youtube) 0.9 Traditional Media Companies Production Investment in 2019 came
30%
AMC 1.1 from Tech Streaming companies.
Lionsgate 2.3 Facebook, Amazon,
Facebook 2.5 Apple, Netflix and
Sony Pictures 2.7 Google (FAANG Percentage of Original Content
Discovery 4.6 Companies) invested an Expenditure by Streamers 70%
Fox 5.7 estimated total of USD
Apple 6 30.9 Billion on Original
Amazon 6.5 Content in 2019. % OTT % Non-OTT(traditional)
25.64%
AT&T 14.2
ViacomCBS 15
Share in Emmy Nominations
Netflix 15
Comcast 15.4 74.36% In 2019, Tech Streaming Companies got
Disney 27.8 30% of the Emmy Nominations, indicating
0 5 10 15 20 25 30 that they are becoming a major player in
Note: The Charts Contain Original Content Spending only; leasing expenditures remain separate the Quality Content Production Market.
Traditional Streamers
Source: Variety Business Intelligence; Own Analysis
While Disney remains the largest content spender by a huge The FAANG Spending in Original Content is Driven by Netflix and Amazon which
margin, FAANG Companies have increased their spending as well. have been producing originals since 2014 to reduce dependence on Traditional
Netflix and Amazon are the two largest Streamers among FAANG. Media Companies due to their anticipation of Content Wars by the latter.

Conclusion
III. Company Overview

Conclusion
Amazon is Pivoting into an “Everything” Company
Through Continual Expansion as well as Vertical Integration, the Company wants to Leverage its Scale and Achieve Omnipresence
Delivery Services Payments

Prime Rewards
Fulfilment
Systems
Store Card
Books and Reading Smart Home
Book Rating
Audio Books
Entertainment Shopping
Fashion
Pharma
Arabic Langauge
Movie Rating Game Streaming Ecomm
Cloud Computing Physical Stores
Amazon Gov. Cloud

VR, AR &
3D Apps

Conclusion
Amazon’s Presence in the Video OTT Market
Owing to Bundling, Amazon offers a lot of Value against the Annual
Prime Video + Twitch = Amazon’s Video OTT Presence Subscription of Prime Membership…
Amazon’s Presence in the Video OTT Domain is marked through
Prime Video…
Amazon Prime Video's subscriber growth rate (2013-18) 50%
160
140
120 11.1% $784

38.5%
Total
100 Value
80 20.4%
150 $784
35%
60 $119
60% 100
90
40
65
54
20 40
25 $119
Actual Cost of
0
Amazon
2013 2014 2015 2016 2017 2018 2019 Prime
In most countries, Prime Video comes bundled with Amazon Prime, a flagship
membership programme of the company; Prime Video is also offered separately at
relatively reasonable monthly prices in markets such as USA and India

Conclusion
Amazon’s Bundled Subscriptions are a Key Growth Driver
Revenues from Subscription Services, driven by Prime, have risen to In 2019, Subscription Services Constituted 7% of Amazon’s
USD 19.21 bn in 2019 from USD 2.76 bn in 2014… Revenue…
Amazon Revenue By Segment Amazon’s Revenue Breakdown (in USD bn)
14.09
250 35.03 Online Stores

Others
19.21 5%
AWS
25.66
13%
Physical Stores
200
14.17
Revenue (in millions)
53.76
17.46 42.75 Subscription Services Third Party Seller
150 9.72 17.19 7% Services
31.88 17.22 Online Stores
50%
Subscription Services
6.39
5.8
100 22.99
4.47
2.76 16.09 Third Party Seller AWS
11.75 141.25 Services
122.99
50 108.35 19%
91.43 Others
68.51 76.86
Physical Stores
6%
0
2014 2015 2016 2017 2018 2019
Online Stores Physical Stores Retail 3rd party services Subscription Services AWS Other
Driven by an increase in Prime Subscribers due to expansion of Amazon into mass Even though Subscription Services formed only 7% of the Revenue in
consumer markets such as India, South Asia and South-East Asia + due to its cost utility, 2019, they contributing heavily to Online Stores’ revenue as an
Subscription Revenue has increased consistently since 2014, bringing more customers average Prime Member spends USD 1200 annually as opposed to an
into the Amazon ecosystem. average non-Prime Member who spends only USD 500.

Conclusion
Amazon has two Cash Cows in its Business Operations
AWS is Amazon’s Cloud Computing Vertical that
offers a pay-as-you-use model; it counts some of Private Private Labels are brands that are owned by
Amazon and are exclusive to Amazon’s
the world’s largest companies, including Video
Streamers such as Netflix and Hulu as its clients. Labels ecommerce platform
Over the years, Amazon has launched its own Private Labels encompassing
categories such as soft electronics, bags, fashion & apparel, shoes, toys,
diapers, cosmetics, consumer goods etc. with the most common of them
being Amazon Basics, private labels now contribute ~2% of Amazon’s
Revenue.
Private Labels may Benefit from Skewed Search Results since Amazon owns the
Ecommerce Platform too …
As Alexa’s household penetration
5.40% AmazonBasics Click Share rises, the smart-assistant may
$35 Bn Total Revenue= $280.5 Bn direct consumers to Amazon’s
12.5% 87.5%(REVENUE) Products first, thus creating a
AWS constituted 63.27% 3.60% huge operational moat.
of Amazon’s Operating
2.70% 2.50% Through its Ecommerce platform,
AWS Income despite being
1.70% Amazon has collected years of
only 12.5% of its data on what price/product
revenue in 2019 combinations work best for
$9.2 Bn
which consumer, hence providing
63.27% 36.73% a technological moat.
Top 1000 Top 10000 Top 50000 Top 100000 Top 500000
Operating Income Operating Income Search Terms Search Terms Search Terms Search Terms Search Terms
Total Operating Income = $14.5 Bn

Conclusion
Amazon has its own Methodology of Acquisitions
Similar to other Tech Conglomerates, Amazon too has Indulged in Multiple Amazon has history indulged in two
Acquisitions…
types of acquisitions
Amazon’s Major Acquisitions
Vertical Integrations & New Market Entries
16 A key element in all acquisitions is that they
Operational Efficiencies & Expansions
can be paired with at least one of Amazon’s
14 existing verticals for better efficiency and
Acquiring a company to
future growth. increase the operational
12 $13.7bn Entering a new market from
efficiency of any one of its
Eg. Whole Foods with Amazon Go (Cashier- the scratch in order to expand
Value ( In Billion Dollars)
existing subsidiaries or core

its presence across business
10 less Shopping tech) for future growth processes and/or to integrate
verticals
more portions of the value
chain
8 $1.2bn
$1.0bn Eg: Ring; aids efficient Eg: Whole Foods; aided

$775mn
6 $580mn deliveries & Alexa’s Smart Amazon’s expansion into the
$1.2bn 4970mn
Home Presence Brick & Mortar Food Retail
4 $500mn
$370mn
Eg: Kiva Systems; aids efficient Eg: Twitch; aided Amazon’s
2 warehouse management expansion into Game Streaming
$321mn
Eg: Lovefilm.com; aids Prime

0 Eg: Annapurna Labs; aids
Video through movie ratings
2009 2011 2013 2015 2017 2019 Amazon’s AWS through
microelectronics and
Amazon has generally not participated in horizontal acquisitions ie acquisitions that Eg: Zappos, Diapers, Souq, Pill
semiconductor manufacturing
inorganically increase the market share of the acquirer in a particular market. Pack; aids Ecomm Operations

Conclusion
Thus far, Prime Video is second to Netflix
Prime Video still lies behind Netflix in its worldwide Subscriber Base… Amazon received 47 Emmy Nominations in 2019 due to high Investment in Original
Content… Prime Video's Emmy Awards' Data
Number of total subscribers for major US SVOD platforms (2013-19) 114%
180 167 50 Nominations Only Won 47
Netflix Amazon Prime Video Hulu 45
160 150 This is much less than Netflix
139.3
140 40 with 112 Emmy Nominations 15
Subscribers (in millions)
117.6 35
in the same year.
120
100 38%
93.8 30
100 90
74.8 25 33% 0% 22
80
65
58.1 54 20
60 49.2 16 16 8
40 15 12 2 32
40 30.4 6
25 25
17 10 5
20 12
4.5 6 9 14 14
5
7 10
0
2013 2014 2015 2016 2017 2018 2019 0
2015 2016 2017 2018 2019
Easy to watch on a Tv Easy to use on all devices

Customer Satisfaction - Amazon Out of the four While Amazon has uniquely
80% 72% Interesting orginal content Reliable Service
70%
major US SVOD positioned itself in the Ecommerce,
63%
60% 60%
60%
58%
54%
57% 55% Players, Amazon’s Smart-Home, Logistics, Cloud
52%
50%
49% 48% 48%
45% 44% Prime Video has the Computing and other markets, its
41%
40% 36% lowest Customer Video Streaming presence is reliant
30% Satisfaction rating on Prime Subscriptions for driving
20% for Interesting growth due to a lack of attractive
10% Original Content at content collection.
0% a mere 36%
Netflix Amazon Prime Hulu HBO Now

Conclusion
III. Company Overview

Conclusion
Netflix has one of the Largest Footprints on the Digital Ecosystem
How Big is Netflix? Netflix Constitutes a chunk of Downstream & Upstream Traffic Globally…
As of 31st December 2019, Netflix commands a whopping 167 million paying America - Downstream % America - Upstream %
members globally with an additional 4 million potential members on free
Netflix 30.71% Raw MPEG-TS 38.89%
trials; however, this number is not enough to quantify the sheer size of the
streaming behemoth.
HTTP media stream Netflix 19.41%
Netflix’s huge size can be exemplified using the following figures 18.56%
from Netflix’s USA Operations…

Million Impressions were Raw MPEG-TS 13.22% HTTP media stream 14.21%
received by Stranger Things

of US Adults use 83.2 EMEA - Downstream % EMEA - Upstream %
54% Netflix.
Season 3 in the USA, the
highest amongst all Netflix Youtube 30.39% HTTP Media Stream 34.75%
Originals.
Million views were gained Netflix 23.10% Youtube 22.53%

Of Americans have by Bird Box, a critically
28% watched Netflix in 80 acclaimed Netflix movie in
last one week. just one month. HTTP Media Stream 19.72% Netflix 8.97%
APAC - Downstream % APAC - Upstream %

Billion hours of
79% of US millennials
use Netflix. 10 Netflix is streamed
every month.
HTTP Media Stream
Facebook Video 17.72%

29.24% HTTP Media Stream
Facebook Video 5.13%

27.30%
Netflix 16.28% Netflix 5.07%

Conclusion
Netflix: Geographical Presence
Despite a Slowdown in Netflix’s Domestic Growth, 61 million paid 2019 was the first year when the Company’s International Revenue
subscribers of the Company still come from the US… exceeded that of the Domestic Market…
Netflix's paid subscribers (USA vs International) 12000
Netflix – Segmental Revenue (in millions)
180 20.0%
10616
167.1 International Revenue is
160 25.9% 10000 International Streaming >51% of Total
9243
139.3
Revenue overtakes
140 Domestic Streaming
24.1% 61.0
77827646
Subscribers (in millions)
4.3% 8000
120 25.8% International
110.6
58.5 subscriptions overtake 6153
100 10.8%
89.1 6000 domestic
5077 5089
52.8
80 70.8
10.2% 4180
31.3%
47.9 4000 3431
60 10.4% 3211
39.8% 106.1 2751
43.4
40 80.8 1953
40.3% 2000
57.8 1308
20 41.2 911 712 765
50.4% 646 542 451
27.4 365 297
0 0
2015 2016 2017 2018 2019 2013 2014 2015 2016 2017 2018 2019
International USA Domestic DVD International Streaming
Despite Netflix’s International Subscribers exceeding the Domestic in 2017, it was
Netflix’s International push in 2014 and the subsequent expansion to 130
only in 2018 that the International Revenue exceeded that of the Domestic
countries has reaped dividends in the form of the company’s Paid
Streaming, a causation of lower ARPUs in Domestic Markets due to penetrative
Subscriber Growth being driven by the International Markets. marketing and lower USD price points.

Conclusion
Netflix has been Rapidly Expanding to International Markets
Netflix has gained millions of subscribers across all Continents … Netflix has penetrated strongly into various Developed Markets…
Netflix – Top 10 Markets outside the USA (In Mn) Netflix’s Highest Current Market Penetrations
Australia 14.4 US 64.5%
UK 12.5 Norway 62.4%
Brazil 10.9 Cananda 56.3%
Canada 8.1 Denmark 54.9%
Germany 6.5 Sweden 50.2%
France 6.4 Netherlands 43.6%
Spain 5.1 Australia 42.7%
Japan 4.2 Finland 39.7%
Netherlands 3.8 Germany 35.5%
Mexico 2.7 UK 33.8%
…and has a Specialised INR 200/- (USD 2.7) per Month Smartphone …and is Expected to more than Double its Penetration in the EMEA &
only Plan for its Mass Indian Market Penetration Strategy APAC Markets by 2025
Netflix India's Revenue (USD mn) Netflix CEO Reed Hastings has 12.7% Netflix’s Penetration Forecasts for 2025
said that the company aims to 62%
83% 35.9%
328.3 have 100 million paying 55% 2019
53%
customers in India and plans to 115.8% 2025
106%
invest USD 400 million in Indian 39% 41%
Content in 2020. 127.3%
237% 179.41
25%
87.26 19%
11%
25.87
2017 2018 2019 2020

U.S & Canada Latin America EMEA Asia Pacific

Conclusion
Technology forms a Major Part of Netflix’s Value Chain
1 2 Analysis in the 1 AWS Tech Stack
CONTENT NETFLIX STACK DISTRIBUTION PLAYBACK Next Slide
TV Shows, Netflix uses AWS for back-end
Adaptive Streaming 200+ devices
processes such as Storage,
Movies, Original Content Roku, AppleTV, SmartTVs, iOS Tech Backbone Computational Power, Payment
devices, Android, Game of Netflix Gateways etc.
NETFLIX
Consoles, PCs etc.
Open Connect
2 Tech-Driven Customer Satisfaction
Netflix utilizes its own OCAs which are hardware
Global CDN
appliances installed at an ISP’s site in order to provide
Partners
Storage on 53 Netflix’s traffic demand a dedicated channel to flow
through such that it does not have to compete with the
other bits of traffic demanded by various internet users.
Transcoding on
EC2 Additionally, CDN partners such as Akamai provide
necessary infrastructure to transmit data seamlessly.
72% 3 Customer Satisfaction - Netflix Easy to watch on a Tv Easy to use on all devices 3 Tech-Driven Customer Satisfaction
Interesting orginal content Reliable Service
60% 63% Netflix ranks the highest amongst its competitors on
60% 58% 57% 55%
54% 52% the following three tech-driven metrics:
49% 48% 48%
45% 44%
36%
41% ▪ Easy to watch on a TV – 72%
▪ Easy to use on all devices – 60%
▪ Reliable Service – 58%
Netflix’s UI enriches the customer experience and has
been one of its drivers of success in the SVOD market.
Its recommendation and other algorithms are widely
Netflix Amazon Prime Hulu HBO Now popular.

Conclusion
Netflix’s Value Chain has a Looming Threat
Launch of Video Streaming Services by the big players in the E&M has put …and Netflix’s Originals are Giving the traditional E&M Giants a run
Netflix’s business model on threat as the former may not renew their content for their money
30
leasing contracts allotted to Netflix. Film studios- Academy Award Nominations in US 2020
25
E&M players have began seeing Netflix as a disrupter as it has gained lucrative
20
shareholder values in a relatively short period of time.
15
However, by the launch of video streaming services by traditional E&M 24 22
players, the disruptor (Netflix), is on the cusp of being disrupted. 10 20
13 12
5
Original Content now Commands a Higher Percentage of Netflix’s
0
US Streams… Original Content (as a % of Netflix's US streams) Netflix Disney Sony Universal Warner Bros.
100%
Netflix's Primetime Emmy Awards & Nominations have both
Increased YoY
140
80% Time-series data depicts
120 Netflix’s Growth in the
63% 27
76%
Content Production
60% 100 23
86% space; 60% customers
80 prefer Netflix for its 20
40% Original Content
60
9 99
89
40
20% 37% 2 71
54.2% 7
24% 20 45
3 32
14% 71.4% 24
0% 10
0
Oct 2016 Oct 2017 Oct 2018 2013 2014 2015 2016 2017 2018 2019
Original Content Licenced Content Nominations Only Won

Conclusion
Netflix’s Financials are Struggling as it plans to Scale
Netflix’s Debt has Increased in a correlation of 0.98 to Netflix’s Content Assets… Netflix is projected to spend USD 17.3 bn on Content (Original +
Netflix's Content Assets Netflix's Debt Leased) in 2020; most of which comes through debt raises; Netflix’s
30 16
debt to equity ratio has worsened from 1.82 in 2017 to 2.13 in 2019.
14
25
12
From its first original in 2013, Netflix produced a massive 371
20
10
shows/documentaries/movies etc. in 2019, however, as it tries to
15 8 6.1x catch a mass audience, its Average Show Rating has declined year
5.7x 14.7
24.5 6
on year.
10 10.3
14.9 4
5 10.3 6.5
7.2 2 3.7
4.3 2.4 8
0 0
2015 2016 2017 2018 2019 2015 2016 2017 2018 2019
7.8
Netflix has been increasing the proportion of TV Shows in its Content Library…
Average Show Rating

Number of titles on Netflix in US
7.6
8000
6755
7285 Netflix has over time increased the
7000
5848 number of TV shows in its library as it
6000 7.4
focuses more on more on the
5000
3989 customer spending higher amounts of
4000 7.2
3000
time on the streaming service;
2000
1859 Original TV Series also increase
7
1000 530 customer retention and increase 371
Shows
0
brand loyalty.
6.8
TV Shows Movies Total
2010 2019
2013 2014 2015 2016 2017 2018 2019

Conclusion
IV. Strategic Fit

Conclusion
Integrating Netflix and Prime Video post-acquisition
Problems associated with bundling and the aftermath of the same
The Problem with Bundling
• Netflix is a stand alone service, whereas Prime Video

is usually sold as part of a bundle
Subscription Services are an important part of Amazon’s Revenue…
• Pricing the bundled service might be tricky, partly as
Amazon’s Revenue Breakdown (in USD bn)
one is already part of a bundle, and partly because
their prices are quite different Others
5%
AWS Online Stores
• The pricing may also upset the revenue earned from 13%
the subscription services which are sold as part of the Physical Stores
Amazon Prime Bundle 7%
Third Party Seller Services
Online Stores
• Bundling them might dilute the Netflix brand and 50%
force users to take on services they don’t want Third Party Seller
Services AWS
19%
Physical Stores Others

6%
Source- Statista

Conclusion
Case: Merging Netflix into Prime Video
Importance of Original Content for the popculture audience
Netflix Originals: A Distinguishing Factor

• Netflix originals are a brand in themselves, and its
increasing expenditure on creating originals makes Netflix
a big content creator that competes with the likes of HBO Netflix Originals are a Strong Brand in and of themselves…
• The ever increasing spending on original content by
Netflix shows that the company’s vision is that of a large Most Buzz created online by Original Content
scale content creator
Star Trek: Discovery 37744371
• In a 2016 study by Cowen and Company, 58% of Netflix Stranger Things 21515352
users said they subscribe to the service because of its The Grand Tour 19647703
original programs. These are programs that users can’t Altered Carbon 16845788
find anywhere else Black Mirror 16598521
• Thus, Netflix’s reputation is not only that of a distributor, Orange Is The New Black 15828297
but also of a famous producer of popular and acclaimed Marvel's Jessica Jones 15797625
content Ddaredevil 14016632
Everything Sucks! 13415808
Voltron 13153211
Source- Statista

Conclusion
Case: Replacing Prime Video with Netflix in the bundle
Analysing operational competencies between Prime and Netflix
Would Replacing Prime Video with Netflix work?

• The pricing and product structure is of great
importance here. Prime Video does not come just as
an individual service but also as a bundle of services as Netflix has Enough Content for most Subscribers…
a way to sell more Amazon Prime Subscriptions.
Replacing the relatively cheaper Prime Video with Certified Number of Fresh Titles on Streaming Services
Netflix may disrupt the revenue stream all the other
596
subscription services generate, as mentioned
previously
• Further, more than half of the Netflix customers
exclusively use Netflix as their video streaming
232 223
medium, which means for them, Netflix is enough in
itself and the they are not interested in taking on more
services from the bundle 38
Source- rottentomatoes

Conclusion
Technology and Development Synergies
Netflix’s Spending on Technology and
Development is divided into 3 main categories Watch Recommendation Algorithm
The algorithm is one of the main pillars of Netflix

because it allows each member to have a different
view of the content that adapts to their interests.
Netflix has a pathbreaking algorithm that it
continues to grow and develop through offline
experiments and online A/B testing
Infrastructure R&D Content Valuation and Marketing Research
Netflix continuously works on developing their Includes research on the type of content to be
streaming infrastructure in order to improve the produced or licensed, the budget of shows/movies
user-experience. They work on minimizing load to be produced, and everything regarding the
times, improving visual quality, and reducing production and efficient release of the content that
interruptions in streaming is produced/licensed. Research in this space also
revolves around models that help explore areas of
growth, such as geographical locations.

Conclusion
How they stack up
Netflix’s best-in-class algorithm and content selection Amazon Web Services has Great Infrastructure Facilities
• More than 80% of the TV shows people watch on Netflix are • Netflix uses Amazon Web Services for research that includes
discovered through the platform’s recommendation system. models, algorithms, analytics, and experimentation to optimize
video delivery. This, along with other expenditure on research to
• Constantly offer incentives for external teams to come in improve or improve streaming process makes up a portion of their Tech and
review their algorithm. 93% Dev. Expenditure
• Amazon Web already provides various solutions to Netflix like using
75%
Amazon Kinesis to monitor the communications between all of its
64%
Netflix has consistently applications
been the top ranker in #1 • A big part of Netflix’s expenditure is on improving infrastructure,
customer retention #2 which essentially means improvement to their streaming process.
rate. A major factor for #3
Amazon already spends a huge amount in improving very similar
this is the algorithm. infrastructure in order to improve their AWS offerings, and Netflix
would no longer need to rely on its own R&D
Netflix Amazon Hulu
Amazon is already the leading
20.70%
• Netflix’s content success has been provider of Infrastructure as a
317% solution service through AWS
constantly increasing due to accurate 200 2.60% 41.50%
150
content research. 150
24 2.90%
100
3.00%
• Success in content research and 50
36 126
2
valuation is seen through the increase 0 34
29.40%
in media awards received 2015 2019
Source- second measure; Source 2- Skyhigh Networks Emmy Oscar

Conclusion
Quantifying Technology and Development Synergies
Netflix Saves money on infrastructure R&D as they begin to Amazon saves on algorithm and content valuation by
use Amazon’s infrastructure leveraging Netflix’s capabilities…
Present Value of all Savings = $2.3 billion.

Present Value of all Operational efficiency
546.09 Savings = $1.4 billion
42% • Amazon will benefit from and
can use Netflix’s expertise in
In $ Millions
40%
In $ Millions
384.63 algorithms, as well as their
357.1
actual algorithm as well
255.6 • The only costs that will
remain for Amazon in the
algorithm department will be
2020e
Infra Savings
2025e
2020e 2025e integration costs in the few
years
Infrastructural efficiency Present Value of all
• After the acquisition, Netflix will integrate fully into AWS and no Savings = $0.4 billion Research efficiency
longer need to spend on improving infrastructure, since they will • Amazon can benefit from the
essentially have none content and market research
In $ Millions
122% that Netflix is so good at
• The costs that remain afterwards are a fraction of the infrastructure 117.0 • With the same sophistication
costs required to integrated the two systems fully and change of as Netflix, Amazon Studios
ownership of technical expertise (For further details, refer to 52.8
can be a front runner
appendix) amongst content creators.
Source- Own Analysis 2020e 2025e

Conclusion
Leasing expenses
Rapidly increasing Content Expenditure
• Expenditure on content is one of the biggest costs that a streaming 15%
company bears. In recent years, streaming companies are competing for

creating and leasing more shows as the industry becomes content heavy.
• While original content remains something that is treated internally, leasing A closer look into the content
costs are often dictated by the presence of other big players present in the expenses of Netflix shows a low
market percentage of expenditure on 85%
• Some of the most viewed shows on OTT platforms are ones that have licensed shows as compared to
been leased from other content creators. Thus, ownership of distribution originals.
rights is a major deciding factor for leadership in the industry.
14
12.04
Content Expenditure (In $ Billions)

12
• As data shows, people stream more licenced 10 Netflix Prime Video 8.91
37% shows than original content on Netflix.
8
• Even though expenditure on original content 6.88
63%
has increased, licensed and third party 6
4.61 4.7
4.27
content still remains a driving force. 4
2.89 2.93
2
Licensed Originals
0
Source : Forbes 2015 2016 2017 2018

Conclusion
Leasing Synergy
2500 Netflix Savings
The Bidding Battle
• A combined entity for bidding consisting of Netflix and Amazon 2000
2,046.31 2,089.74 2,133.17 2,176.92
2,089.74
2,002.56
would be a big force and would stop the two largest competitors in
1500
In $ Millions
the market from bidding against each other. 1,451.28
1,364.21 1,393.16 1,422.11 1,393.16 1,335.04
1000
• Popularity, is another factor that affects the result of a bidding war.
Netflix-Prime video combined will have a huge subscriber base due 500 682.10 696.58 711.06 725.64 696.58 667.52
to which content creators will not have a problem handing over the
rights as it will reach more audiences 0
2020 2021 2022 2023 2024 2025
• Since companies have limited budget for spending's on licensing Saved (15%) Saved (20%) Saved (25%)
content, savings on every deal will be imperative and significantly

beneficial Amazon savings
1400
1200
• Leasing expenses for Netflix have been calculated from amortization 1,193.7 1,219.0 1,244.3 1,269.9 1,219.0 1,168.2
1000
forecasts, and Amazon prime’s expenditure has been estimated by 954.9 975.2 995.5 1,015.9 975.2 934.5
800
In $ Millions
comparison of it’s content library with Netflix’s 600 731.4 746.6 761.9 731.4
716.2 700.9
400
• Thus, three potential savings cases emerge out of this synergy: high 200
savings (25%), standard savings (20%), low savings (15%) 0
2020 2021 2022 2023 2024 2025
Saved (15%) Saved (20%) Saved (25%)

Conclusion
Content Distribution Network
CDN Networks Strategic Flow

• A CDN or Content Delivery Network is a network of servers distributed • Netflix uses an interesting strategy to deploy their CDN.
across multiple locations, which optimizes data distribution by allowing In areas of high demand, they provide ISPs with custom-
delivery of data directly to end-users across a wide geography made server hardware in the form of Open Connect
• Where a traditional set-up would store all the data and content in a Appliances, or OCAs
single location and deliver to all end users from that location through • The OCAs are used only for Netflix’s data stream and
the ISP’s centers, a CDN places multiple edge servers in closer proximity allow content to be delivered more directly to customers
to the end users around the world • Open connect allows Netflix to control a crucial part of
• More than 50% of CDN Traffic is video streaming, which is expected to their delivery infrastructure and prevents total reliance
rise to about 80% till 2024 on their rivals
78.2%
Amazon’s CDN
$25.00Bn
• Amazon Cloud Front is AWS’s

$20.00Bn
own CDN, which is designed to
$15.00Bn integrate perfectly with their
$22.10Bn
other products
$10.00Bn
$5.00Bn
$12.40Bn • The service is already used for OTT video streaming
by multiple platforms in different parts of the world,
$0.00Bn thus it is already used to processing OTT traffic
Source- MarketsandMarkets 2019 2024

Conclusion
CDN Synergy – Why it is Limited
Operational flow post acquisition Cloudfront isn’t the Cheapest Option Available
• In an ideal post-acquisition scenario, Netflix could be fully integrated
into AWS, and would benefit from a simplification of their delivery
network and economies of scale in the long run. However, an
immediate migration would be a waste of the money already invested
0.09 0.085
into building Open Connect, and so does not make sense unless the
Open Connect infrastructure is liquidated. 0.08
0.08
• The liquidation of Open Connect would be virtually impossible due to 0.07 CDN prices
the following reasons: 0.060
0.06 0.056
1. Open Connect uses infrastructure that is completely tailor made for
Price per GB (in $)

Netflix, which means a sale of the appliances would be difficult to a 0.05 0.055
similar OTT provider, and virtually impossible to anyone else
0.04
2. With Netflix and Amazon integrated, no single player would remain 0.03
who is large enough to require such a large CDN at short notice 0.03 0.025
0.028 0.023
0.02
0.02
Netflix uses Akamai for most of it’s CDN needs. Akamai does not keep a 0.01
fixed price on its CDN service, but it is a fair assumption that it’s not
0
significantly different from other service providers First 10 TB Next 140 TB Next 850 TB > 1000 TB
Google CDN Microsoft Azure Amazon Cloudfront

Source – Respective company websites

Conclusion
V. Financial Analysis
1
COMPARABLES
Trading and
transaction multiples

Conclusion
Comparable Universe
We identified peer companies in 3 segments: OTT, Content production (media/production houses) and Cable & Satellite companies
(Broadcasting). The logic being: Netflix is big on original content, is an OTT and faces competition from TV cable-satellite networks.
Content Production FAANG stocks consist of the 5

biggest American technology
companies and have a combined
market cap of over 4.1 Trillion
USD as of Jan 2020.
Disney and AT&T both are into
all the 3 segments: Disney
entered OTT via Disney+ and
HBO Max is owned by AT&T.
ViacomCBS is about to start

with its OTT service “CBS All
Access”, and Comcast’s Sky
offers streaming as well.
It is clear that Netflix can’t be

pigeonholed into 1 particular
segment, since it is both a
Cable & producer and a licensor of
OTT Satellite content. And of course it is a
Distribution style streaming service as well.

Conclusion
Selection of Companies
After analyzing the CAGR, market size, revenue and cost drivers, we come to the conclusion that Cable-satellite is the group
that needs to be discarded. The other 3 groups are in contention right now.
Market size Market Size Brand
(‘19) CAGR relevance Key Revenue drivers Key Cost drivers Decision
• Global subscriber growth rate • Licensed content

10.51% • Average revenue per user • Original content
Netflix -
•
(2019-’30 Demand and quality of content • Streaming delivery expenses
• Internet Penetration • Tech and Development
Content 10.4% • Average revenue per user • Original content
USD 2.2 tn
Production (2019-’30) • Demand and quality of content • Streaming delivery expenses Retained
14% • Average revenue per user • Original content
OTT USD 81.6 bn (2019-’24) Retained
• Demand and quality of content • Streaming delivery expenses
TV Cable & 2.7% • Average revenue per user • Original content
USD 247 bn • Demand and quality of content • Streaming delivery expenses
Discarded
Satellite (2019-’28)
Each FAANG stock has a peculiar revenue and cost structure and as
8%
FAANG USD 793 bn (2019-’29) such the drivers cannot be taken for a group. Since these stocks trade Retained
on similar valuation multiples and are similar in terms of size, margins
and sector (Technology) , the group is retained for analysis.
Conclusion
Analysing Peers
We identified Netflix’s 5 closest comparables from the universe, which have similar margins as Netflix and are involved in similar business
operations: production/licensing and distribution of content through streaming services.
Relevance to target EBITDA margin EBIT margin Net income margin Other criteria
2020e 2020e 2020e
• Media-services provider and production company

headquartered in California.
• Specializes in streaming original and licensed content
18% 17% 13% Business
Median: 22% Median:18% Median: 11%
• Diversified multinational mass media and
entertainment conglomerate. Nature of operations
22% 17% 13%
• Owns production houses, film studios and new
streaming service Disney+
Geography
• Formed via the re-merger of CBS Corporation
and the second incarnation of Viacom 19% 18% 11%
• Involved in film, TV, publishing and media Target market
• Second largest broadcasting and cable television
company in the world by revenue 30% 19% 13%
• Largest Pay/Cable TV company in the US
Financial
• Tech company with focus on e-commerce, cloud
computing, digital streaming and AI Size
15% 8% 4%
• Prime Video is its OTT Streaming segment.
Growth
• World’s largest media company by revenue
• Owner of Warner Media, which owns HBO and 11% Revenue & Cost
33% 19%
streaming service HBO Max with Warner Bros.
Source: Capital IQ, Thomson Reuters (Eikon), Factset, Yahoo Finance.
drivers
Conclusion
Trading Multiples
Trading Multiples suggest Netflix is highly overvalued. NTM multiples are more conservative due to a weakened
economic outlook amidst recent tensions.
Peers NTM LTM WEIGHTS
EV/Sales EV/EBITDA EV/Sales EV/EBITDA Assigned to
different
7.1x 31.7x 8.6x 59x comparables
Weighted Avg: 2.9x Weighted Avg: 13.4x Weighted Avg: 3.3x Weighted Avg: 17.7x
Disney and
3.3x 13x 3.6x 16.8x 5% Amazon have
been provided
higher
1.2x 4.9x 1.3x 7.5x 40% weightages
since they’re
Netflix’s
2.6x 7.9x 2.7x 8.5x 5% closest
comparables
and have
similar growth
2.9x 17x 3.4x 23.5x 10%
profiles.
2.5x 7.2x 2.5x 7.7x 40%

Source: Capital IQ, Thomson Reuters (Eikon), Factset, Yahoo Finance.
Conclusion
Precedent Transaction multiples (1/2)
We drilled down to these precedent transactions in the Media and Entertainment industry, which give us an
EV/EBITDA multiple of 12.4x. However, we reduce its weight in the Football field analysis.
Precedent Multiples: EV/EBITDA Deal Insights
EV/EBITDA acquires
70.0x NBC
acquires
acquires • The target companies in these
transactions are mainly involved in
60.0x content production, content
acquires distribution, programming or in video
50.0x acquires
services and motion pictures.
acquires acquires • In the past 5-10 years, a lot of M&A
acquires
40.0x activity has taken place in the Media
and Entertainment industry, resulting
30.0x
in ‘The Big 5’ owning most of the
acquires SVOD companies.
`
acquires
acquires • A few companies such as AT&T, Disney
acquires
20.0x acquires
and Comcast have been involved in
acquires
NBC multiple acquisitions.
10.0x Avg: 12.4x
acquire
• In a few instances, the acquirer has
s turned the target a few years later. Eg:
0.0x Date Media General, NBC.
2/22/2008 7/6/2009 11/18/2010 4/1/2012 8/14/2013 12/27/2014 5/10/2016 9/22/2017 2/4/2019 6/18/2020
Source: Capital IQ, MergerMarkets, Bloomberg, NASDAQ, Google Finance.

Conclusion
Precedent Transaction multiples (2/2)
We estimated an EV/Revenue multiple of 3.5x from the same transactions. Conclusion

• These precedent multiples aren’t
Precedent Multiples: EV/Revenue
accurate measures to determine
EV/Revenue Netflix’s EV because:
8.0x 1. The targets didn’t operate at the
acquires same scale as Netflix.
7.0x acquires acquires 2. The targets are content
NBC producers/distributors, but rarely
acquires
6.0x acquires both (which Netflix is). Moreover
acquires
acquires they don’t operate on an SVOD
5.0x acquires
model.
4.0x 3. The synergies estimated for Netflix
acquires acquires are different than what would’ve
acquires
3.0x Avg: 3.5x been achieved in these
EV/Sales: 1.2 transactions.
2.0x 4. The premiums varied widely from
acquires acquires
acquires
acquires transaction to transaction.
1.0x acquires
NBC
0.0x Date Overall, precedent transactions are
2/22/2008 7/6/2009 11/18/2010 4/1/2012 8/14/2013 12/27/2014 5/10/2016 9/22/2017 2/4/2019 6/18/2020
a good way to estimate the implied
share price.
Source: Capital IQ, MergerMarkets, Bloomberg, NASDAQ, Google Finance.

Conclusion
V. Financial Analysis
2
DISCOUNTED CASH FLOW
Business case
forecasting and DCF

Conclusion
Financial Performance Forecasts
Revenue Projections • Expenses are expected Forecasted Content Assets
70
60.5 to mature over the 100 90.8
57.0 59.3 90
86.0
60
50.7
54.3
years, while the EBIT 80 73.3
79.8
46.4 25.1
50 42.0
17.1 18.0
18.7 19.1 show increasing 65.9 25.3
In $ Billions
70 24.2
37.5 15.5 58.0
40 growth.
In $ Billions
32.9 13.7 60 52.4 24.2

28.5 11.3 46.8 23.7
9.5
30
20.2
24.3
5.4
7.4 • Netflix’s share of 50
40
35.7
41.2
22.1
22.8
15.8 4.2 30.3 21.2
20 11.7 2.6 37.1 39.0 40.6 41.4 original content is 65.7
8.8 1.6 28.0 30.6 32.7 35.2 30
18.2
19.7
55.6 60.7
25.6 49.0
10 0.8 20.1 23.2
0.4
8.5 10.9 14.2 17.6 expected to outweigh 20 17.9
30.3 35.2
42.1
10 21.4 25.6
0
its licensed content. -
12.4 17.4
2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E
Expenses EBIT Original Licensed
Revenue and Margins, 2019-30

P&L
• EBIT margins constantly grow until they 70 31% 32% 32% 32% 32% 35%
30%
level at 32% in 2030. 60
25%
27% 30%
• This is driven by growing subscribers 50 22% 25%

Revenue Final Values
19% 25% 25% 26%
In $ Billions
25%
and improving margins. 40 17% 23% 24% 20% EBIT Margin(RHS)
21%
• EBIT margins are expected to grow at a 30
10%
13% 19%
57.0 59.3 60.5 15% EBIT Margin
17%
46.4 50.7 54.3 Forecasted (RHS)
CAGR of 10%, while Net income 20
4%
7%
9%
13% 14%
32.9 37.5
42.0 10% Net Income
28.5 Margin(RHS)
margins at 9%. 10 5% 8% 20.2 24.3 5%
2% 11.7 15.8 Net Income Margin
8.8 Forecasted (RHS)
0 0%
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

Conclusion
Discounted Cash Flow Analysis: Overview
Insert Text Here
In $ 000's 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
EBT 36,16,792 48,11,060 67,82,007 88,43,585 1,07,30,741 1,31,24,101 1,49,14,260 1,65,92,125 1,75,03,724 1,83,21,395 1,88,42,888
Interest 5,40,189 5,40,189 5,81,194 6,09,390 5,96,580 5,89,260 5,67,300 5,34,360 4,89,360 3,98,611 2,56,237
EBIT 41,56,980 53,51,249 73,63,202 94,52,975 1,13,27,321 1,37,13,361 1,54,81,560 1,71,26,485 1,79,93,085 1,87,20,005 1,90,99,124
[+]Adjustment for operating lease 65,08,338 71,71,544 77,22,205 81,55,842 84,29,399 85,39,593 84,73,328 81,64,065 76,18,427 69,28,739 60,50,485
Adjustment for operating lease(% of Revenue) 26.82% 25.14% 23.45% 21.77% 20.09% 18.41% 16.73% 15.05% 13.36% 11.68% 10.00%
[-]Cash Taxes (Charged on EBIT) (7,48,256) (9,63,225) (13,25,376) (17,01,536) (20,38,918) (24,68,405) (27,86,681) (30,82,767) (32,38,755) (33,69,601) (34,37,842)
[+] D&A 1,59,295 1,61,803 1,58,252 1,62,434 1,28,450 1,49,226 1,52,654 1,64,520 1,91,791 2,03,752 2,33,779
[-] Capex (2,50,000) (2,77,000) (2,77,000) (2,85,000) (2,50,000) (2,69,000) (2,68,000) (2,62,000) (2,66,000) (2,66,000) (2,66,000)
[-] Changes in NWC 5,24,448 6,19,608 5,20,166 5,32,923 5,23,306 3,43,049 3,17,221 2,29,641 1,16,998 55,672 (88,625)
[-] Net Content Investment (1,48,98,714) (1,65,52,403) (1,86,87,943) (2,08,96,588) (2,29,47,015) (2,49,44,899) (2,93,22,586) (3,17,67,992) (3,36,61,965) (3,57,21,000) (3,65,75,153)
[+] Content Amortization 90,66,690 1,12,24,539 1,31,95,849 1,52,27,923 1,73,25,329 1,94,05,353 2,14,54,985 2,43,65,997 2,71,04,736 2,95,30,911 3,18,21,244
Unlevered FCF 45,18,781 67,36,116 86,69,355 1,06,48,975 1,24,97,873 1,44,68,278 1,35,02,482 1,49,37,948 1,58,58,316 1,60,82,478 1,68,37,010
Net FCF (Time period adjusted) 37,65,651 67,36,116 86,69,355 1,06,48,975 1,24,97,873 1,44,68,278 1,35,02,482 1,49,37,948 1,58,58,316 1,60,82,478 1,68,37,010
Terminal Value The Terminal value is an Cost of Equity Cost of Debt

Perpetural Growth 23,20,57,130 average of the 2 methods Equity to Total Capitalization 82.84% Debt to Total Capitalization 17.16%
EV/EBITDA 23,10,28,190 Risk Free Rate 1.52% Pre tax cost of Debt 4.53%
The market value of debt Equity Risk Premium 6.46% Tax Rate 18.00%
has been estimated which Levered Beta 1.40
Average 23,15,42,660 includes the capitalized Cost of Equity 10.59% After Tax Cost of Debt 3.71%
value of operating leases WACC = 9.41%

Conclusion
Sensitivity Analysis: Share Price and EV
Netflix’s intrinsic DCF share price is 10.5% below the market price; Enterprise value is calculated at a 2.01% perpetual growth
rate.
Market Value vs. Intrinsic Value Enterprise Value to Equity Value
Share Price Sensitivity Enterprise Value Sensitivity (in Billions USD)

Perpetual Growth Rate Perpetual Growth Rate
331 1.01% 1.51% 2.01% 2.51% 3.01% 175 1.01% 1.51% 2.01% 2.51% 3.01%
7.41% 412 425 441 460 483 7.41% 211 216 223 232 242
8.41% 359 368 379 391 406 8.41% 187 191 196 201 208
WACC 9.41% 317 323 331 339 349 WACC 9.41% 169 172 175 179 183
10.41% 282 287 292 298 304 10.41% 154 156 158 160 163
11.41% 252 256 260 264 269 11.41% 140 142 144 146 148

Conclusion
Sensitivity and Scenario Analysis
FCFF
25
20.08
20 17.92
17.17
In $ Billions
14.79 15.11
15 13.93 16.84
12.77 15.86 16.08
14.47 14.94
10.88 13.50
8.86 12.50
10
10.65
6.89
8.67 13.24 13.76 13.01
4.37 12.69 11.86 12.85
5 6.74 10.91
9.25
7.61
5.93
3.77
4.17
-
2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Pessimistic Realistic Optimistic
Grey Sky Case Realistic Case Blue Sky Case
Subscriber Growth Subscriber Growth Subscriber Growth

rate: 14% and rate: 15.33% and rate: 16% and
declining declining declining
ARPU Growth rate: ARPU Growth rate: ARPU Growth rate:
4% and declining 4.4% and declining 5% and declining

Conclusion
Enterprise Value determination
From the 3 methods: DCF, Comparables and Precedents, we arrive at an average share price of $239.82 for Netflix,
which translates to an Equity Value of $105.2 Bn and an Enterprise Value of $127 Bn.
Football Field
Netflix’s intrinsic share price
Netflix’s share price as of February 28, 2020 Estimated Share Price Range Weights is 35% below its current
$190.2 -$ 289.4
market price.
500
LTM: EBITDA & $87.2 $127.5
10%
Revenue Multiples Note: Comparables have been
$239.82:
Average share price
given a less weightage (30%)
400
Trading NTM: EV/ Revenue $136.0 $140.3 because as mentioned before,
Netflix’s Share Price 10% Netflix’s position in the industry
Multiples as on 28 Feb = $369.03
is unique and it doesn’t have a
300
NTM: EV/EBITDA $80.5 $115.5 perfect substitute. Moreover,
10% the growth profiles of
200 comparables are different: some
Precedent LTM: EBITDA & $54.3 $136.9 have entered the streaming
DCF Revenue Multiples 10%
Multiples segment recently while some
100 are not proper SVODs.
DCF WACC: 9.41% $257.3 $395.7 60%
0

Conclusion
Purchase Price vs. Intrinsic Value
Acquiring a 100% stake in Netflix would result in wealth destruction of about USD 147 Bn, which includes the market
capitalization plus the premium required to convince Netflix’s shareholders to sell their full stake.
1
Intrinsic value + PV Estimated Purchasing Premium:
of Synergies Price Of Netflix
According to a Deloitte report, the
surging takeover activity has
contributed to average control
premiums from an annual level of
Synergies
38% in 2016 to as high as 55% in
In billion USD
2019. The trend has materialized

inside and outside the United States.
Premium 2
Equity value
(55%)
DCF
2 Additional Premium:
Market Cap
The shareholding of Netflix has been
Additional
About $147.7 Billion are fragmented in a ‘Poison Pill’ form
Premium (10%
expected to be lost as a result thereby requiring some additional
of the 100% acquisition. premium to acquire the company.
Thus, 10% has been added for that.
Source: Yahoo Finance, Team analysis, Deloitte.

Conclusion
VI. Acquisition Feasibility

Conclusion
Amazon’s past acquisitions
It’s true that the past isn’t necessarily the right indicator for the future, but nevertheless, we take a look at Amazon’s
transactions in terms of their size and rationale.
Amazon targets early stage companies for acquisition
Amazon’s acquisition of Whole Foods
costed it USD $13.7B, and that was its Amazon acquisitions ranked by last funding stage, 2010-17
largest deal to date.
Grant 1
Convertible Note 1
Corporate Minority 1
Private Equity 1
Debt 2
Series D 2
Series C 2
Series B 6
Seed/Angel 8
Series A 10
Number of companies
“Amazon is a conservative buyer. They think long term and they Conclusion
don’t get seduced by high-flying valuations…. Amazon is unlikely It appears that Amazon isn’t looking for an overvalued
to overpay for a high-flying, fully baked platform as the basis for and mature stock like Netflix, which would cost them a
the next dreamy business.“ - Nat Burgess, TechStrat fortune and not yield significant synergies either.
Source: CB Insights

Conclusion
Why a 51% stake is not feasible
Why not 51% Sensitive information
• Ownership of a majority stake would be quite difficult for • In order to realize synergies from the acquisition, there
the following reasons: needs to be a smooth flow of exchange of expertise and
research from Netflix.
• Ownership of Netflix stock is distributed across multiple
institutional and individual investors, with even the largest • Some of these sensitive and important decisions may require
owner, the Capital Group, holding less than 10%. This leaves a 3/4th majority voting to get passed and many at the
a lot of parties to be negotiated with, many of whom might company might have an issue with sharing their Secret
be unwilling to sell formulas like the pathbreaking recommendation algorithm
• Netflix has demonstrated an extreme aversion to hostile • Thus, in order to realize the synergies, it is important that no
takeovers. In late 2012, when investor Carl Icahn disclosed a such problems take place and a full acquisition is required for
10% stake in the company, Netflix adopted a ‘Poison Pill’ smooth control over the process.
shareholders rights plan to ensure any further stake would
be extremely expensive for Icahn (or anyone else) to acquire.
While the plan has since been revoked, it clearly Decisions pertaining to areas of sensitive information
demonstrates the lengths to which the company is willing to like trade secrets are decided by special resolutions
go to in order to avoid a takeover which require a 3/4th majority.
51%
49%

Conclusion
Debt: Why a 100% Stake is not Feasible
A 100% acquisition isn’t a viable option in terms of its financial implications; the synergies don’t justify the purchasing price.
• Amazon issued 17Bn in debt in 2017 to acquire Whole Foods

for 13.7Bn. This number is
• Amazon currently has 55Bn in cash as of FY19. expected to fall
• Since its cash is used to fund current liabilities, it has to resort in 2020, as per
BofA and S&P.
to debt to fund the purchase price of 267Bn.
• Issuing 267Bn in debt would imply that it would be the largest
debt issuance of all time.
Cost of Debt implications

• Issuing new debt to the value of USD 267Bn results in a 38%
rise in cost of debt. • In 2020 , debt financing for M&A activity is
• This downgrades Amazon’s credit rating from A2 to Baa2, i.e., predicted to fall due to political
from high quality to medium grade. uncertainty regarding the Presidential
• Interest Coverage ratio falls by 55% of the combined entity elections, according to BofA. This makes it
after Amazon owns Netflix. harder to take on huge debt.
Source: Amazon 10-K, Aswath Damodaran, Thomson Reuters (Eikon), CNBC.

Conclusion
Antitrust Regulation
The US Federal Trade Commission (FTC) will interpret this maneuver as Amazon’s expansion in the US Video OTT Market
Concentration analysis
The HHI Index
Herfindahl-Hirschman index for selected US markets
The HHI is a common
measure of market
concentration and is used
to determine market
competitiveness, often
pre- and post-
0 292 296 2470 M&A transactions.
Three major US Antitrust laws currently prevent the development ofmonopolies
• Hart-Scott-Rodino Antitrust Improvements Act, 1976: states that acquisitions involving companies of a certain size cannot
be completed until certain information is provided to the federal government and a specified waiting period has elapsed
Conclusion
• Clayton Act, 1914: makes it illegal for one company to purchase the stock of another company if their combination
results in reduced competition within the industry at large The following acquisition
• Sherman Act, 1890: prohibits new business combinations and stock purchases that lead to the creation of a monopoly increases the HHI of
Amazon by more than
Vertical acquisitions (made to increase the efficiency of organisation) aren’t scrutinised as 2100 points which is way
strictly as horizonal acquisitions which are primarily meant for expansion of market share. beyond 200 points, as set
by section 5.3 of the
Prime Video already operates in the Video OTT segment, this acquisition would be treated Horizontal Merger
as a horizontal acquisition and hence the likelihood of the acquisition falling under the DOJ Guidelines jointly issued
or the FTC scrutiny is quite high. by the department and the
Federal Trade
Commission (FTC).
Note: Estimates for Amazon Prime Video and Twitch have been calculated on the basis of data available via US Revenue disclosures and the SEZ filings.

Conclusion
Other Threats & Hinderances
Cultural and HR obstructions Transfer Pricing and Accounting Hinderances

• Netflix strongly believes in the ideals of creative freedom bestowed upon its
content curators in terms of directional and productional flexibility. • On the completion of the acquisition, Netflix and AWS
become legally related entities, except Netflix Tech stack
• In a survey conducted by Blind, an anonymous professional networking app, is supported heavily by the latter, the transactions would
86% of the employees of Netflix were happy at their workplace, the largest come under the ambit of the Transfer Pricing Law
share of any company included in the survey. Next in line was Bloomberg.
• Amazon has already been imposed with a penalty of
• Amazon acquiring Netflix may not be the best sign for its employees and work €250m for ‘illegal tax advantages’ in Luxembourg,
culture when a nine times larger organization acquires the company. popularly known as the Death Star of financial secrecy.
• In 2019, despite generating a net income of $11.58 bn,

Poison Pill Amazon paid $0 in federal taxes due to various ta
breaks. This has been called out by various senators and
• The management at Netflix have made it very clear they are not interested in citizens as blatant Corporate Socialism.
being acquired by outsiders, which implies that the takeover at the current
stage would have to be a hostile one, with a fragmented shareholder base. • All these instances aggravate the Andersen effect, which
justify the increase in due diligence practiced by auditors
• Ownership of Netflix stock is distributed across multiple institutional and on the grounds of pre existing suspicion on certain
individual investors, with even the largest holding less than 10%. This leaves a companies. Amazon can be put on the same radar.
lot of parties to be negotiated with, many of whom might be unwilling to sell.
The Poison Pill was deliberated curated by Netflix to prevent an acquisition.
Not Attractive Very attractive
Source: The Guardian (2018), Amazon's 10K filing - Exhibit 21.1 (2019)
Conclusion
Loss of Creative Freedom
Would Netflix lose their mojo?
• If Amazon wishes to acquire Netflix to capitalize on its content library, it
is important to analyze how such an acquisition would impact the way
Netflix creates its content.
• Netflix is famous for providing film-makers with full creative freedom,
which has been lauded by many directors who have worked with the
firm, and the policy has resulted in many critically-acclaimed, award-
winning offerings, although it can be quite expensive.
• They have also shown willingness to make risky bets on new ideas and
technologies, such as with the revolutionary de-aging technology used
in Martin Scorsese's ‘The Irishman’. Scorsese has said that he
approached multiple financers, but only Netflix was willing to take on
the risk.
• While Amazon has also been attempting to attract talent by advertising
their willingness to provide freedom, they have not been nearly as THE IRISHMAN was watched by 26,404,081
successful as Netflix in this regard. Amazon’s culture simply doesn’t accounts globally — within its first 7 days on Netflix.
appear as conducive to creative freedom.
• Having made a significant investment in Netflix, it is conceivable that The movie required a huge investment of $159 Million
Amazon would stifle this creative and financial freedom, partly by its
very nature as a corporate giant, and partly to secure a return, thereby
because of the ensemble cast and the Special effects
compromising Netflix’s ability to do the very thing Amazon needs the for de-ageing the cast.
most – create high quality content.

Conclusion
VII. Alternative Solution
1
EVALUATING
ALTERNATIVES

Conclusion
Solving Amazon’s Problems
The Content Problem

Invest Further in Own Content Invest in Data Analytics
Buy a Media Company
• Amazon can increase its budget for original content • Amazon can supplement its content production and
and compete for more leases as compared to before. • Acquiring a content creator with a history of high acquisition with an investment in data analytics and
• As a company, Amazon can afford to spend more quality content would solve Amazon’s problem of market research in order to decide what to produce
than most of their competitors’, and therefore move deciding what to produce • This should be done through a 3rd party firm such as
ahead of them in the given context` • Buying a company which owns distribution rights Kantar, as despite using data analytics in e-commerce,
to valuable content would allow Amazon to Amazon has not translated their experience to
immediately catch up to its competitors successful content acquisition
• May not solve the problem of quality, which is what

Amazon has been struggling with, as they still would • Most content creators and media companies are
owned by huge conglomerates, who are usually • Here too, the addition to the content library is
not know what to produce
gradual, and it might simply be too late by the time
• Increment to the library would be gradual. It might not willing to sell their strategic investments
• Buying out a company with assets like movie they can catch up to their rivals
be too late by the time Amazon catches up to its
studios, TV networks, and content rights may be • There is also inherent risk in investing billions into
rivals
expensive content on the basis of an analysis that lacks a proven
track record
Improving the After adding to its library, we feel Amazon should work on improving Considering Amazon’s lack of success so far, we recommend
employing a 3rd party firm like DataRobot Inc. to develop a new
its recommendations algorithm, as it would help people find shows
Algorithm they actually want to watch, and multiply the returns on the content algorithm

Conclusion
Finding the Right Creator
Strategic Financial
Company Overview Content Verdict
Feasibility Feasibility
• A direct competitor to Netflix and Prime Video. Lacks the original content, and
• It has been a division of Disney since 2019.
Disney would be unwilling to
• Integrated with Disney’s other products, used to
stream content from networks and studios owned by
sell it, as Hulu offers a strategic
Disney. advantage in distribution.
• Owns both a film division and a television division

Even if Disney are willing to
with high quality output, although does not own
rights to many TV shows. sell ABC, the content library
Infeasible
• Management have stated they wish to grow the may not be sufficient for
business, and are not interested in selling. Amazon.
• Large TV and Film library. More than enough content to

• Owned by Comcast. win the streaming wars, but
• Too large to acquire entirely, divisions not for not a feasible acquisition.
sale.
• Great original TV content. Would add to TV content

• Ultimately owned by AT&T. library, but is not likely to be
• Investing heavily into launching own streaming open to acquisition.
service.
Continued Details in Appendix

Conclusion
Finding the Right Creator
Continued
Company Strategic Financial

Overview Content Feasibility Verdict
Feasibility
• Has produced high quality movies and TV shows, A feasible acquisition, but
but owns the distribution rights to very few. does not bring enough content
• The owners are rumored to be looking to sell MGM. to the table.
Feasible
• Large library of popular TV shows, most of which Would definitely help expand
are already available on OTT platforms. Amazon’s movie library, but it
does not appear as though Sony
• Owned by Disney, and content from ABC is
would be willing to sell this
commonly distributed through Hulu.
division.
• Mainly a film studio, relatively small in terms of Certainly a viable acquisition,

output and library. but would only go part way in
• Smaller market cap (around $1.2 billion). solving Amazon’s content
• Some content already on NBC’s platform. problem.
• Formed in December 2019 from the merger of Would form a sizeable increment
Ideal
Viacom and CBS. to Amazon’s content library, but

• The firm owns movie production studios and a vast acquiring a company that is in the
television network. process of being restructured
Analysis on Next Slide may pose challenges.
• Report suggests owners may be interested in selling.
Details in Appendix

Conclusion
ViacomCBS as a Target
Movies Television Sports
• ViacomCBS owns Paramount Pictures, one of the
• CBS is one of the ‘Big Three’ television networks in • Amazon has been trying to enter the sports
largest movie studios in the world, with a history of
the US, and includes not only the numerous CBS- broadcasting industry for the last few years, and an
churning out blockbusters
branded channels, but also ones like MTV, Comedy established cable network like CBS would greatly help
• Paramount has a current theatrical library of close to
Central and Nickelodeon the company launch successful bids for rights in the
400 films including franchises like Mission
• It owns the rights to hundreds of sucesful TV shows future
Impossible, Indiana Jones, Transformers, and Star
and series, including Star Trek: Picard, NCIS, The Big • Live sports broadcasting would be an excellent
Trek, which would add considerable value to
Bang Theory, Mom, etc. addition to Amazon, and a huge selling point over
Amazon’s current library
primary rival Netflix
Paramount is one of the largest studios in the world CBS is the largest TV network in the US Sporting Media Rights may be worth over $55 billion by 2022
13.5% 13.6% 7.14 Average Viewers in 2019 (In Millions) Global Value of Sporting Media Rights ($ Billions)
57
% Share of 2019 US Box Office 56
7
13% 6.33
11.3%
55
6
10% 5.19
5 4.62 53 53.3
8% 6.6% 4 52
51 51
4.9% 3 2.50 49.2
5%
49
2
3% 47
1
0% 0 45
Paramount Lionsgate Sony WB Universal CBS NBC ABC Fox Fox News 2018 2019 2020 2021 2022
Disney not shown, Source: Box Office Mojo Source: Statista Details in Appendix Source: SportBusiness Global Media Report

Conclusion
ViacomCBS as a Target – Asset Base
Movie Studios and Distribution
OTT Services
Television Assets
Interactive Division
Note: The list of Assets is non-exhaustive.

Conclusion
ViacomCBS as a Target – Revenue Model
Most of the company’s It is further classified ViacomCBS Revenue by Division and Type in $ Million (2019)
revenue comes from 4 broadly by type
divisions
12000.0 Publishing
372.0
Advertising Licensing
(Arrows are indicative of true breakup)
2489.7
10000.0
Cable Networks 6112.5
Home Entertainment
Affiliate Other
8000.0
3100.2 Affiliate Revenue
TV Entertainment
6000.0 Content Licensing Revenue
Content Licensing 1251.5
Filmed Advertising Revenue

4000.0
Entertainment
814.0
Publishing 5962.0
5131.3
2000.0 1709.0
Publishing
623.0
Other 658.0
0.0
TV Entertainment Cable Networks Filmed Entertainment & Publishing
ViacomCBS Revenue by type in $ Million (2019) Source: 10k Report
$25,000
• A majority of the revenues come from selling advertising time on
$20,000
Content Licensing
their television broadcasts, and in the form of affiliate revenue
$15,000
Advertising • Affiliate Revenue consists primarily of fees received from MVPDs for All Others
$10,000
Affiliate carriage of CBS’s cable networks and TV stations and fees from TV Affiliate
$5,000 stations associated with the Network Advertising
$0
2017 2018 2019 • Affiliate Revenue also includes subscription fees for Showtime and
Source: Company Filings and Press Releases CBS All Access

Conclusion
ViacomCBS as a Target – Costs and Profit
ViacomCBS has 3 main cost drivers Nearly all its profits come from 2 divisions
Production Cost ($ millions)
6800
Adjusted OIBDA in $ millions (2019)
2443
6300
6797
The amortization Cable Networks
5800 6483 expenditure on
5994 internally-produced TV Entertainment
80
5300 content.
2017 2018 2019 Publishing 143
Programming Cost ($ millions) Filmed Entertainment 3515

4300
4200
4100
The amortization
4000
3900
4268 4287 expenditure on Adjusted OIBDA in $ millions
3800 3965 acquired content.
3700 2500
TV Entertainment 5000 Cable Networks
2017 2018 2019
2450 4000
3400 Participation, Distribution, Royalties ($ millions)
2400
3350 3000
3300 Distribution and residual 2350
3250 costs of TV and Film 2000
3200 3369 programming, royalties 2300
3150
3295
for published content. 2250 1000
3100 3182
3050 2200 0
2017 2018 2019
2017 2018 2019 2017 2018 2019
Source: Company Filings and Press Releases
Conclusion
2
POST-ACQUISITION
STRATEGY

Conclusion
Post Acquisition Strategy
CBS All Access and Showtime OTT can be closed
167
160 150 Number of Subscribers (Millions)
140
120
100
All of ViacomCBS’ traditional content creation and distribution operations as
undertaken by their numerous channels, studios and networks would remain more
80
or less undisturbed, as it is one of the most successful players in multiple industries
60
40 30.4 27
22
20 12
0
Netflix Amazon Hulu Showtime + Pluto TV All Access +
Showtime OTT Showtime OTT
CBS All Access is relatively small in terms of subscriber ViacomCBS leads the traditional broadcasting segment
base. Its operations would be shut down 2021 onwards 3 of the 5 most watched shows on TV in the US right now are on CBS
All content on CBS All Access would be quickly
incorporated into Prime Video and be available to The Voice 8.74
subscribers at no additional cost
Young Sheldon 8.9
Democratic
While Showtime is fairly successful as a premium cable Debate 9.9
channel, Showtime OTT has failed to take off
60 Minutes 10.44
Showtime OTT would be discontinued as an
independent service 2021 onwards, and would only be (OTT) NCIS 10.76
available through Prime Video Channels
For week ended Mar 15, 2020 (Viewers in millions)
Sources: Digitaltrends.com, NCTA.com, Variety.com, Usnews.com Company Filings

Conclusion
Post Acquisition Strategy
Live feeds of CBS TV channels would be
available at no additional cost to
subscribers of Prime Video through a
new section called ‘Prime Video Live’,
this would include News and non pay-
Active Users (Millions) per-view sports feeds
30
22
This would not include premium or
12 pay-per view channels, as providing
those may disrupt their usual
revenue stream significantly. It
would also not include channels
Dec-18 Dec-19 Dec-20 such as The CW, which are not
Pluto TV is growing rapidly owned or run entirely by ViacomCBS
Pluto TV’s AVOD model may not integrate well with Prime
Video. It also has a healthy subscriber count which captures
a different segment of the market
Pluto TV acts as a great compliment to a service like Prime Prime Video Channels would remain unchanged as a service, but those CBS
Video, and would function independently, as it does now channels now available for free through Prime Video Live would not be on it
Sources: Company Filings, thewrap.com

Conclusion
Post Acquisition Strategy – Financial Analysis
The Post Acquisition Strategy will have an impact on the earnings of both firms
ViacomCBS will lose out on Affiliate However, they will gain advertising revenue ViacomCBS would be more selective in
Revenue due to the closure of CBS All due their channels being broadcasted to a leasing its content out to rivalling platforms,
Access and Showtime OTT large audience through Prime Video Live so Licensing Revenues would reduce slightly
ViacomCBS Affiliate Revenue ViacomCBS Advertising Revenue ViacomCBS Content Licensing Revenue
14 18 8
16.2
7.0
Advertising Revenue ( in $ Billions)

11.6 12.0 6.7
Affiliate Revenue (in $ Billions)
Licensing Revenue (in $ Million)

16 14.8 6.4 6.6
12 10.8 14.1 7
6.1 6.4
9.8 9.9
13.3 13.7 6.1
9.5 14
10 11.9 6
8.6 11.1 6.1 6.1 6.1
12 5.8 5.9 5.9 6.0
9.5 12.8 5
8 11.8 11.9 12.1 12.4
10
8.6 11.1 11.4
7.8 7.7 4
6
7.6 7.4 8
7.0
3
6
4
2
4
2
2 1
0 0 0
2019 2020 2021 2022 2023 2024 2025 2019 2020 2021 2022 2023 2024 2025 2019 2020 2021 2022 2023 2024 2025
Current Forecasts Post Acquisition Current Forecasts Post Acquisition Current Forecasts Post Acquisition

Conclusion
Post Acquisition Strategy – Financial Analysis
The Post Acquisition Strategy will have an impact on the earnings of both firms Overall, we see an increase in revenue when netting
out all the sources from both companies
Amazon would gain significantly in terms
(Discounted Values of Incremental Revenues; USD mn)
of revenue from subscription services
Amazon Revenue from Subscription Services

70
60.4
60 54.2
Revenue (in $ billions)
47.9
50
41.9
36.6 48.1
40
43.5
26.3 38.8
30
34.0
19.2 29.8
20 24.3
19.2
10
0
2019 2020 2021 2022 2023 2024 2025
Current Forecasts Post Acquisition

Conclusion
3
FINANCIAL
FEASIBILITY

Conclusion
Determining the Intrinsic Value of ViacomCBS
ViacomCBS’s Discounted Cash Flow Analysis
In $ Millions 2020 2021 2022 2023 2024 2025
EBIT 4,964 4,770 4,414 4,399 3,907 3,320
[-] Cash Taxes 993 954 883 880 781 664
EBIAT 3,971 3,816 3,531 3,519 3,126 2,656
[+] D&A 245 317 386 306 330 366
[-] Capex (380) (393) (394) (412) (429) (442)
[-] Changes in NWC (503) (93) (9) (131) (121) (93)
Unlevered FCF 3,335 3,646 3,514 3,282 2,906 2,487
Transaction FCFF 2,779 3,646 3,514 3,282 2,906 2,487
IRR FCFF Cost of Equity 2,779 3,646 3,514 Capital

3,282Structure
2,906 2,487
Cost of Equity
Risk Free Rate 1.52%
Risk Free Rate 1.52%
Equity Risk Premium 5.20% Market value of Debt 22,286
Equity Risk Premium 5.20%
Levered Beta 1.59 Market value of Equity 15,104
Levered Beta 1.59
Cost of Equity 9.80% Total Market Value of Capital 37,390
Cost of Equity 9.80%
Debt to Total Capitalization 59.60%
Cost of Debt Equity to Total Capitalization 40.40%
Cost of Debt
Pre tax cost of Debt 3.11%
Pre tax cost of Debt 3.11% Debt / Equity 1.48
Tax Rate 20.00%
Tax Rate 20.00%
After Tax Cost of Debt 2.49%
After Tax Cost of Debt 2.49% WACC = 5.44% ViacomCBS is currently undervalued by over
80% as per the discounted cash flow analysis

Conclusion
Pro Forma Financial Scenario
Boosting Amazon’s Top-line & Bottom-line Performance Statement
Amazon vs Combined Entity: Revenue composition Pro forma P/L

2019 2020 2021 2022 2023 2024 2025 2026 800.00 9.0%
800 800 8.33% 8.35% 8.26% 8.26% 8.33%
700.00 8.0%
717.2
Revenue in $ Billions)
700 700
672.7 61.8
6.76%
636.7 40.8 6.6% 7.0%
600.00 6.7%
600 595.3 55.1 600 6.6%
565.5 36.1 6.7%
6.7% 6.0%
526.8 49.5 500.00
In $ Billions
500 485.7 31.9 500

449.1 43.6 5.4%
5.0%
427.4 27.2
391.5 39.0 400.00
400 400
23.7 717.26 4.0%
334.4
20.3 304.3 636.74
631.9 655.4 300.00
300 23.5 300 565.50
559.2 581.6 3.0%
494.9 516.0 485.72
421.9 442.1 200.00 427.39
200 200
367.8 388.4 2.0%
314.1 304.29
280.8
100 100 100.00 1.0%
- - - 0.0%
2020 2021 2022 2023 2024 2025 2020 2021 2022 2023 2024 2025
Amazon’s Expenses Combined Entity’s Expenses Revenue EBT Margin Net Income Margin
Amazon’s EBIT Combined Entity’s EBIT

Conclusion
Unleashing Value Creation upon Shareholders
Accretion/Dilution Analysis
The additional $848
In $ Millions 2021 2022 2023 2024 2025 value per share is
attributable to the
Earnings Per Share operational as well
Acquirer Net Earnings 18,554 21,402 25,242 28,629 32,506 as financial
Target Net Earnings 2,662 2,425 2,452 2,106 1,657 synergies. There’s a
Pro Forma Net Earnings 28,492 32,439 37,349 42,074 47,776 positive accretion
in the EPS to the
Acquirer Shares O/S 498 498 498 498 498 tune of 47-54%,
Target Share O/S 614 614 614 614 614 thereby maximizing
Pro Forma Shares O/S 498 498 498 498 498 the return to
shareholders by
Acquirer EPS 37.27 42.99 50.71 57.51 65.30
trading on equity.
Target EPS 4.34 3.95 4.00 3.43 2.70
The calculated IRR
Pro Forma EPS 57.23 65.16 75.03 84.52 95.97
is way below the
Accretion/Dilution 54% 52% 48% 47% 47% cost of debt
allowing Amazon to Share Price Impact
Capital Structure acquire ViacomCBS Offer Price Market Price DCF Model
Current Pro Forma Change by raising debt just Target Price per Share $33.22 $24.61 $124.70
Equity 8,37,322 13,21,543 58% like it’s previous Acquirer
Cash 58,348 59,637 2% acquisition of Acquirer Price per Share $1,883.75 $1,682.01
Debt 23,244 62,246 168% Wholefoods. Pro Forma Price per Share $2,654.71
Enterprise Value 8,02,218 13,24,152 65% Change in Acquirer NPV per Share $972.70

Conclusion
Alterantive Solution – Purchase Price
Long Term Debt Shareholder's Equity
Due to poor performance
of the stock and negative
market sentiment
Amazon can easily take on more debt
It has an extremely healthy debt-to-equity ratio
We recommend an all-debt acquisition
Due to National Debt Amortization Schedule

Amusements being put on
Tranche 2020 2021 2022 2023 2024 2025
credit watch
4.2% Senior Debt A ($ 7 Billion) 20% 20% 20% 20% 20% 0%
Source: xyz xyz Deloitte 4.8% Senior Debt B ($ Billion) 0% 20% 20% 20% 20% 20%
Report 20xx
5.0% Senior Debt C ($7 Billion 0% 0% 0% 0% 0% 100%
Purchase Price
Target Share Price $24.61
Takeover Premium 35% Current
Offer Price $33.22 Equity
After Issue Debt

Target Shares Outstanding 614
Offer Price $33.22
Purchase Price USD 20391 million 0 10000 20000 30000 40000 50000 60000

Conclusion
VIII. Conclusion

Conclusion
Summarising our Solution
Scrutinizing lack of Identification of

Synergies Netflix’s Overvaluation
Long-term Value
for Amazon
Demonstrating
Financial Feasibility & Zeroing in on an
Analysing Deal Alternative Strategy
Structure

Conclusion
Appendix

Conclusion
Strategic Fit: Technology and Development
Netflix’s Algorithm- Need and importance Amazon’s algorithm- needs improvement
• According to Netflix, users look at between 20 and 50 titles • The amazon algorithm and recommendation system does
before they give up, so Netflix has a 60-90 second window to exist but isn’t as effective as the Netflix Algorithm.
recommend something before users switch to a different • Initially, Amazon had inadvertently trained its algorithms to
platform recommend safe bets. In the case of Prime Video, these were
• They constantly offer incentives for external teams to come in classic movies that were well-regarded. But while these
improve or review the algo. Even ran Netflix Prize – Gave 1 movies had high ratings with audiences and critics alike, they
million to a team that came up with an algo that was 10% weren’t exactly what consumers wanted to watch.
better than Netflix’s old one • A sign of discontent with the existing content might be visible
• To better identify users’ preferences, content is categorized into in the statistic that almost 35% of Prime video users cancel
tens of thousands of micro-genres. Together, the data points their subscription within a year as compared to Netflix’s 9%
are combined to create clusters of people who have the same
content preferences.
Hulu 50%
An illustration of the Amongst the three

Amazon 19%
personalisation aspect major SVOD services,
of Netflix’s Algorithm, Netflix has the lowest
its most distinguishable Netflix 9% cancellation rate
feature
0% 10% 20% 30% 40% 50% 60%
Source – Parks Associate (graph) Appendix Bibliography

Strategic Fit: Technology and Development
Total technology and development numbers forecasted on DCF. Amazon’s Savings on R&D Spending
Savings on infrastructure division of tech. and dev. given below.
900
In $ Millions
770.7
800 746.8 741.0
693.0 700.0 691.5
700
600
371.9 407.6 383.6
500 352.2 360.8 334.3
400
300
200 374.9 363.1

340.9 357.5 339.2 357.1
100
0
2020 2021 2022 2023 2024 2025
Algo Content Total
Netflix’s Infrastructure Research Savings Amazon Saves on Algorithm and Content valuation
• Division of the Tech and Development Expenses taken from • Savings on algorithm are worth 75% of expenditure in 2020,
the Netflix tech blog. 85% in 2021, 100% after that point till 2025
• Division of expenditure done according to our own analysis • Savings on content valuation and market research are worth
• Savings worth 65% of expenditure in 2020, 75% in 2021, 85% 15% of expenditure in 2020, 25% in 2021, 30% in 2022 and
in 2022, and 100% after that point till 2025 35% after that point till 2025
Appendix Bibliography
Strategic Fit: CDN
Amazon’s infrastructure Netflix Already Uses AWS’s services
• Netflix stopped using their own data centers in 2008, as they realized they had
• Since 2006, Amazon has been offering IT
such a huge requirement for them that they would essentially have to
infrastructure services to business through
transform into a data center company if they didn’t switch to a public cloud
Amazon Web Services, and the company
• Switching to Amazon’s cloud allowed them to focus on their core business, and
has now transitioned to offering most of
means they don’t have a huge amount of their capital tied up in computing
their solutions through cloud computing
assets.
under the same brand.
• Today, all of Netflix’s computing infrastructure, with the exception of their
CDN, runs through various AWS products.
• In 2018, AWS brought in $25.7 billion in
revenue, a near 50% jump from 2017, and
in fact contributed more to Amazon’s Content Logs Play WWW API
operating income in 2018 than any of their Video A comprehensive
S3 DRM Search Metadata
e-commerce division. Masters
list of AWS
EMR CDN Movie
Device services used by
• Amazon Web Services offers a wide range EC2
Hadoop Routing Choosing
Configurati
on Netflix and the
of different business purpose global cloud- function they
TV Mobile
based products. The products include S3 Hive Bookmarks Ratings
Choosing serve.
storage, databases, analytics, networking,
mobile, development tools, enterprise Business Mobile
CDN Logging Similars
Intelligence iPhone
applications, with a pay-as-you-go pricing
model.
Strategic Fit: CDN
Netflix OpenConnect works In 2 ways Amazon CloudFront customer breakup
• Netflix installs OCAs within internet exchange points (referred to as Customer Distribution By Company Size
IXs or IXPs) in significant Netflix markets throughout the world. These 2% 1%
100% 3%
OCAs are interconnected with mutually-present ISPs via settlement- 6%
5%
3% 1%
4%
90% 15%
free public or private peering (SFI). Peering alone can be very 23%
80% 24%
beneficial to our ISP partners. 23%
70%
60%
50%
40% 83%
72% 69%
66%
30%
20%
10%
0%
• Provide OCAs free of charge to qualifying ISPs. These OCAs, with the Akamai Amazon Web Services Cloudfare Fastly
same capabilities as the OCAs that are in the IXPs, are deployed Tiny SMB Mid-Market Enterprise
directly inside ISP networks. We provide the server hardware and

the ISPs provide power, space, and connectivity. ISPs directly control
• Although Amazon CloudFront has more customers,
which of their customers are routed to their embedded OCAs Amazon serves only 2% of Enterprise level customers as
compared to the industry leading Akamai that serves
6%
• While Amazon’s CDN strategy is focused on customer
adoption, Akamai has been far more effective at
targeting the higher profit CDN use cases.
Source: Netflix tech. blog, Intricately market report Appendix Bibliography

Strategic Fit: Leasing
Need for licensing content Effects of bidding wars.
• Netflix has been trying to end it’s reliance on licensed content by
investing heavily in original content and trying to come up with • HBO directors Benioff and Weiss made a deal to leave
new originals the studio. All major studios pursued them and they
• Licensed TV shows accounted for 3 of the top 4 streaming series selected Netflix. The deal, and will see Benioff and
on Netflix for 2018. Weiss leaving HBO to create and develop new film and
• Netflix reportedly paid $100 million to keep Friends on its service TV projects exclusively for Netflix. According to The
for 2019, more than triple its previous licensing fee of $30 million, Hollywood Reporter, the deal was worth $200 million.
which shows how important licensed shows are to Netflix.
• In Nov 2018 Netflix and amazon engaged in bidding
wars again to acquire rights to Lord Of The Rings,
RANK TITLE STUDIO which became the most expensive acquired series
when it finally got acquired by Amazon prime
1 THE OFFICE (U.S.) NBC
2 CHILLING ADVENTURES OF SABRINA NETFLIX • For Netflix, it is imperative to invest the money in
3 FRIENDS WARNER licensed shows that are popular with the audience,
because Netflix’s revenue growth has been lower than
4 GREY'S ANATOMY ABC its expenditure growth.
5 HOUSE OF CARDS NETFLIX
Source: Forbes Appendix Bibliography

Financial Analysis: Precedents Overview
By virtue of precedent transactions in the media and entertainment industry, we arrive at an EV/Revenue multiple of 3.4x and an EV/EBITDA
multiple of 12.4x.
Precedent M&A transactions, 2009-19.
Deal Value
S.No. Date Target Acquirer Implied EV ($bn) EV/LTM Revenue EV/LTM EBITDA Rationale/Relevance to Netflix
($bn)
Target is engaged in the motion pictures and video services
1 13-08-2019 Viacom CBS 11.70 19931 1.5x 6.6x
business.
2 31-07-2019 FUNimation Entertainment Ltd Sony Pictures Television Inc 0.13095* 137.84* 7.1x xx Target is into content distribution and streaming.
3 20-03-2019 21st Century Fox Disney 90.575 83203 2.8x 12.9x Target is a traditional content and distribution company.
4 04-10-2018 Sky Comcast 49.687 47566 2.7x 17.7x Target is a traditional media company.
5 31-07-2017 Scripps Discovery 11515 3.3x 7.2x Target is traditional content & distribution company.
6 30-06-2016 Starz Inc. Lionsgate 3815 2.3x 9.7x Target produces and distributes modern content.
7 22-10-2016 Time Warner Inc. AT&T Inc. 85 84036 2.9x 12.6x Target is a full-service content and distribution company.
8 28-04-2016 DreamWorks Animation SKG Inc. NBCUniversal Media, LLC 4.239 4147 4.4x 34.3x Target is an animated content creator and television company.
9 28-09-2015 Media General Nexstar Group, Inc. 3651 2.8x 11.0x Target is a traditional programmer and distributor.
10 18-05-2014 DirecTV AT&T Inc. 62979 2.0x 7.7x Target is a traditional distribution company
11 31-03-2014 LIN Media Media General 1487 2.1x 8.5x Target is a traditional programmer and distributor.
12 13-06-2013 Belo Corp. Gannett Co. 2170 3.0x 8.3x Target is a traditional programmer and distributor.
13 12-02-2013 NBCUniversal Media Comcast 39300 1.7x 9.2x Target is traditional content company.
14 08-08-2012 Starz Inc. Liberty Media 10830 6.6x 24.7x Both target and acquirer are content and distribution companies.
15 27-06-2012 Twenty-First Century Fox New News Corporation 51301 5.9x 57.7x Target is into content production and distribution.
16 31-08-2009 Marvel Entertainment Walt Disney 3709 5.2x 11.6x Target is a original content producer and owner of franchises.
Average 3.5x 12.4x

Median 2.8x 12.9x
Min 1.5x 6.6x
Max 7.1x 17.7x
Source: CapitalIQ, Bloomberg, MergerMarkets, Google Finance
Note: AT&T's deal to acquire Time Warner Inc. was announced in 2016, but was delayed till 2018 (the Justice Department did an 18 month evaluation of the deal).
*: Converted to USD from GBP. xx: Data for the particular transaction not available

Conclusion
Financial Analysis
Revenue Drivers Cost Drivers
Subscriber Growth (Net) %

30.00% ARPU Growth % Content Expense Growth %
26.0%
25.0% 35.00% 32.7% 32.4%
24.0%
25.00% 23.0% 29.4% Delivering Expense & other costs
30.00% Growth %
20.00%
25.00%
15.3% 24.9% 20.4%
15.00% 20.00% 17.6%
12.5% 21.5% 22.4% 15.4%
10.4% 13.8%
15.00% 12.0%
8.8% 10.6%
10.00% 14.8% 9.2%
7.1%
10.0% 5.7% 10.00% 13.2% 7.1%
9.0% 5.0%
4.0% 5.1%
5.00% 3.0% 9.0% 4.0%
6.0% 2.0% 5.00% 7.2% 7.9% 2.0%
5.0% 1.0% 6.0%
4.4% 4.5% 4.5% 4.6% 4.6% 4.6% 4.0% 5.1%
4.4% 3.9% 4.0%
3.0% 2.0% 2.0% 0.00%
0.00% 1.0% 2.0%
2016A 2017A 2018A 2019A 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E 2017A 2018A 2019A 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E
Range Of Values Source of assumptions Key Assumptions Range Of Values Source of assumptions Key Assumptions
Assumed to be Assumed to be
1-15.33% Deutsche Bank Estimates 2020-25 2-20.40% Deutsche Bank Estimates 2020-25
diminishing thereafter diminishing thereafter

Conclusion
Financial Analysis
Current & Non- Current Content Liability

Current Content Liability
Non-current Content Liability Current Content Non-Current
Licensed Content Amortization Liability Content Liability
7 6.67
6.53
6.40 6.40
6.27
6.13
5.87 5.87 5.87 Range Of Values Range Of Values
6 5.60
In $ Billions
5.33 5.33
5.07 $4.31-4.98 Bn $4.31-4.98 Bn
5
4.53
4.86 4.92 4.98 4.86
4.81 4.75
4.68
4.41
4.64 4.64 4.53 4.42
Source of assumptions
4 3.73 4.31
4.17
3.76 3.74 3.77 3.81 3.74
3.63 3.60 3.70 3.67 3.60 3.53 3.45 3.38
Deutsche Bank Estimates 2020-25
3 3.33 3.33
2.89
2
Other Sources
1
Own Analysis
-
2016A 2017A 2018A 2019A 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E

Conclusion
Financial Analysis
Debt Issued & Repaid

Assumptions
2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
3,000 • Own analysis based on Consensus
2,000
Estimates that suggest Cashflow from
Operations to turn positive 2023 onwards.
1,000 2,241
• Netflix has a cash balance ~ $5 bn as

In $ Millions
- - - - - - - - - - -
(700)
(400)
(800) (1,000) against an all time high Cash deficit of $3.2
(1,459)
(1,000) bn.
(3,500)
(2,000)
(4,280)
• Until 2023, Netflix will refinance it's debt
(3,000) due, the management guidance points
towards the preference of debt finance.
(4,000)
(5,000) • Due dates of issued Notes have been taken

Debt Issued Debt Repaid into consideration.

Conclusion
Acquisition Feasibility: Cash, Debt & Equity
Data about the biggest debt issuances in the USA Amazon’s liquidity
Statement Data 2019 2018 2017 2016 2015
Current Ratio 1.10 1.10 1.04 1.04 1.05
Quick Ratio 0.86 0.85 0.76 0.78 0.75
Amazon can’t use its cash balance to fund the acquisition because:
• Amazon has to pay off its current liabilities as well, which are
almost equal to the current assets.
• The quick ratio has been less than 1, i.e., the cash isn’t sufficient
to pay the current liabilities.
Average 24 Hence, Amazon would have to fund the entire purchase price
through debt.
Equity issuance
Amazon’s current Debt to Equity ratio is 0.83. 80%
Issuing new equity results in a sharp decline 0.83
This will result in a massive equity
in this ratio. .83 to .16 dilution for Amazon’s shareholders,
Since the company is already very unlevered, 0.16 and a sharp fall in EPS as well.
raising more equity will only dilute earnings.

Conclusion
Acquisition Feasibility: New Cost of Debt
Cost of Debt Computation:
EBIT 2020e Interest 2020e

Company
(‘000s) (‘000s) Process
Netflix 4,156,980 540,189
We estimated the new cost of debt for Amazon post
Amazon 18,398,366 1,405,441
acquisition. The process is as follows:
Add: Additional interest expense
5,958,318 • The forecasted EBIT and Interest expenses of the
for raising debt
combined entity were used to get a new Interest
Total 22,555,346 7,903,948
Coverage Ratio (ICR).
Based on the new EBIT and the new interest, • The new ICR was used to develop a synthetic credit
we concluded the interest coverage ratio and rating for the company, which came out to be Baa2.
determined the following metrics: • The new credit rating has a default spread of 1.56%, as
compared to the earlier one of 0.71% for standalone
Ratio Post Acquisition Value Current Value Amazon.
• Adding this new default rate to the risk free rate, we
Interest Coverage Ratio 2.85 6.34
get the new cost of debt as 3.08%, as compared to
New credit rating Baa2 A2
New default spread 1.56% 0.71% 2.23% pre acquisition.
Risk free rate 1.52% 1.52%
New cost of debt 3.08% 2.23%
Source: Aswath Damodaran

Conclusion
Alternate Solution: Solving Amazon’s Problems
Content
Amazon can afford to out-spend the competition Big Data in Content Creation Media Companies Own the Content
It has the Cash Balance Most content is produced by Movie and TV studios, but the
Before producing House of Cards, Netflix examined millions of
rights to that content usually lie with a distributor or
Cash + Marketable Securities ($
212% data points and made the following observations

network
60 55.021 • The British version of House of Cards was extremely
41.25 popular, and most people watched the episodes all the The Film Industry is Dominated by a Few Players
Billion)
40
25.981
30.986 way through
• People who watched the British version tended to watch Share of US-Canada Box
20 Office (2019)
more films directed by David Fincher, and also films
0 starring Kevin Spacey
2016 2017 2018 2019
And Generates a Healthy Cash Flow So, Netflix spend $100 million to produce two seasons
Cash from Operating Activities ($
starring Kevin Spacey, with David Fincher acting as director

320% The Television Industry is More Segmented
and executive producer
40 38.5 Share of 2019 US
30.7
Billion)
30 At peak popularity, 16% of US Netflix cable viewers

20 17.2 18.4 subscribers surveyed watched at least
12.0
10
one episode of House of Cards on just a
single particular date
0
2015 2016 2017 2018 2019
Source: SEC Filings Source: Insider Pro, Sandvine.com Source: boxofficemojo.com, Nielsen Media Research
• For a period of 3 years from 2006, Netflix ran an annual competition where teams competed to come up with an algorithm that could beat Netflix’s own for a $1 million cash
Fixing the Algorithm prize. None of the new solutions were actually used due to the cost of implementation, but teams from AT&T labs managed to beat Netflix’s own algorithm by up to 10%.
• While Netflix’s algorithm would developed significantly since then, the Netflix Prize example shows that effective algorithms can be developed at relatively low cost by 3rd
The Quick and Easy Way parties. A company like DataRobot, which is a Boston-based AI company that specializes in providing machine learning solutions to solve enterprise level problems, may
provide a fresh take on the algorithm and help Amazon catch up to Netflix in this regard
Alternate Solution: Finding the Right Creator – Deeper Analysis
Company Overview Verdict
• A streaming service that is a direct competitor to Netflix and Prime Video

• Smaller library than both, but hosts a few favorites such as Black-ish, Seinfeld, and most notably, The Handmaid’s Tale. It is able to launch Hulu is used more as a way to stream content from Disney’s
content much faster than most of its competitors, with many shows becoming available just 24 hours after their release on TV vast media empire than as a content creator. Further, its
• Initially established as a joint venture between News Corporation and NBC Universal but is now fully controlled and majority-owned by The valuable strategic position in Disney’s portfolio makes an
Walt Disney Group, who have been slowly integrating it into their other services by bundling it with Disney Plus and ESPN acquisition unrealistic. Overall, even if acquired, Hulu would not
• Offers two main services, Hulu, which operates on a model similar to Netflix and Prime Video, and Hulu Plus Live TV, which also gives access solve Amazon’s problem
to live feeds from over 50 cable broadcast channels
• Owned by the Walt Disney company, ABC is one of the ‘Big 3’ television networks of the US alongside NBC and CBS In 2010, Disney was actually looking for a buyer for ABC, as it
• Has an impressive lineup of shows such as Grey’s Anatomy, Modern Family, The Good Doctor, Shark Tank, and more was not adding much value to Disney’s portfolio, but Disney’s
domestic broadcasting division now brings in a sizeable chunk
• ABC’s flagship shows such as Grey’s Anatomy and Modern Family are already available on popular OTT platforms, and it is
of their revenue, and they are unlikely to let a valuable assets
questionable whether their content library has the depth to actually win the streaming wars
like ABC be acquired cheaply. Even if ABC is acquired, their
• Content sharing tie ups with Disney owned HULU, which indicates Disney’s plans to use it produce OTT content for itself
content library may be not be sufficient for Amazon’s purposes
• Comcast-owned mass media conglomerate with multiple divisions, primarily the television network NBC and the Hollywood NBCUniversal would not be willing to sell any one significant
studio Universal Pictures, set to launch their own OTT service called Peacock in 2020 division of its business as it would leave the rest of the firm
• NBC has a healthy lineup of TV shows, especially in the reality TV segment, with shows like The Voice, This is Us, Project strategically compromised. Further, the company is wholly
Runway, Law and Order, etc., and Universal Studios boasts an impressive catalogue of movies. owned by the telecommunications conglomerate Comcast, and
• NBC Universal may be too large a firm to be acquired in its entirety, and would include assets Amazon isn’t really interested in, forms a valuable part of their portfolio, which greatly reduces the
such as its theme park division, and so only certain divisions of NBCUniversal would have to be bought chances of a successful acquisition of any part of NBCUniversal
As HBO and HBO Max are WarnerMedia’s hedge against being
• Currently owned by WarnerMedia, which is owned by AT&T totally replaced by services such as Prime Video, it is unlikely
• Known for great original content like Game of Thrones, The Wire, and Westworld to sell to a major competitor like Amazon. The only viable
• WarnerMedia is currently under threat from OTT services, and HBO performs consistently on their catalogue. route would be for Amazon to acquire WarnerMedia as a
• AT&T has already invested over $1 billion into HBO Max, a streaming service set to launch in 2020, and management whole, which would be excessive and prohibitively expensive,
has said they intend to commit between $3.5 and $4 billion in investments into HBO Max over the next few years and the ultimate ownership lying with AT&T may cause further
problems
Continued
Alternate Solution: Finding the Right Creator – Deeper Analysis
Continued
Company Overview Verdict
• Known for producing high quality films, it has also recently found success in co-producing TV shows such as the Apprentice, Are you smarter MGM’s track record of producing high quality content is
than a 5th grader, the Voice, etc.. MGM was the producer behind The Handmaid’s Tale, which was a huge hit for Hulu excellent, and they would undoubtedly contribute to
• Has a few extremely valuable assets, most notably distribution rights to the James Bond Films. However, as MGM has traditionally relied on Amazon’s library in the long run, however, Amazon may
other companies to distribute their films, they actually own the rights to relatively few titles themselves already be too far behind their competitors by then, and
• It faced bankruptcy in 2010 and is currently owned by former creditors, who are already rumored to have entered into talks with companies MGM brings very little in terms of pre-owned content
such as Netflix and Apple to sell MGM assets that can immediately be used to bridge the gap
• Ultimately owned by the Sony Corporation, it has two main divisions: Sony Pictures Motion Picture Group and Sony Pictures television
• The Motion Picture Group owns multiple studios including Columbia Studios, and has more than 3500 titles as part of its library. It has produced Acquiring Sony Pictures Entertainment would
some of the most commercially successful films and franchises in history, such as Spider Man, Men in Black, Jumanji etc. certainly add huge value to Amazon’s film library, but
• The TV division has an equally impressive set of titles under its belt, including hit shows produced for Amazon and Netflix, however, as most of the would do little for their TV library. Moreover, senior
networks owned by Sony are centered around Asia, the distribution rights to most of the shows do not lie with them management at Sony seem quite unwilling to sell the
• While Sony’s entertainment business has often played second fiddle to their electronics business, Sony’s newest CEO has categorically stated that division
they are not planning on exiting these businesses, and wish to expand them by integrating them with the PlayStation network
• Has television and interactive divisions, but is most well known for its film division
While Lionsgate may seem like an attractive option due its
• Content library and scale of operations is relatively limited, it was only the 7th largest studio in America by revenue in 2015, thus available at a
relatively low price, the content that would come with it
cheaper valuation, currently trading at a market cap of around $1.2 billion
would not be a sufficient addition to Amazon’s current
• Has entered into an agreement with NBC through its subsidiary Starz, which will allow Starz productions to stream through NBC’s Peacock service.
library
This content may not be contractually available to stream through a rival OTT service, further limiting the library
• Formed in December of last year by the merger of Viacom and CBS, both of whom are owned by National Amusement, in order to consolidate the
business and be better equipped to fight the competition from tech giants entering the media sphere, including Amazon and Netflix ViacomCBS has the content library Amazon needs, and the
• The combined entity has a huge asset base, including Paramount Pictures, CBS News, CBS Television Studios, Comedy Central, Nickelodeon, etc. prowess to continue to add to that library. The management
• It would bring hundreds of successful TV shows and Movies to the Amazon content library, including rights to assets like Star Trek, Mission also appears to be ready to sell in the long run. The timing of
Impossible, CSI, The Late Show, and more. CBS also has the partial rights to many sporting events, including the NFL, WNBA, PGA Tour, etc. the acquisition is also not ideal, considering the company
• Shari Redstone, the president of National Amusements, has been trying to merge CBS and Viacom for years now. In a complaint she filed against has just formed out of a difficult merger, but CBSViacom
CBS executives in Delaware Chancery Court in 2018, it was clearly implied that her objective behind merging the two entities was to sell them seems like Amazon’s best bet of winning the streaming
together Since the merger has finally been successful, National Amusements might soon begin to look for a prospective buyer for ViacomCBS wars.
• ViacomCBS currently trades at a Market Cap of about $12.4 billion, but as most of the shares are owned by National Amusements, the actual price
of the acquisition may be significantly different
Alternative Solution: Post Acquisition Strategy – Financial Analysis
ViacomCBS Revenue Forecasts

ViacomCBS Affiliate Revenue ViacomCBS Advertising Revenue
ViacomCBS Content Licensing
14 14 12.84
Revenue
Affiliate Revenue (In $ Billions)
12.41
Advertising Revenue (in $ Billions)

11.62 11.96 11.80 11.89 12.07
Licensing Revenue (in $ Billions)

11.09 11.37
12 10.82 8 12
6.74 6.96
9.53 9.84 9.85 6.35 6.38 6.60
10 7 6.06 6.13
8.60 10
7.54 7.70 6 7.59
8 6.75 6.71 7.13 8 6.84 6.99 7.27
6.58 5 6.42 6.73
6.11 5.96
3.48 3.63
6 4 3.22 3.27 3.37 6
4.26 3.10 3.07
3.70 4.08
2.95 3.09 3.14 3 5.25
4 2.49 1.71 1.78 1.82 1.80 1.87 1.92 1.97 4 5.13 4.95 5.07 5.05 5.08 5.14
2
2 2
1 1.28 1.36
1.25 1.32 1.31 1.33 1.36
0 0 0
2019 2020 2021 2022 2023 2024 2025 2019 2020 2021 2022 2023 2024 2025 2019 2020 2021 2022 2023 2024 2025
TV Entertainment Cable Networks Total TV Entertainment Cable Networks TV Entertainment Cable Networks Total
Filmed Entertainment Total

Conclusion
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Conclusion
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Providentia Capital

Conquering the Subscription Video

Executive Industry Company Strategic Financial Acquisition Alternative

Abbreviation Explanation Abbreviation Explanation

Executive Industry Company Strategic Financial Acquisition Alternative

Executive Industry Company Strategic Financial Acquisition Alternative

Executive Industry Company Strategic Financial Acquisition Alternative

Executive Industry Company Strategic Financial Acquisition Alternative

Over the Top Market

Executive Industry Company Strategic Financial Acquisition Alternative

Streaming Platforms SVODs form a major portion of the OTT market

Multichannel Networks Streaming Devices

*company list is non-exhaustive

Executive Industry Company Strategic Financial Acquisition Alternative

23 Live Broadcast TV Streaming Video

CAGR is 26.4% 55.4%

Nigeria India Indonesia China US

Executive Industry Company Strategic Financial Acquisition Alternative

Households (in millions)

Executive Industry Company Strategic Financial Acquisition Alternative

15th April 2020 for Xfinity & Flex

P/S Ratio Media Conglomerates Tech Conglomerates

Executive Industry Company Strategic Financial Acquisition Alternative

“Disney will not be renewing its 2016 contract with

Executive Industry Company Strategic Financial Acquisition Alternative

Executive Industry Company Strategic Financial Acquisition Alternative

Delivery Services Payments

Books and Reading Smart Home

Cloud Computing Physical Stores

Amazon Gov. Cloud

Executive Industry Company Strategic Financial Acquisition Alternative

120 11.1% $784

Executive Industry Company Strategic Financial Acquisition Alternative

250 35.03 Online Stores

Executive Industry Company Strategic Financial Acquisition Alternative

Executive Industry Company Strategic Financial Acquisition Alternative

existing subsidiaries or core

$1.0bn Eg: Ring; aids efficient Eg: Whole Foods; aided

Eg: Lovefilm.com; aids Prime

Executive Industry Company Strategic Financial Acquisition Alternative

Easy to watch on a Tv Easy to use on all devices

Executive Industry Company Strategic Financial Acquisition Alternative

Executive Industry Company Strategic Financial Acquisition Alternative

from Netflix’s USA Operations…

received by Stranger Things

Million views were gained Netflix 23.10% Youtube 22.53%

APAC - Downstream % APAC - Upstream %

Facebook Video 17.72%

Facebook Video 5.13%

Netflix 16.28% Netflix 5.07%

Executive Industry Company Strategic Financial Acquisition Alternative

Executive Industry Company Strategic Financial Acquisition Alternative

2017 2018 2019 2020

Executive Industry Company Strategic Financial Acquisition Alternative

Executive Industry Company Strategic Financial Acquisition Alternative

Executive Industry Company Strategic Financial Acquisition Alternative

Average Show Rating

Executive Industry Company Strategic Financial Acquisition Alternative

Executive Industry Company Strategic Financial Acquisition Alternative