[Editor’s Note – On July 6, 2010, just about one full year after this posting, the market has changed. Now, there is a place tailor made for Hastings at MSFT and MSFT needs NFLX to battle Apple and GoogleTV. What was unrealistic a year ago seems like a good deal now. JV]
Rumors on the net in the last few days suggest that Netflix is dusting off the “For Sale” sign and getting ready to move to Redmond.
WHY SELL ?: Why would Reed Hastings consider selling Netflix to Microsoft? He’s already on the Microsoft Board of Directors and has created a very successful company which is now utilizing IPTV technology to cut mailing costs and provide that ‘instant video fix’ for its growing base of more than 10 million subs.
Sales of successful companies are driven by founders who are ready to say “enough” and cash in to start another dream. Most are either sold or go public within the first five years to repay the initial VC investors. Netflix has already rewarded its initial investors with a stock price which keeps on climbing. So now, it would only be for a deal so sweet that only a fool would say no.
WHAT ABOUT THE MAJOR SHARE HOLDERS ?: And why would the institutional and mutual fund investors who control 97% of the stock want to sell a rising stock in a great technology sector? Where would they find a replacement? Would they trade for MSFT shares?
WHAT PREMIUM COULD IT COMMAND?: In today’s rough and tumble economy, would there be enough cash available for someone (even MSFT) to pony up 20 or 30% premium over their existing market cap of about $2.5 Billion? Yes, MSFT is sitting on a HUGE vault of cash (about 10 x Netflix market cap) but a deal must make sense to both parties. I hardly think a hostile takeover would even be considered.
CONFERENCE CALL: The Netflix conference call on July 23rd should put the rumors to rest. My bet is they will show continued growth in subscribers, revenue and profits. And, Reed will announce, at least for now, they are not for sale.
Netflix EU ?: I think the next big news from Netflix will be to take advantage of their IPTV delivery system for an international offering. Perhaps with the BBC, another leader in online video. BBC programming would be available for consumption to existing Netflix subs and the BBC could get a rev share from new UK Netflix subscribers. A gambit into a new market would make sense for a company who’s Board of Directors includes representatives from 5 VC firms.
I could be dead wrong, but my tea leaves do not predict the creation of ‘MicroFlix”
Keep pushing forward