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Netflix Offers to Buy Regency Outdoor

$300 Million Sale Price

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Netflix Offers to Buy Regency Outdoor

As many of you have read when the story first broke last Friday, Netflix is rumored to have offered Regency Outdoor over $300 million dollars to buy their OOH billboard plant.  No one at either company has commented.  Netflix is just one of the bidders for the Los Angeles-based Regency Outdoor Advertising, and there is no certainty the offer will be accepted.

Reuters, was first to reportNetflix is seeking to acquire L.A.-based billboard company Regency Outdoor Advertising  with an offer of more than $300 million.

With all the speculation regarding Netflix/Regency, and as tight-lipped as both parties are, it is unlikely we are going to hear anything substantive until it happens. If it happens. As most of you who have been in OOH for the last 10 years know, rumors of Regency’s sale have been as real as the most recent announcement.  And still the Kennedy brothers did not sell or the sellers did not buy…

CREDIT: COURTESY OF BATTERY

 

 

Let’s address a few thoughts others have been pushing around the Industry to stir discussion.

  1. “It’s a huge plus for the industry when a high-tech new media company like Netflix, with plenty of dollars and choices decides to invest in out of home.”
  1. “It’s a huge plus for the industry when a high-tech new media company like Netflix, with plenty of dollars and choices decides to invest in out of home.”

False.

OOH Today doesn’t see it that way.  Nor does history. While it makes for feel real good headlines, we don’t see Netflix as a huge plus or any kind of plus, as an OOH Owner for the OOH Industry. At least for the reason’s mentioned by anyone so far.  If Netflix buys without actually becoming an OOH company, that is something more optimistic and encouraging.

Our fear is the possibility of another stumbling, bumbling investor, large with cash and reputation but with little knowledge of OOH entering the field.   Someone with no experience and understanding of running a brick and mortar and buying into a business they know little about is frightening.  Just because they are buying a lot of OOH doesn’t mean they know a lot about out of home.   Come on, ” Just because a guy watches a lot of Bruce Lee movies doesn’t mean he knows Kung Fu.”   

Besides, isn’t OMG planning and buying Netflix OOH?  Hey, has anyone asked OMG for their thoughts on the Regency rumor?  Surely Netflix would not buy an OOH company without the guidance from their OOH advisers.  If anyone has a solid respected opinion it would be the agency.  By virtue of Netflix’s inexperience, we see potential issues and devaluation for the entire OOH Industry.

Just because a guy watches a lot of Bruce Lee movies, doesn’t mean he knows Kung Fu.” 

Need more? Remember back, when big money Capital Investment Group, (‘CIG’, made up name) invested in one of the Big OOH companies last decade? Very similar comments were made about the tremendous opportunity for the OOH Industry.  All the superlative and positives of their entry to OOH “is a huge plus to the OOH Industry!”  Sound familiar?

More quotes from the past, ‘CIG’  “partners with management teams around the world to accelerate growth.”  ‘CIG’ ” can ‘make introductions to potential customers across the globe.”  CIG was “a global alternative investment firm (or maybe they said white night) who specializes in private equity, venture capital and invests across a range of industry sectors and geographic regions.” And the best quote, ‘specializes in turning around moribund companies.’

The reality is, ‘CIG’ put a hurt on the OOH company they bought and the Industry as a whole paid the price as well.  As when a rising tide floats all boats, so low water runs everyone aground.

As when a rising tide floats all boats, so goes low water runs everyone aground.

Ask your self, whether you work for ‘CIG’ company or are a competitor: “Are you better off or worse since the take over?”  It’s a rhetorical question.  Sales, financial reports and stock prices have already answered that question.

Its one thing to beat you competition.  It’s a whole different economic story when a competitor is weak.  Your customers know it and you pay the price with lower rates.  The old ‘steel sharpens steel’ concept works.  While you want to beat your competitor, for the health of the Industry, keep your competitor’s sharp, strong and healthy. Can Netflix be a strong OOH owner competitor?  I am not ready to crown them yet.

If Netflix does buy Regency and keeps Regency’s strongest representatives while sacking the rest. Hires experienced OOH staff who know our business and Netflix is willing to listen to them, then Netflix may succeed. That is a big ‘If’.

The ramifications of a weak player in LA may not hurt what is playing in Peoria with Adams Outdoor, but it will affect the Big Three as they fight for share in LA  and consequently affect deals on the rest of their respective inventories country-wide.

On the other side of the coin, supply and demand could help the Industry if Netflix chooses to utilize most of the Regency inventory for themselves.  That move would reduce supply and raise demand and “float all boats” helping pricing and sales nation and world-wide. It might even affect Peoria.  Using all of the OOH units for themselves is pretty far fetched idea.

 

2.  “Netflix ownership would prohibit competitors, Hulu and Amazon from buying their space.”

2.  “Netflix ownership would prohibit competitors, Hulu and Amazon from buying their space.”

Huh?  False.

Quick history lesson. Gannett Outdoor now Outfront Media, also owned 135 daily newspapers. Did they always accept non Gannett newspaper’s OOH purchases?  Yes.  Or when CBS became the OOH company now known as Outfront Media.  Did ABC and NBC television networks buy OOH from them?  Yes

We’ll just stop further examples here.  Netlifx as OOH Media Owner, would have to rent some of their space to someone.  Hulu and Amazon’ s money is green. Do we think Netflix would use all the OOH space they owned? If that were the case, and it could in theory be, then no one competitors or otherwise would be able to buy from Netflix. Netflix does not buy anywhere near 100% of Regency space, though they appear to be Regency’s largest advertiser based on what is on the street.

3. Netflix will save lot’s of money buying Regency because they spend so much in OOH already.

3. Netflix will save lot’s of money buying Regency because they spend so much in OOH already.

That may be TRUE!

In a Netflix SEC filing in January this year.  Netflix stated $1.1 Billion was spent in advertising for fiscal 2017.  In 2016 and for the first half of 2017 approx 23% of that spend was OOH.  At 23% Netflix spend in OOH for 2017 was $230 million?  If the 23% holds and Netflix total ad spend jumps to $2 Billion in 2018, 23% is $400,000, 000 to OOH.  Now those are worldwide numbers.  In the US, according to Kantar, Netflix spend in OOH for the first half of the year was $11,234 Million.  Not having the second half of the year data, assuming Netflix spend was at least equal to the first half, Netflix spend was over $22 million and probably at least $25 million.  Netflix purchases Regency for $300 Million, the deal sounds more plausible.  Keep in mind, the Netflix OOH spend is not limited to LA, as it should not be.  Netflix subscribers are nationwide and worldwide, as would be their OOH advertising.  LA and NY would receive the largest percentage of spend.  Read about Netflix 54% marketing spend increase here

photo credit to Daily Billboard www.dailybillboardblog.com jasoninhollywood.blogsp

4. Consider Netflix buys Regency, then ‘spins off’  the Regency units which are not “Core locations”,  keeping the “best locations” which defines their target market.  

4. Netflix then ‘spins off’  the Regency units which are not  ‘Core locations’.

True

We like this possibility.  Certainly makes more sense and doesn’t put Netflix in the OOH business. They will have billboards.  They will still have to wrestle with leasing and real estate, zoning, permitting and municipalities, installs and the operational aspects which can all be sub contracted.  As said earlier in point 1, there are good OOH people available who could manage the above areas.   A purchase with a spin-off of non core assets/inventory makes great sense.

A purchase with a spin-off non core assets/inventory makes great sense. 

Keep picking up what OOH Today is putting down. We may not be the first with the news. We will endeavor to be the most accurate, insightful and as always, share the view from the trenches, from where those who actually make the OOH business run daily.

BB

 

Links to more stories on Netflix / Regency buy 

CNBC_  – Netflix is offering more than $300 million for an LA-based billboard company: Sources

Gizmodo – Netflix Puts Out $300 Million Offer to Buy Regular Old Billboard Company: Report

New York Post- Netflix Looking to Acquire Billboard Company

MarketWatch – Netflix Share Slide

alist- Netflix’s Billboard Investment Would Give Out-Of-Home Advantage In L.A.

bgr- Why Netflix just bid $300 million for a billboard company in LA

Media Play News  Netflix – Media Play News

USA Today – video  Netflix offers to buy billboard company

Variety- Netflix in Talks For $300 Million-Plus Acquisition of L.A. Billboard Company (Report)

Photo credit jasoninhollywood.blogspot.com

 

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2 Comments
  1. Tom T says

    Well thought out rationale and critique of any potential sale and or purchase of Regency OOH.

  2. Bill Board says

    Thank you Tom T. At the end of the day, we like the idea of Netflix owning this inventory. I can not predict what the business will be like in 5 years but I can predict it will be colorful in so many meanings of the word.