Now that Microsoft (NASDAQ:
) has delivered its biggest product launch since Windows 95, the
company is rumored to be exploring a merger with Netflix (NASDAQ:
). This is not the first time that the two firms were expected to
get together. Over the past 12 months, Microsoft, Apple (NASDAQ:
), Google (NASDAQ:
) and a number of other companies have been tied to a possible
merger with Netflix. For the time being, the DVD rental and
streaming video company remains an independent entity.
Earlier this week, Benzinga explained why Hulu would be smart
while it has the chance.
Netflix would have been all but impossible to acquire during
the early months of 2011. At that time, Netflix's future appeared
to be set in stone; it was the new Blockbuster Video, and no one
would be able to touch it for the next 10 years. The company
continued to grow steadily and its shares traded above $300.
That changed after Verizon (NYSE:
), Comcast (NASDAQ:
), Barnes & Noble (NYSE:
), Toys 'R' Us and other corporations announced that they planned
to enter the streaming video business.
At the same time, Amazon (NASDAQ:
) continued to sign new agreements to bring fresh content to its
video service, Amazon Prime. Hulu did the same, creating a host
of new problems for Netflix. In the beginning, Netflix's primary
objectives were to convince content providers to license their
videos and use that content to persuade consumers to subscribe.
Now the company must fight to prevent competitors from stealing
subscribers. Netflix is also struggling with the fact that some
networks (such as Starz) are no longer interested in licensing
As if that weren't enough, Netflix is currently at odds with
its own business model. CEO Reed Hastings is not a huge fan of
DVDs. He prefers streaming video, which is why he fought to
separate the firm's businesses
in 2011. The venture failed -- but not before the stock
Last winter it was revealed that Netflix's profit margins are
much higher for DVD rentals
than they were for streaming video. This is a problem for the
company since DVD rentals are
expected to drop
by as much as 50 percent over the next five years.
Meanwhile, Netflix's streaming video business is not expected
to improve. The company could continue to acquire new customers,
but it spends a small fortune every time it secures new content.
There is no way around this as the content providers can afford
to charge what they want because they hold all the cards.
Consumers have a variety of choices now, so they do not have to
stick with Netflix. Thus, the company needs new content not only
to lure new subscribers but to satisfy those it has already
Netflix is not yet at the point where it
to find a buyer. But if an interested party were to step forward
and make an impressive offer right now, it is hard to imagine
that the company would turn it down.
(c) 2012 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.