Amazon Should Try to Buy Netflix... Again
Oct 8th 2012 5:30PM
Updated Oct 8th 2012 5:34PM
Netflix (NAS: NFLX) is finally starting to roll again.
Shares of the leading premium video service provider soared 22% last week, moving higher after a bullish Citigroup analyst note pointed to increasing customer satisfaction at Netflix.
Are the gains sustainable? Will investors now begin to start following subscribers that have been flocking back to Netflix?
If this organic revival sputters, will a humbled Netflix be more considerate if a lucrative exit strategy emerges?
Bobbing for Bezos
One of the more intriguing revelations in Netflixed -- a book detailing a third-party account of the flick flinger's history and its present challenges that hits stores later this week -- is that Amazon.com (NAS: AMZN) once offered to buy the company.
Sure, it was 1999 when Netflix founders Reed Hastings and Marc Randolph reportedly met with Amazon CEO Jeff Bezos. This was three years before Netflix even went public. Amazon's offer of $12 million, according to the book, was too low.
Neither company is confirming that the talks took place. Netflix even called CNET over the weekend to deny that Amazon made the offer.
However, it's perfectly clear that Amazon did have dreams of entering the DVD rentals by mail market several years ago, and is now a distant second to Netflix when it comes to streaming video smorgasbords. Why not make another run at Netflix?
Looking for LOVEFiLM in all the wrong places
It's a rumor the never dies.
Amazon snapping up Netflix makes the rounds every few quarters. The reasons only get better -- and the excuses only get weaker -- over time.
It may have seemed strange to see Amazon want in on Netflix's mail-based disc rentals several years ago, but that's exactly what it did when it bought into Europe's LOVEFiLM. Amazon and Netflix also began serving up online video just months apart between late 2006 and early 2007.
Acquiring Netflix wouldn't be just a matter of acquiring a service with more than 30 million premium video customers. Amazon would be able to corner the market, lifting the prospects of its Kindle Fire ecosystem as it cashes in on Netflix's wider content library and consumer access.
Netflix could grow its revenue exponentially by offering Amazon's pay-per-stream rentals of the newer movies that Netflix's streaming service will never get. Amazon would get the juiciest mailing list in all of Hollywood -- the names of tens of millions of people willing to spend money on digital video.
Outside of the potentially negative near-term impact that an acquisition would have on Amazon's stock price, doesn't a deal make more sense now?
Amazon has acquired category killers in areas where the competition is just doing things better than it ever could. It bought Audible even though it was already selling audio books. It snapped up Zappos.com even though it was already selling shoes.
Why not Netflix?
The old can of worms -- state-tax collecting -- doesn't have the same ring anymore. The online retailer has been gradually playing nice with a growing number of states.
It's also hard to argue with the price.
Netflix's current enterprise value of $3.3 billion prices the company at just $110 per subscriber. It has been ages since this metric has been this low.
Sure, a digital subscriber isn't ridiculously valuable. They can be fickle. There's a reason why Netflix stopped reporting churn figures last year. However, we're not just talking about the value of a customer shelling out $7.99 a month for unlimited streams. Amazon will be able to do what Netflix has avoided in pumping up average revenue per user through its piecemeal rentals. Amazon will be able to feed more people into its Kindle Fire tablet -- and eventually Amazon's own smartphone.
More importantly, it keeps anyone else from buying Netflix.
Verizon (NYS: VZ) has been promising a digital video service launch later this year. It partnered with Coinstar's (NAS: CSTR) Redbox to make it happen, but wouldn't Verizon be better off simply acquiring Netflix? It can make Verizon wireless deals more attractive by including -- for instance -- Netflix streaming off its data clock.
What about Google (NAS: GOOG) ? It also has been following Amazon into carving out its own ecosystem. Don't you think that Google could make a killing if it snaps up Netflix and then devotes its developer resources to Android?
Buying Netflix is starting to make more sense for several key players longing for the undisputed champ in digital video. If Amazon doesn't come a-knocking, somebody else probably will.
A new premium report on Netflix details the opportunities and challenges in store for its shareholders. The report includes a full year of updates, so time's ticking. Click here to check it out now.
The article Amazon Should Try to Buy Netflix... Again originally appeared on Fool.com.Rick Aristotle Munarriz owns shares of Netflix. The Motley Fool owns shares of Amazon.com, Google, and Netflix. Motley Fool newsletter services recommend Amazon.com, Google, and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.