Apple Acquisition Targets: Part One: Netflix

by Hadley Stern Dec 06, 2010

Apple has a ridiculous amount of cash in the bank: 50 Billion or thereabouts. Historically, the company hasn't done large acquisitions á la Oracle, which seems to swallow up a big company every other quarter or so. But with some fundamental changes in the way media and content are created, now may be the time for Apple to step up to the merger and aquisitions plate.

Without further delay I present, Apple Acquisition Targets:

Part One: Netflix

Why it makes sense

Netflix, in a few short years, has completely rewritten the world on renting a movie. With the recent collapse of Blockbuster the notion of going out to rent a movie is all but dead. Yes, niche players like Redbook and your Indy movie rental store will live on (for now) but Netflix is here to stay.

Well, one part of Netflix is. Inevitably, as the months pass Netflix's physical DVD program will slow down, and its streaming applications will grow. Exponentially. This growth is inevitable. Why?

Because there is nothing technical stopping us from having every movie, song, or piece of digital media available to us through one interface. Nothing but lawyers and licensing agreements. And, inevitably, although slowly, these barriers will come down.

Once this happens the prize will go to the provider who can give the best user experience to consume all this media, and this is where Netflix comes in. There are three reasons Apple should seriously consider buying Netflix:

1. The Netflix recommendation engine, which only gets better and better, will become more and more important as more and more media becomes digitally delivered.

2. Netflix's subscriber list of millions would immediately add, once converted, to Apple's iTunes list.

3. Netflix has a well-placed multi-device strategy and implementation which Apple could immediately leverage. Just like Apple had to release iTunes for Windows, it needs to expand to all the various media consumption devices out there including PS3, Roku, Wii, xBox, etc.

Why it's a bad idea

1. Apple's current business model depends only on purchases and rental, not an all-you-can-eat media meal plan. I'm not privy to the reasons behind this, but will plead the bloggers equivalent of the fifth and pontificate. There are 2 reasons I can imagine why Apple hasn't streamed yet: the first having to do with the kind of deals Apple was able to negotiate with all the content providers. I bet Apple, in order to get the big media companies to sell their content through iTunes requested no streaming. Or perhaps, Apple has run the models and realized that it can't possibly make as much money by offering streaming.

2. Apple doesn't need Netlifx, it can simply kill Netflix. The recommendation engine is akin to the genius offering in iTunes. All that is missing is streaming. But Apple is building a huge data center in NC for something, could it be streaming?

I go back and forth on this one. Right now Netflix has the momentum of the inevitable shift from physical media and cable TV to a digital delivery model. But Apple has had a lot to do with this shift with the iTunes/iPod model, and it doesn't appear to need Netflix to get into the streaming game.

What do you think; would acquiring Netflix be a strategic advantage or a waste of money?

Comments

  • After reading your article I think Apple should support the Netflix not buy it. Just as record companies have supported Amazon and Walmart to even the playing field with iTunes, I think the same thing will happen with Netflix. Once Netflix becomes to big, the players will come knocking on Apples door to even the playing field. I know Steve Jobs refers to Apple as a software company, I believe it truly is a hardware company and being the only platform that can offer both itunes and Netflix for its portable devices it will have an advantage.

    KenM had this to say on Dec 06, 2010 Posts: 1
  • the article misses the obvious problem with Apple buying Netflix - anti-trust. folding Netflix into iTunes would undoubtedly trigger a federal review, with uncertain outcome. also, Netflix’ mediaco contracts are probably not transferable to a new owner, which means Apple would have to re-negotiate them all with equally uncertain outcome.

    these are two fatal flaws. this is never going to happen.

    Alfiejr had this to say on Dec 06, 2010 Posts: 18
  • Until congress guarantees net neutrality for wireless and wireline transmissions, any business built on streaming massive amounts of data will always be at the mercy of the internet carriers.  There is no point in investing in a business like Netflix because once you become very profitable Comcast, Verizon and the rest of the gang will start to demand their ‘fair’ share of your profits.

    Apple needs to first secure its ability to stream data without being held hostage by the internet carriers.  So they are better off piling up the cash and purchasing wireless and wireline transmission capacity when the opportunity presents itself.

    tundraboy had this to say on Dec 09, 2010 Posts: 132
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  • I think that it really a hardware company, and that it is the only forum that can provide as well as iTunes from Netflix it mobile devices, it is an asset.
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    Jackysoom had this to say on Sep 17, 2011 Posts: 76
  • this is a pretty big gain for Apple, they now control the biggest online streaming company, good thing I can still stream stuff on my chinese android

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