Netflix needs a buyer. Flying alone while content costs and competition soar and subscription levels stagnate or drop is not sustainable. But is Microsoft the right savior?
A new rumor suggests that Netflix and Microsoft, who recently got on the couch together to spend billions of dollars in ad revenue on Netflix’s upcoming service, could become more than just friends. Talking to Yahoo Finance (opens in new tab)Needham’s Senior Analysis Laura Martin states that this deal is simply Phase One of a courtship process that could bring Microsoft in until it decides to bring Netflix in.
“Netflix is trying to get closer to Microsoft in the hope that after Microsoft digests its acquisition of Activision, it will buy Netflix next,” Martin said, referring to the $68 billion acquisition of Activision, still under regulatory scrutiny. As Martin rightly assumes, Microsoft is unlikely to make any other company purchases – at least of this size – until the deal is done. And, oh yes, a Netflix acquisition would be big, massive indeed. The company is estimated to be worth around $176 billion. A small number of companies as big as Microsoft, or maybe Apple could afford it.
My immediate reaction to this idea was, “No. Burp. Why? No synergy.” Granted, this was a knee-jerk reaction, and it wasn’t well regarded.
The reality is that this could be either a terrible or a brilliant acquisition for the 47-year-old company.
The reason for such a potential acquisition is obvious. Netflix needs a bigger company to help protect it from the whims of the market while dealing with the ebbs and flows of subscribers and struggles and spending to create rated, award-winning content.
It’s a good idea
For Microsoft, it’s a chance to compete – again – with Apple, which launched its own streaming service of original content in 2019 and has since won the Academy Award for Best Picture in the process.
This might seem like a crazy idea, but Microsoft has had success lately in realizing that it doesn’t have to be Apple. She’s no longer worried about having her productivity products only on Windows, with her new strategy being “put Office on the screen you want.” It is no longer tied directly to Intel, happily building Windows for ARM systems. Microsoft has a beautiful Surface line, but it doesn’t generate the kind of buzz that Apple does for MacBooks and iPhones.
I would say Microsoft is happy to win by doing billions in cash in the Azure cloud.
Azure Thoughts, however, remind me of the obvious synergies.
Netflix, which is hosted on Amazon’s AWS, can migrate to Microsoft’s Azure cloud infrastructure. I’m sure they’ll give it a good test drive through the ad server system.
There’s a clear entertainment crossover from Microsoft’s gaming business that includes Xbox, through which many people already watch Netflix, Gamepass, and countless game studios, some of which are now generating streaming content of their own (though not on Netflix).
it’s a bad idea
On the downside: it’s just another tech giant buying another big company, further cementing our choices.
Microsoft could push some horrible co-branding ideas, like bundling Office 365 with Netflix (although a Netflix Ad-Tier on Gamepass might make sense). It could start spicing up LinkedIn with Netflix promotions.
May require Netflix to launch an enterprise content streaming platform. That sounds… er… boring.
There will certainly be some eccentric links with the underdog search engine Bing, by the way, it just occurred to me that “Bing” is just one letter away from “Binge”.
But I disagree.
The reality is that this is just a guessing analysis of what this, to be fair, very important partnership could mean. Microsoft may not feel that way about Netflix. Compulsive ad-supported content is cool, but relaxation is a little too much.