According to Bloomberg on Monday, Disney is working with a financial advisor to evaluate a potential bid for Twitter. And Disney isn't the only one vying to make a deal; the news follows reports last week indicating Twitter has already held preliminary acquisition discussions with both Google and Salesforce.
I admit a Disney/Twitter tie-up could have its shortcomings. As fellow Fool Rick Munarriz pointed out earlier this week, tacking on an acquisition premium to Twitter's current $16.5 billion market cap would make it more expensive than the $15.5 billion Disney shelled out for Pixar, Marvel, and Lucasfilm combined -- and without the benefit of adding another lucrative library of character-centric IP Disney could use to bolster profits across its studios, theme parks, and consumer products divisions.
Rick also rightly noted that not only would Twitter be dilutive to Disney's earnings for years, but the hashtag-driven site would also arrive complete with its less-than-savory, family-unfriendly sections and topics.
So why in the world would Disney be willing to go out on a limb to become Twitter's parent?
All in favor?
For one, arguably the biggest worry Disney investors have for the business is the effect of cord-cutting consumers on its core media networks segment -- which notably includes its lucrative 80% stake in ESPN, its namesake channels, ABC Family, and a 50% stake in A&E Networks -- where revenue and earnings have climbed just 3% and 2%, respectively, over the first nine months of its current fiscal year.
To be fair, Disney is taking steps to navigate today's changing media landscape, including striking content deals with the likes of Netflix and Amazon Instant Video. More recently, Disney even invested $1 billion for a 33% stake in BAMTech -- a video streaming leader that spun off from MLB Advanced Media (MLBAM) -- with a near-term goal of launching a direct-to-consumer ESPN-branded subscription video streaming service.
That's where Twitter comes in. As it stands, many investors aren't aware that Twitter is becoming much more than just a social media platform. And in fact, several of Twitter's most recent developments are closely related to Disney's own media streaming efforts.
Recall in July, for example, Twitter announced a new live-streaming partnership with MLBAM to stream out-of-market games from both Major League Baseball and the National Hockey League as well as an exclusive live nightly multisports highlights show called "The Rally" from over-the-top content network 120 Sports. Earlier that month, Twitter also secured an expanded content partnership to bring exclusive original live NBA programming to the platform.
Before that, Twitter live-streamed this year's Wimbeldon tennis tournament in June. And in April Twitter became the NFL's exclusive steaming partner to deliver a live OTT digital stream of 10 Thursday Night Football games for free to viewers over the course of the 2016 regular season. Bloomberg reported at the time that deal cost Twitter around $10 million, which could turn out to be a pittance compared to its potential for cementing Twitter's leadership in the media streaming world.
A "perfect" union
In that context, Twitter and Disney seem like a perfect match to help each other move forward and secure their positions as market leaders while consumers inevitably shift away from traditional media and toward a growing number of streaming sources. So all things considered, while I'm sure such a deal will elicit the ire of skeptics, I won't be the least bit surprised if Disney and Twitter tie the knot.