Why Does Fox Want Time Warner?

Albert Fried’s Rich Tullo says 21st Century Fox’s (FOXA) interest in purchasing Time Warner (TWX) is all “about streaming:”

Associated Press

Based on our due diligence, a merger of Fox and HBO would create a group that controls 20 of the top 50 shows binged today on all Streaming Services. In a year, perhaps 30 or more of the top 50 binged shows once the new HBO’s deal with Amazon finds its legs. Once HBO is reflected in the statistics because we think The Sopranos, Band of Brothers, The Wire and the Game of Thrones are likely to be among the top ten binged TV shows based on VOD and Pirating data.

So what does the opportunity look like? Well since Netflix (NFLX) inked its deal with AMC Networks (AMCX), Netflix’s top line and subs expanded by 30% to +$4 billion and 36 million respectively. More than Netflix’s own Originals (3 of 50), AMC Networks also controls 16% (8 of 50) of the top 50 shows watched on Netflix and we think better than 20% of the hours spent on Netflix is the viewing of Netflix content. Thus the streaming opportunity for an AMC Networks consolidation is about $1 billion in our view and we think the opportunity for Time Warner and Fox is in excess of $3 billion.

Shares of Time Warner have gained 18% to $83.65 at 10:28 a.m., while 21st Century Fox has dropped 2.4% to $34.35, Netflix has ticked up 0.1% to $449.74 and AMC Networks has advanced 3.2% to $62.85.

Full disclosure: 21st Century Fox was once part of News Corp, Barron’s ultimate parent.