In this segment of the Motley Fool Money podcast, host Chris Hill, Million Dollar Portfolio's Jason Moser and Matt Argersinger, and Total Income's Ron Gross talk about the latest potential big entertainment industry deal.
First, it was Disney (NYSE:DIS) looking to buy the lion's share of Fox's (NASDAQ:FOX) (NASDAQ:FOXA) entertainment assets. Now it's Comcast (NASDAQ:CMCSA) talking acquisition -- and, worth noting, whichever wins takes majority control of Hulu. Then, they break down their views on why ever-expanding payment platform specialist PayPal (NASDAQ:PYPL) has decided the consumer loans aren't what it wants to be in. It may be less an issue of a business direction choice and more a balance sheet maneuver.
A full transcript follows the video.
This video was recorded on Nov. 17, 2017.
Chris Hill: Comcast is the parent company of NBC, Telemundo, Universal Pictures, DreamWorks Animation, and apparently, Matty, they're looking for even more content, because Comcast is talking to 21st Century Fox about buying most of Fox's assets, including the movie studio division and National Geographic, and FX Networks. And Disney was in talks with Fox as well. Where is this going?
Matt Argersinger: You used to be able to clean the categorize the media entertainment industry into two categories. You had content and you had distribution. And there was kind of a nice marriage relationship there for decades. But because of the success of Netflix, because of the threat that Amazon represents, I think the older legacy media companies have realized that you have to have both. There was always a little bit of overlap, but now we want to actually control both. I think that's why you saw Comcast buy DreamWorks, NBC Universal in recent years. You have the AT&T, Time Warner merger that may or may not happen. And now you have Disney and Comcast, and apparently Verizon as well, looking at Fox's assets. I think, in the mix here, it's mentioned but not really one of the headlines, is that Hulu is part of this deal. Fox owns 30% of Hulu. So, if Disney or Comcast get control of Fox, they now have a majority position in Hulu. And I think that makes that platform much more competitive against Netflix and Amazon. I think a deal is going to happen here. There's just too much interest in those assets. I expect, by the end of the year, there's probably going to be some official acquisition plan in place.
Jason Moser: I would not undervalue that Hulu assets. We have that skinny bundle that they offer now. They're still working out some kinks, but I tell you, it's a really great way to cut the cord so to speak and still get a lot of content at a very affordable price. I think they're onto something there.
Hill: It's interesting. We hear all the time that content is king. And clearly Fox has looked at their entire portfolio and said, "We just want to do news and sports." Shares of PayPal up this week after the company announced it is selling its entire consumer loan portfolio to Synchrony Financial. You tell me, Jason, why doesn't PayPal want to loan me money anymore?
Ron Gross: [laughs] It's just you, Chris.
Hill: It's just me.
Moser: This is more of a shoring up the balance sheet thing. I think, honestly, in the simplest terms, this is a deal that just lets two companies focus on doing what they do best. Synchrony, at its core, is a bank offering credit products, and PayPal is a financial services company that more or less serves as the median through which money is exchanged in this mobile age. So, as you said, it takes a credit portfolio that PayPal used to own in the form of a lot of receivables and basically unloads that onto Synchrony's balance sheet, which is more in line with what they do. It's about $5.8 billion that represents that receivables portfolio. So, the general thinking is, this gives PayPal's management, it frees up a lot of cash that they can then invest back into the business in other forms of products and services they want to bring to market that complement their offerings in anyway. So, put it in context, PayPal currently uses about 50% of their free cash flow annually to fund this credit portfolio. So, this is really going to free up a lot of free cash for them, which I think is ultimately a good thing, and that's why you saw the market react so positively to the news.
Chris Hill owns shares of PayPal Holdings and Walt Disney. Jason Moser owns shares of PayPal Holdings and Walt Disney. Matthew Argersinger owns shares of Netflix and Walt Disney. Ron Gross owns shares of Walt Disney. The Motley Fool owns shares of and recommends Netflix, PayPal Holdings, Verizon Communications, and Walt Disney. The Motley Fool recommends Comcast, Synchrony Financial, and Time Warner. The Motley Fool has a disclosure policy.