Carl Icahn buys 10% of Netflix


A sign is posted in front of the Netflix headquarters on July 20, 2011 in Los Gatos, California. (Justin Sullivan/Getty Images)
November 3, 2012

Billionaire Carl Icahn has taken a 10 percent stake in Netflix, putting the world’s largest video streaming service in play and signaling a potential end to its days as an independent company.

The 76-year-old investor disclosed Wednesday a $168.9 million bet on Netflix, buying stock and options representing 5.54 million shares. The Los Gatos, Calif.-based company posted its biggest gain since January after Icahn said deep- pocketed competitors such as Amazon.com and Verizon Communications were potential suitors.

Netflix has been the most aggressive player in establishing the market for online video, building a subscriber base of 25.1 million U.S. customers and nearly 5 million internationally. Its dominant hold positions the company as the biggest prize in a market that Icahn sees as ripe for consolidation. As consumers turn to the Internet for TV shows and movies, rivals must spend billions to overtake Netflix, or pay to acquire it.

“This could be a great jumping-off point for them,” Icahn said in an interview on Bloomberg Television. “There’s so many possible combinations.”

Icahn’s investment includes options for 4.29 million shares, according to the filing.

Netflix surged 14 percent to $79.24 on Wednesday in New York, its highest close in more than three months. It closed Friday at $76.90.

“We have many shareholders, now including Mr. Icahn, and we’re always open to their perspective on how to build on our success,” Jonathan Friedland, a Netflix spokesman, said Thursday in an e-mailed statement.

Robert Varettoni, a spokesman for New York-based Verizon, declined to comment on whether the telecommunications company is interested in Netflix. Drew Herdener, an Amazon spokesman in Seattle, didn’t respond to a telephone request for comment.

Netflix is far ahead of its rivals. The company turned its DVD-by-mail service into the top subscription streaming destination for movies and TV shows, with a $7.99 monthly fee for unlimited use, doling out billions for rights to films and television shows.

Hulu — owned by News Corp., Walt Disney and Comcast — said last month that it had 2 million paid users of its Hulu Plus service.

Amazon, the world’s biggest online retailer, ties its video subscription to the $79-a-year Prime service, which offers free shipping. Prime had 3 million to 5 million customers in October 2011, with a goal to reach as many as 10 million by next October, people familiar with the matter said in February. In September, it added movies from Viacom’s Paramount Pictures, Metro-Goldwyn-Mayer and Lions Gate Entertainment in a deal with the Epix pay-TV channel.

Verizon and Coinstar, owner of the Redbox video kiosks, plan to start their Redbox Instant service by year-end. The venture will combine subscription streaming, video-on-demand and the sale of digital copies with access to Redbox DVD rental machines.

Icahn, an activist who has pressed for buyouts and management changes at some companies he held stakes in, praised Netflix chief executive Reed Hastings for expanding internationally and developing original series. In a filing, Icahn said the company may have appeal to larger buyers.

“I think Reed Hastings is a smart guy,” said Icahn, who had invested in the competing Blockbuster video-rental store.

A buyer for Netflix would face numerous challenges. Domestic subscriber growth is slowing, the company is losing money from its international expansion and it has at least $5 billion in content obligations, including $2.1 billion over the next 12 months, according to its Oct. 23 third-quarter report.

Those multiyear commitments would make it difficult to cut costs, said Eric Wold, a B. Riley & Co. analyst in San Francisco who recommends selling the stock.

“You are getting a significant subscriber base, but subscribers can cancel at any time without a penalty, so there’s no long-term security there,” Wold said. “They have content, but 80 percent is not exclusive, so you can get the content from someone else at a cheaper price.”

— Bloomberg News

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