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Microsoft May Be Tempted To Acquire Netflix
Microsoft May Be Tempted To Acquire Netflix

By Jennifer LeClaire
October 29, 2012 11:37AM

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"In terms of streaming content, even though Netflix has had some issues with regard to licensing lately they are still No. 1," said analyst Rob Enderle. "And Microsoft has better connections with a number of the companies that Netflix has struggled with, so they might actually be able to fix some of the issues Netflix has had."
 


Netflix is getting a hint from the stock market. Shares rose 13 percent when rumors started circulating that Microsoft might be interested in acquiring the streaming-movie company.

Forbes first reported the rumor, which was spurred by Netflix CEO Reed Hastings' move to step down from Microsoft's board of directors earlier in October. Netflix is ripe for acquisition, having lost considerable value in the past year amid growing competition and challenges with studio content licenses.

But Netflix still holds plenty of value. Last week, the Internet subscription service said it has more than 30 million streaming members, including more than 25 million in the U.S. That is rapid growth, considering Netflix hit the 10-million-member milestone in 2009, a decade after launching its DVD-by-mail service.

Streaming Video Matchmaking

Rob Enderle, principal analyst the Enderle Group, said content access -- specifically video content access -- has been a problem for Apple. If Microsoft acquired Netflix, it would give Redmond a significant advantage over Apple in that realm.

"Other than picking up a cable firm, Netflix would probably be Microsoft's best bet. Cable firms come with a huge amount of infrastructure that Microsoft wouldn't want. So if you are going after video content, Netflix would be the first on your list. Maybe Hulu is a distant second," Enderle told us.

"In terms of streaming content, even though Netflix has had some issues with regard to licensing lately they are still No. 1. And Microsoft has better connections with a number of the companies that Netflix has struggled with, so they might actually be able to fix some of the issues Netflix has had."

Netflix's Value

Netflix released its third-quarter results last week. The company added 2 million subscribers in the quarter and members streamed more than 3 billion hours of TV shows and movies from the site. Netflix reports increased per-member viewing by more than 30 percent year-over-year.

"While we are not growing membership as fast as in 2010, we think that over time nearly all U.S. households will be broadband households, nearly all video will be Internet video, and that as our content and member experience continue to improve faster than competitors, our long-term domestic market opportunity remains 2-3x that of linear HBO," Hastings said in a letter to shareholders.

Netflix remained profitable in the third quarter, with $8 million of net income. That compares to an essentially flat second quarter as DVD rental revenue declined $3 million and the company posted international losses. In all, Netflix expects to generate more than $400 million of operating income in 2012 after covering global operating expenses, but expects to post a fourth-quarter loss due to its expansion in the Nordics.
 

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