Tuesday, December 13, 2011, 9:45 AM ET|Posted by Will RichmondVerizon is getting its full turn in the rumor mill. Last week, word had it that Verizon is looking to launch an OTT subscription service. Next, Verizon was teaming up with Redbox. And the latest rumor yesterday is that Verizon is planning a bid to acquire Netflix, which sent Netflix's beleaguered stock up by 6%, and more today. As always, you can never be sure what to believe. But let's assume for a moment that Verizon is sniffing around Netflix. While the combination makes a certain amount of sense, Verizon's big challenge will be that if Netflix is truly in play, unlike others, I would expect pretty healthy bidding competition.
As I explained last week in "Verizon Needs to Bring More than a Knife to the OTT Gunfight" although Netflix has been hobbled this year by a series of well-publicized miscues, it's still the dominant (only?) OTT subscription service for movies and TV shows, with nearly 24 million subscribers in the U.S. It is delivering 1 billion streaming hours/quarter, has a relatively strong brand, lots of content locked in, integrations with numerous connected devices and growth opportunities abroad. It's also sitting on superb DVD-by-mail infrastructure, which new ownership could recognize as a valuable asset unlike current management which has seemed bent on prematurely phasing out.
All that said, Netflix also faces vigorous new competition from all sides which will crimp its domestic growth, escalating content acquisition costs (plus $3-4 billion of current commitments), and an expensive, but uncertain international expansion plan. All are concerns, but could conceivably be addressed by a deep-pocketed and willing new parent.
Net it all out and Netflix still seems like it would be a pretty valuable asset to a number of companies. High on my list would be Google (which could pair Netflix with YouTube to have a hugely powerful online video offering), Amazon (which could use Netflix to help spur the Kindle Fire), Dish (which could broaden its Blockbuster service), Walmart (which could use its massive retail presence to grow Netflix) and Apple (which could use Netflix to expand into subscriptions). Potential contenders could also include AT&T, Comcast, DirecTV, any of the CE companies (Samsung, Sony, LG, etc.) and Microsoft, each for their own reasons.
Of course all of this is pure speculation. From Netflix's standpoint, unless it felt it was really getting pinched, it would probably resist a sale at this point anyway. Since the stock price has fallen so far this year, it would seem like utter capitulation to sell out now. It's a hard situation to predict, but if Netflix is on the market, despite its troubles, I'd still expect plenty of interest.