Why shouldn't Microsoft buy Netflix?

The tech giant needs to get off the desktop and into the living room.

By Jim Cramer Apr 3, 2013 8:52AM

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Watching television CorbisI think Microsoft (MSFT) should buy Netflix (NFLX). That's what I keep coming back to, even after reading Rocco Pendola's excellent riposte (TheStreet) against my suggestion about a potential merger that would make fortunes for Netflix owners (as if the plus-100% first quarter wasn't enough) and let Microsoft CEO Steve Ballmer get his groove back -- that is, if he ever had one. (He did, I was in college with him!)
(Microsoft owns and publishes Top Stocks, an MSN Money site.)


Sure, Rocco's right that the Netflix balance sheet is stretched. He's correct that the company is paying up for a lot of content -- through the nose, even. Yes, indeed, it has to go international and that's expensive, time-consuming and difficult.


But that's about all I see in his entry that can be buttressed by logic because, frankly, Microsoft can fix every single one of those issues simply by using the strength of its own balance sheet. It can refinance debt at a couple of percent without a problem, bringing earnings right down to the bottom line. It can develop programming and not even see the cost of it on its expense line. It can promote the product in its own software and can load it into its desktop and cellphone suite. It can have you Skype to friends while you are watching Netflix programming. It can integrate games into the action.


Most of all, Netflix would put Microsoft back into the living room where it needs to be, and not just on the desktop where it is. It would make Microsoft relevant again and, believe me, part of the reason why this stock is such a dog is that the company isn't regarded as being cool or bold. Nothing could be bolder than getting into the homes of 27 million Americans -- and growing -- and then financing the international expansion with spare change.


There are so many other advantages here, all for about $13 billion, again, almost a rounding error given Microsoft's cash hoard, which is earning next to nothing by the way.


All new TV clickers come equipped with a Netflix button. That would, going forward, be a Netflix-Microsoft button. You would be hitting up Microsoft for the movies and TV shows you want, and the cross-promote on what comes up when you hit that button could be fabulous for Microsoft.

The expensive deals with the studios? They get a lot cheaper when you know that the guy on the other side isn't desperate, as Rocco says Netflix is now. At this moment, the balance of power is shifting from the studios to Netflix as more successful productions, like The Walking Dead, need you to get started by "Binging" through the history of the show. Knowing that your back isn't to the wall when you are negotiating with Time Warner (TWX) is a beautiful thing.


Oh, and let me parse something else Rocco said: "[Netflix CEO Reed Hastings] spins everything positive." Actually no, he doesn't. He was abject about his mistaken two-stock solution -- streaming and the disc -- and it was his honest and forthright way that he dealt with that issue that made me think he's totally stand-up. He just made a bad decision and he corrected it. That's the sign of very good leadership. That's in the past, and the first time I read about it in ages was when Rocco dredged it up.


Now, given that Netflix was up 100% in the first quarter, I believe it can come down. And if it wants to stay independent, it should do a monster equity offering that would help it refinance the debt on its own. No sweat.


But that's all the more reason why Microsoft should swoop in now before Mister Softy's quarter. And to hear Reed Hastings conduct the Microsoft conference call, even in his own quirky way? That would be a heck of a lot better than anyone who is doing the investor relations now.


This is a match so made in heaven it would even rattle Apple (AAPL), if anything can rattle that hobbled giant. I have been saying for months now that Apple needs to do something to jolt itself into the social and mobile world. Buying Netflix will do that. If it doesn't act now, Microsoft can make its move and restore the luster it once had among investors and, most of all, users.

 

Cramer

 

Jim Cramer is a co-founder of TheStreet and contributes daily market commentary to the financial news network's sites. Follow his trades for Action Alerts PLUS, which Cramer co-manages as a charitable trust and is long AAPL.

 

 

 

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13Comments
Apr 3, 2013 10:28AM
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Cramer makes a pretty good argument.  Microsoft is going to have to do something big or risk  being left completely behind.  Google and Apple have spent the last 5-8 years coming up with some huge products and ideas.  Seems like the last big thing Microsoft did, other than come out with the 27th version of Windows, was invent the Wii.  They have some new tablet/notebook that's relatively new, but I haven't really seen anyone with it.

I'd like to see Microsoft come up with an all-inclusive TV - something that has a Wii and Netflix and Skype and DVR already built in.  They could even offer their own TV service - instead of satellite or cable, it could be accessed through the WiFi network in your house.  They could even take it a step further and buy Vonage too and beat the cable and satellite TV companies at their own game - offer Netflix, home phone, internet, television, mobile phone and Wii, all on their own unique TVs and devices.  Think big, Microsoft, or hold fast to the path of mediocrity and irrelevance.

Apr 3, 2013 9:23AM
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finally an interesting concept from cramer. 

 

it would be a nice merger of sorts.  unless microsoft has atrophy problems with their management.  are they now geriatric? 

Apr 4, 2013 10:38AM
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Do not get too carried away because we are up about 60 points, in fact, we are not anymore...Just after 1000 hrs manipulators started doing their thing, they are taking over once again slowly but surely, think yesterday....Plenty of these crooks on and off the floor again today....Be very cautious...More later.
Apr 3, 2013 8:12PM
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We call it as we see it folks...Right before 1100 hrs manipulators were already in charge on and off the floor, the question was how far down would they bring these markets and now we have the answer; triple digits for the Dow and 16 the S&P.....Yup, blame it on Korea I guess since Cyprus wore off already....Don't worry. we will have another excuse anytime now....Crooks will always be crooks. Too bad.
Apr 3, 2013 12:17PM
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Very quiet here, but I kinda like that....But then I will also miss some of the give and take...

Less than 40 more comments and then I will probably only be a Lurker...

 

Like those little Old Ladies and Gentlemen that hang around Slot machines waiting to swoop in..

Gentlemen....my azz.

Apr 3, 2013 11:41AM
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No real surprise that a few minutes before 1100 hrs manipulators called for a selloff acceleration...We are down about 70 and of course they are talking triple digits before all is said and done...We will see, still a long way to go.
Apr 3, 2013 11:19AM
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maybe i'm biased, but i've only used office PC's (then home PC's) with microsoft products.  they seem to be the workhorse choice. 

 

apple looks like a modern Matel company.  adult toys without the XXX features (but there's an ap for that). 

 

maybe microsofft is quiet lately because they are creating the true modern house with total environmental control thru a palm device?  home office work, entertainment, lighting, AC, heating, lawn sprinklers, etc? 

Apr 3, 2013 11:09AM
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Guess there could be a logical arguement made to combo up some businesses, with Microsoft..

Can't really say they are being left in the dust....Many Companies have piggy-backed on their innovations...?

Others that come to mind are AT&T,Bell Systems and Labs, along with IBM..

Some of these companies struggled because they became the "Elephant in the room" or maybe even "white elephants".....But the terminology prevails, they and Microsoft cannot become dust bins.

 

So they move on with a good business plan, which is nothing new to them..

Revigorate their processes, and do what is best for the Company and the Workers that have helped make them great...Changes might be what they need, but I don't think they will jump in the river without a boat or a life preserver..And studying, what is best for them...

Sorry Jim didn't read the Article, you might have said something similar?? I don't have the time.... 

Apr 3, 2013 10:49AM
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This wednesday morning we are looking like our economy, lousy....Data was weak and they jumped all over it so we are down over 40 points and counting.....Oh well, like we always say, if the market was correlated with the economy we would be in the toilet.....Still early, maybe this afternoon we can do something positive; key word being maybe...More later.
Apr 3, 2013 9:51AM
Apr 3, 2013 2:39PM
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Oh what a great idea. THEN MICROSOFT CAN MAKE YOU PAY FOR XBOX LIVE BEFORE ALLOWING YOU TO PAY FOR A NETFLIX SUBSCRIPTION. 

Why am I the only one in the world that knows Microsoft hardware is crap and the company will do everything they can to force you to upgrade or pay some lame subscription to access things that are free everywhere else. 

My complaint is almost directly towards xbox 360 but Micro$oft as a whole is the same way and I do not trust them. 

Orig. xbox - dropped all service/support/games as soon as 360 came trying to force customers to upgrade. This was on paying xbox live customers too. 

Halo 2 for PC - Made it Vista only. A scam to push new at time OS. Never have I seen a PC game limited to 1 operating system. Now I could understand with Windows 7/8 as DirectX 11 doesn't work with XP or Vista but that was not the case with Halo 2. 

RROD - 55% hardware failure for 5 years. Industry standard is 3%

Disk scratching - even the slims lack a $0.25 plastic buffer to keep disks from being ruined if console bumped or picked up during use. 

Xbox live subscription - This is the most useless subscription in history. All it does is allow you to access things you should already have access to. 

Can't use cross game chat without xbox live gold. Can't use the browser that finally came to it without xbox live gold. Can't subscribe to streaming services without xbox live gold. Can't play online games without xbox live gold. 

xbox live gold is $60/year = $300 every 5 years. 

All that and that's without mentioning that 360 has no exclusive games (Halo, Gears of War, ME1, Left4Dead, Battlestations, Alan Wake, All the Fables are all on PC, many with free online play the PC way), Then all the other exclusives are multi plat now: Bioshock, Mass Effect & Saints Row. 

Then 360 has no blu ray, never the less a 3D blu ray player. No browser for 8 years, no wifi for 5 years (add $100), expensive limited hard drive $120, disk swapping like it's 1995 thanks to no blu ray, controllers are $50 yet lack blue tooth/gyroscope/built in recharge batteries (add $20 for recharge batteries making each $70 and still lacking standard hardware). 

Everything about xbox sucks in every measurable way. Zune was no different, Surface is doomed to share Zunes fate and you want to give M$ Netflix!? It would ruin everything about Netflix everyone loves. It would make it expensive, limit the devices that can use it and you would likely be faced with forced upgrades or hardware failures. 

Oh and M$ is far less secure than Sony. No Sony customers lost money in the hack. Anyone can be hacked. Since then thousands of xbox live customers have had microsoft points stolen, credit cards charged for more points which were also stolen. Thousands banned accidently and crud compensation for xbox live down time back in 07. 
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