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Amazon and Netflix Merger Is a Farce


Hot on the heels of the rumor that Microsoft is still interested in acquiring Netflix, Amazon is thought to be interested in buying the streaming video giant.


[Editor's note: For a different take on this recent deal, see Icahn's Netflix Deal Is Stalking Horse for Barnes & Noble.]

Hot on the heels of the rumor that Microsoft (NASDAQ:MSFT) is still interested in acquiring Netflix (NASDAQ:NFLX), Amazon (NASDAQ:AMZN) is thought to be interested in buying the streaming video giant.

This is not the first time this rumor has surfaced. Amazon has been interested in Netflix for more than a year (or so the rumors claim). But even at its peak, the company had very little to offer Amazon. Today, Netflix has even less.

Netflix is no longer a leader of online content. The company uses its official blog to promote its most recent TV show additions, which are limited to Freaks and Geeks, Undeclared and the fourth season of Sons of Anarchy. While the first was a critical hit and the last is somewhat of a success story for cable network FX, neither Freaks and Geeks nor Sons of Anarchy have what it takes to bring in the masses. Few people have heard of Undeclared, so it will unlikely have a significant impact on Netflix's bottom line.

These are not the kinds of content deals that will make Netflix attractive to Amazon. Regardless, some financial professionals believe that if a famed hedge fund manager like Carl Icahn is interested in turning Netflix into an acquisition candidate, Amazon will come running.

Two years ago, Netflix might have been a nice firm to grab. At that time, Netflix could have provided Amazon with content from Sony (NYSE:SNE), Disney (NYSE:DIS) and other major corporations, but that is no longer the case.

Meanwhile, Amazon Prime has signed a large number of its own epic deals -- including one with EPIX -- giving the service a variety of popular films.

Amazon has worked hard to build up its content library by acquiring its own content deals. It has not even hinted at the idea of obtaining content through an acquisition, which would be the primary benefit of a Netflix merger. Amazon would also gain millions of additional subscribers, but unless the company can find a way to convert them into Prime subscribers, the online retailer would not get what it wants.

When Amazon started its Prime instant video service, the primary goal was to expand its customer base for The free two-day shipping that comes with Prime subscriptions is actually used more frequently than the Free Super Saving Shipping option that is available to all customers. This means that Prime customers are buying a ton of items from Amazon.

The Kindle Fire tablets were designed to accomplish the same thing -- to persuade customers to return to Amazon and spend more money. That strategy seems to be working.

If Amazon was interested in renting physical goods, Netflix might be a valuable acquisition. If it could somehow use DVDs to steer consumers toward, the company would be a promising option. But Amazon does not need Netflix to fulfill any of its goals -- it is doing that all on its own.

Netflix is better suited for a company that needs content (such as Microsoft) and/or subscribers (such as Hulu). In October, Netflix announced that it had acquired 30 million streaming subscribers worldwide. At the same time the company announced weak 4Q guidance.

Editor's Note: This content was originally published on by Louis Bedigian.

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No positions in stocks mentioned.

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