Could Amazon buy Netflix?

One analyst says the video-rental company may have split itself up to pave the way for an acquisition.

By Kim Peterson Sep 22, 2011 1:00PM
Netflix (NFLX) has taken an incredible beating recently -- see the chart here -- with shares plunging nearly 45% since the first of the month to approach a 52-week low.

It's an amazing drop for the one-time market darling. And many observers are shaking their heads in disbelief, since this company normally executes flawlessly. Now its executives look like boneheads.

What happened to Netflix?

Post continues below video:
The company has infuriated users and investors by deciding to split its DVD business off from its streaming-video side. The DVD-by-mail business will be renamed Qwikster and have a separate website and billing system. Netflix shares were up 1% Thursday in midday trading to $129.82.

Why would Netflix split its baby down the middle like that? One analyst thinks something bigger is afoot here. Michael Pachter with Wedbush Morgan says that sloughing off the DVD business might suddenly make Netflix an acquisition candidate for Amazon (AMZN). Shares of Amazon fell nearly 3% in response.

Say what? Let's hear him out. Amazon already streams videos for members of its Amazon Prime service, but it doesn't have nearly the library or the active users that Netflix does. Amazon Prime is rather pathetic compared with Netflix, in fact.

Pachter thinks Amazon could buy Netflix and immediately become the market leader.

There's some logic to this. The competition for the online viewer is ratcheting up among Amazon, Apple (AAPL), Hulu.com and other sites. Buying Netflix would immediately shoot Amazon to the top.

And this ties directly in with the tablet computer Amazon is reportedly developing for later this year. Amazon will really be able to go after the iPad if it has Netflix as a major content source for the tablet.

But I suspect Amazon would rather go it alone without Netflix. For one thing, buying Netflix would be incredibly expensive. The company has huge licensing costs to boot, and it's unclear whether Netflix can sustain enough members to pay for those.

Amazon is working out its own licensing deals, albeit slowly, and will do so on terms that it's comfortable with. Also, Amazon has been busy setting up its own streaming infrastructure, and it's done so at the expense of profit. Every quarterly earnings report shows how much Amazon is spending on building out its pipeline.

Amazon has already laid out its own foundation and is more than capable of negotiating its own streaming deals with Hollywood. It doesn't need to buy Netflix. In fact, the way Netflix is going, Amazon may end up beating the company anyway.

VIDEO ON MSN MONEY

6Comments
Sep 24, 2011 7:36AM
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Sadly I think Netflix best days are behind them. I used to love Netflix as an alternative to the customer unfriendly Blockbuster, but now they are just another greedy corporation. To raise prices in a recession by that much was just suicidal, forcing customers to either pay more, pay less, or cancel.

 

I think what they have found is most prefer to either pay less or cancel which is going to kill their next quarterly numbers. I also think the real reason they made the change was because they know they are at risk of being outbid on contracts by companies with much bigger wallets. Losing Starz and paying $100M for "House of Cards" were huge mistakes.

Sep 26, 2011 12:04AM
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Netflix monthly rate was super-cheap because the content providers initially contracted with them at low rates, not anticipating how fast streaming was going to take off. Now the content providers realize the threat, and aren't going to subsidize Netflix's growth at the expense of their present and future margins. This has been a huge question mark around Netflix for months-- the only questions were how much they would have to pay, how much they would have to charge, and how good they would be at coping with it. Answers are, (a) alot, (b) alot, (c) not very good at all.
Sep 28, 2011 2:20PM
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I thought Microsoft was buying Netflix?  What happened?
Sep 25, 2011 10:07PM
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Netflix days are numbered,I give them 18 months top before they collapse which I hope thy do.
60% increase!!!!!!!!!!!!!!!!!!!!!!!! Come on Amazon sink them
Sep 24, 2011 2:48PM
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here we go again people r gonna whine about netflix goin up in price and how they r gonna or already did drop them because of blah, blah, blah...really people? come on and get over it. everything goes up in price eventually so suck it up and quit whining about it!! cancel it or keep it, i along with alot of other people, dont care!!! just quit whining!!!
Sep 23, 2011 9:02PM
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if netflix woulda started accepting debit cards or green dot cards they would had made their profits,netflix only accepts major credit cards or bank cards with a bank account.netflix does not accept pre-paid cards.hmmm all those potential customers.

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