Amazon should buy CBS to challenge Netflix, analyst says

Amazon should consider buying an established media company like CBS to help build out its “Prime Video” streaming service as it looks to compete with the likes of Netflix and Disney, according to a prominent research firm.

While Amazon’s “Prime” service has more than 100 million global paid subscribers, the “Prime Video” component “appears to be lagging in both usage and reach” compared to industry leader Netflix, according to MoffettNathanson. Michael Nathanson, a senior research analyst at the firm, argues Amazon needs to develop new, high-quality content that resonates with streaming customers.

“Rather than build it out over time, we wonder if Amazon would embrace a ‘buy it’ model and seek to acquire a traditional media company with content creation skills, deep proprietary content libraries, sports production capabilities, and burgeoning OTT ambitions,” Nathanson wrote in a note to clients. “Of all the companies available, CBS is the most logical fit.”

Netflix has grown rapidly in recent quarters as massive investments in original content have lured new subscribers. The streaming giant now has more than 125 million paid global subscribers. Company shares have risen more than 100% so far this year.

Disney is also poised to enter the streaming race, with plans to launch its own branded direct-to-consumer video service in 2019. The service will feature the entire Disney, Pixar, Marvel and Star Wars libraries, as well as other original content.  Disney is currently locked in a bidding war with Comcast to acquire certain Fox television and movie properties, which would further bolster its offerings.

Nathanson notes that an acquisition of CBS is unlikely given the ongoing legal battle between CBS CEO Les Moonves and Shari Redstone, who controls CBS and Viacom through National Amusements Inc. A decision in that case is not expected until October at the earliest.

“If CBS is given their freedom from NAI’s control (which we doubt), we believe that an M&A premium would quickly emerge,” Nathanson wrote.

AT&T expressed interest in buying CBS before the company’s $85 billion bid to acquire Time Warner came together, according to a Wall Street Journal report.