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Along with Netflix’s recent strong fourth quarter results and surge in share price came renewed rumors of an buyout of the by-mail and streaming company. Not everyone in the media agrees with the new rumors, however. The Wall Street Journal has run a piece saying that Netflix is now more attractive to Amazon than ever, while the Motley Fool has run an opposing piece listing reasons why the buyout rumors are and will remain just that: rumors. Here are the opposing viewpoints:

The Wall Street Journal

Due to increased numbers of Netflix subscribers using the company’s streaming service, as well as an increase in the overall number of subscribers to 12 million, “There is now even a higher possibility’’ of a buyout, according to Collins Stewart investment firm analyst Sandeep Aggarwal.

Aggarwal says that Amazon, which has not seen great success with its VOD business, would like to tap Netflix’s 12 million subscribers. The analyst also believes that such an acquisition would be commensurate with Amazon’s recent strategy, as evidenced by its recent purchase of online shoe giant Zappos.
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Said Aggarwal:

“If someone is a category leader and it is still growing rapidly, they go ahead and acquire it,’’

The WSJ also suggests that the disparity between Netflix’s and Amazon’s price-to-earnings ratios (the latter’s is nearly double the former’s) is indicative of a good time for Amazone to buy.

The Motley Fool

The Motley Fool lists the following as the top three reasons why the takeover rumors and the WSJ article should be disregarded:

  • The Netflix culture only seems close to the Amazon climate on the surface. Dig a little deeper into Netflix and you’ll see a cutthroat business environment where execution is everything. “In many companies, adequate performance gets a modest raise. At Netflix, adequate performance gets a generous severence package,” say the firm’s recruitment materials. Recruitment, as in “this is how we attract new workers.” At Amazon, there’s just a vague “bias for action.” While this combination might work better than Microsoft (Nasdaq: MSFT) and Yahoo! (Nasdaq: YHOO) ever could (or Oracle (Nasdaq: ORCL) plus Sun Microsystems ever will, it’s not the perfect match you might think.
  • The tax implications for Amazon are still very real. Yes, the company is building more distribution centers, which increases the sales tax load, but Amazon is picking those spots with care. Buying Netflix would instantly require Amazon to charge sales tax from Hawaii to Maine, from Key West to Fairbanks and everywhere in between. No sir, no way.
  • So Amazon should buy Netflix for the streaming video operation and drop the physical DVD distribution, right? Wrong. Let’s say that Amazon forks over $4 billion to buy Netflix — a modest 20% buyout premium over the $3.3 billion enterprise value. That’s 3 per Netflix subscriber.
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    Then Amazon turns off the DVD faucet and watches the 52% of current Netflix customers who don’t watch online video scurry away, not bound by any long-term contracts. The remaining 5.8 million new clients just got a lot more expensive. In reality, the carnage would be even more grisly. Many Netflix customers, myself included, do watch some streaming films but are mainly in it for the discs.

The Fool also believes that a few years down the road, once digital streaming is more mainstream and the majority of Netflix subscribers are using the service, will be a much more opportune time for a buyout.

What do you say, Insiders? Take a minute to hit the comments and let us know which way you’re leaning on this issue. How do you think the consumer would benefit or be harmed by an Amazon/Netflix buyout?

(via The Wall Street Journal and the Motley Fool)

9 Responses to “Amazon’s Potential Netflix Buyout: Pros and Cons”

  1. Visitor [Join Now]
    Ann Daley [visitor]

    I do not stream videos, and if Amazon bought Netflix and dropped the rental part of it, I’d drop the service.

  2. Visitor [Join Now]
    Vernon Dent [visitor]

    Bad idea.
    Netflix would be better off buying Blockbuster on the cheap, dumping the retail business and working with the remaining assets.

  3. Visitor [Join Now]
    slidecage [visitor]

    anyone remember time warner and the AOL deal.. AOL stock flying high till the merger and then AOL stock crashed. im thinking about stream movies BUT i would need to spend around 200 bucks to do it around..and with comcast given me free HBO and cinamax for as long as i want them I think i pass…

    (i would have to buy a wireless router and a item that would allow me to stream netflix (ie blu ray player)

    love to see netflix change their rates

    18.00 a month like now with streaming or 12 without

  4. Visitor [Join Now]
    Yakura [visitor]

    I left netflix 5 years ago…since I was not renting enough …I just signed up in Dec09 because of streaming and a new BluRay player .. i was addicted to Redbox ..but wanted Blu-Ray movies and my redbox location kiosk dont have them..

    Streaming is a valueadd but not the main cashcow yet. Streaming can not match the visual/audio of BluRay nor are the movies available at the same time.

    I see streaming taking away from cable/satellite viewership.

  5. Visitor [Join Now]
    Jack [visitor]

    I have streamed one video in the past 2-3 years of being with netflix. Most of the videos I want to see are not available for streaming. I also use Amazon for not only MOST of my Christmas shopping, but throughout the year as well. On some things they are cheaper, on others they are the same, but in either case I pay NO sales tax and usually get free shipping. If they were to buy netflix, that would certainly change (adding sales tax) as the article clearly explains. I would certainly reduce my spending at Amazon by quite a bit if not completely.
    And… I would drop netflix in a heartbeat if they ever stopped mailing the disks and went to a streaming only service.

  6. Visitor [Join Now]
    Nicole Maki [visitor]

    We mostly watch streaming and the discs are secondary. It’s great for us as it provides a multitude of options and comes through our Tivo.

    I liked Netflix for Blu-Ray, but they were so hard to get we gave up.

    As for an Amazon/Netflix buyout… *shrug*

    We shall see.

  7. Visitor [Join Now]
    andyg8180 [visitor]

    I stream like theres no tomorrow… Theres so many TV shows on netflix that i decide cable is just not worth it… Also, a lot of shows are contracted to show the next day, like Leverage and Spartacuz etc etc… Plus when all the lost episodes showed up on netflix, it was like heaven…

    In general, i love amazon, i love not paying taxes on my products… I love Netflix, and i love not paying for DVDs that will collect dust (like the 100 something i currently have). If you really think theres nothing on watch instant, check out or… They definitly do better jobs of sorting out the Watch Instant library…

  8. Visitor [Join Now]
    Julie [visitor]

    We don’t stream and we don’t want to. We like the DVD’s. If the physical DVD’s are gone, we won’t stream, will dump Netflix and will just use RedBox.

  9. Visitor [Join Now]
    Rich [visitor]

    We stream and are saving money by not having to buy the DVD’s with Netflix. That said, we are on the end of our 2 week free period and are on the fence as to whether we’ll continue. Maybe try for one more month and see if the novelty wears off and we lapse back into network television shows. After all the May sweeps are looming and all the “good” shows are back for next few months anyway. FX has some great viewing on the “off season.”

    In our area, Redbox has broken the Blockbuster choke hold on DVD rental closing one store already and questions abound about the remaining stronghold. Still, we like the streaming of Netflix and wish that more of the films recently released were available. That is likely the only reason we’ll leave them at this time/place.

    Still too new to judge its overall value to us.