Who's Going To Gobble Netflix?

 | Apr 04, 2013 | 6:00 PM EDT
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Yesterday on The Street.com, Jim Cramer put forth the theory that Microsoft (MSFT) should buy Netflix (NFLX). Rocco Pendola shot back with a bunch of reasons why Microsoft shouldn't bother. 

Jim thinks Microsoft could combine its Xbox franchise, its gigantic balance sheet and the Skype business to make a powerful new service. Rocco is worried about the huge off balance sheet liabilities Netflix is carrying.

Jim thinks Microsoft could refinance those liabilities with a get-tough approach with the television and movie studios. Rocco thinks Microsoft shouldn't get entangled in the Netflix cash flow nightmare, the huge costs of international expansion or tied down with a bunch of non-exclusive content.

While both have good points, I think it's inevitable that Netflix will get bought. But by whom?

My first thought was "How about Apple (AAPL)?" They've got the balance sheet, the get-tough approach and the whole international thing going on. Why not Apple? Then, I remembered Apple doesn't like to do big acquisitions. Plus, Apple has supposedly figured out television and is planning some type of big announcement in the future. That's out. Not Apple's style.

What about Google (GOOG)? Google owns YouTube and provides the back-end technology for Vevo.com, the music video streaming service, for the record companies. Google has the balance sheet and the deep desire to provide another service where it can track people. In a few years, Google could plaster Netflix with little tiny ads based on what you've watched in the past. But Hollywood would be wary of a Netflix acquisition by Google and probably find a way to get out of their distribution deals.

How about Amazon (AMZN)? Again that's another conventional choice. Amazon probably couldn't acquire Netflix from a Justice Department anti-competitive view. Hollywood is already too deep into Amazon and they would probably find a way to pull their content from Netflix.

How about somebody less conventional? What about Samsung? The global South Korean powerhouse? Bring a little Gangham style to America. Samsung has a gigantic balance sheet. They've got almost $35 billion in cash. Samsung builds everything from dishwashers to smartphones. To the best of my knowledge, Samsung doesn't offer any type of video on demand business. Samsung rules the Android smartphone business. Samsung makes televisions. Tie it all together. Samsung could write Google out of its own Android operating system. Build its very own app store. Tie Netflix to its handsets, televisions and tablets. Watch "Forrest Gump" on your fridge. Who knows?

Samsung wouldn't interfere with Reed Hastings or the Netflix business. He'd probably have to go to South Korea once a year to report back. Hollywood might be okay with it too.     

Crazy? Probably. In my mind, the only way Netflix stays independent is to aggressively grow its subscriber base. If Netflix can find another 25 million subscribers, all of Rocco's concerns melt away. Otherwise, Netflix is going to get gobbled up by a big tech company or some corporate raider like Carl Icahn.  



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