Amazon Rumored Suitor for Netflix

Discussion
Jul 14, 2009

By George Anderson

Sometimes rumors
make the rounds because they can put a little life into a stock. Other
times the rumors spread because they’re true. As of this writing, there’s
no confirmation which of the two scenarios is correct but the rumor that Amazon
is looking to buy Netflix is out there nonetheless.

“There’s
heavy call buying and the stock is up on renewed takeover talk, with
Amazon being mentioned specifically,” Fred Ruffy, the
senior options strategist at WhatsTrading.com, told Bloomberg.”It’s
pretty typical of speculative call buying.”

Netflix
and Amazon.com are competitors in the area of movie downloads. Netflix
does most of its business, however, with rentals of DVDs through the
mail.

Wedbush
Morgan Securities’ analyst Michael Pachter told Bloomberg he
didn’t see Netflix as a fit with Amazon because it has distribution centers
in states across the country. This would open Amazon up to having to
pay taxes in those states.

“Suddenly
in a whole bunch of states Amazon finds itself taxable,” said Mr. Pachter.
“It would kill their core business.”

Amazon
recently stopped doing business with affiliates in a number of states
to avoid the tax issue.

Neither
Amazon or Netflix would comment on the speculation.

Discussion
Questions: Do you see a fit between Amazon and Netflix? Would the tax
issue be enough to dissuade Amazon from trying to takeover Netflix?

Please practice The RetailWire Golden Rule when submitting your comments.

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13 Comments on "Amazon Rumored Suitor for Netflix"


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David Dorf
Guest
11 years 10 months ago

On the surface, I think they are a great match. As physical media fades, Amazon needs to be in the streaming game. It’s a great way to increase customer interactions, and an opportunity to possibly add advertising. But the tax issue throws a wrench into the mix. I don’t think the benefits outweigh the costs in this case, at this time.

W. Frank Dell II, CMC
Guest
11 years 10 months ago

I don’t see a strategy with combining the two firms. One can forget the sales tax issue by re-aligning the distribution centers. Start by adding onto existing Amazon distribution centers and back fill. This somewhat negates the value of a purchase.

The real reason this does not work is, why buy last year’s technology? Just like Blockbuster has an outdated business model, Netflix will be next. Just like iTunes movies will be downloaded off the internet. Cable companies are doing it now successfully. One or two independent providers should be able to service the market.

John Bajorek
Guest
John Bajorek
11 years 10 months ago

The joining of the two companies could represent an evolution for both companies in many ways. The most obvious benefit to both would be great dominance over digital media with greater functionality in the Kindle covering the former print publications and a greater inventory of movies to access on demand.

Netflix has already stated that they are moving away from DVDs over the next five years, so the shipping infrastructure would be less of an issue over time.

One of the other key synergies of a union would be the consumer data that both companies share regarding media consumption and preferences–imagine an entertainment search engine based on consumer ratings, preferences and behavior.

Rick Myers
Guest
Rick Myers
11 years 10 months ago

I think a big issue is the fact that long term, Netflix is not a viable entity. Eventually Nexflix needs to make the transition into streaming video in a big way, and exit the DVD rental business.

Gene Detroyer
Guest
11 years 10 months ago

The geography issue is a real issue for Amazon. Netflix has multiple distribution centers in order to turn around movie rentals in an eye opening amount of time. One can drop their viewed movie in the mail on Monday and have the new to view back in Thursday’s mail (and sometimes even Wednesday’s).

If Amazon were to close Netflix multiple distribution centers, they would hand the DVD in the mail business to Blockbuster who already matches the Netflix turnaround.

But, maybe more important, why does Amazon need Netflix? Within a short period of time, movie rental will move from DVD to download. And, who would bet against the developer of Kindle that Amazon will be state-of-the-art in the download business if it had the desire to.

Ted Hurlbut
Guest
Ted Hurlbut
11 years 10 months ago

I think the two most significant assets that Netflix would bring are the brand and the customer base. The delivery mode becomes secondary. In the short term, Amazon could reconfigure the distribution structure to avoid tax issues. In the longer term, as the mode evolves from physical to virtual, the Netflix brand is still positioned as a leader in entertainment delivery, and has a core customer base on which to build to compete with other delivery services.

Anne Bieler
Guest
Anne Bieler
11 years 10 months ago

Interesting question for both companies. the most important issue should be where the value is added. Netflix has a strong demographic now; selecting, watching, planning movie nights has become an entertainment “habit” for their target consumers.

This must be an appealing segment for Amazon in their search for growth. Facing the cost of changing technologies and trying to guess at the timing and impact of change, it is good to understand the potential business model here or in the movie sequence from Jerry Maguire…”Show me the money!”

Phil Rubin
Guest
11 years 10 months ago

Bad news for Blockbuster if this happens. Amazon would bring the Netflix offering to an entirely new level, particularly when combined with what they are learning with Kindle.

Amazon continues to represent best-in-class retail in terms of customer relevancy and that is a great fit with Netflix.

Marge Laney
Guest
11 years 10 months ago

I think it would be shortsighted on Amazon’s part to jettison a deal with Netflix based on the sales tax issue. There’s a lot of synergy between the two companies that would make a real powerhouse if they merged. I disagree that Netflix is on the way out. With over 12,000 movies already available for streaming and a move away from DVDs, it’s a great value at about nine bucks a month. The combination of the two highly recognizable brands and the customer data bases would make the union a driving force in online entertainment delivery.

John Boccuzzi, Jr.
Guest
John Boccuzzi, Jr.
11 years 10 months ago

I believe Netflix and Amazon would both benefit from a merger. Netflix has a very loyal customer base that has been growing, especially during the recession. What could be very interesting is adding coupons or advertising in with the Netflix movie rentals. This could be a great way to attract customers to the Amazon site to buy movies, books and of course books on the Amazon Kindle. Through movie rental behavior Amazon would have a strong understanding of what a consumer likes (Drama, horror, comedy, etc…). That information could be used to create coupons specific to that customer.

This is also a good move for both companies to help combat RedBox. Who knows, maybe Amazon has RedBox on their shopping list as well.

Matt Hahn
Guest
Matt Hahn
11 years 10 months ago

Netflix and Amazon already have a partnership via the ROKU that Netflix released last year. Netflix consumers can use the hardware to rent movies that Netflix currently doesn’t have rights to. Amazon is a content delivery mechanism, so acquiring Netflix does not stand to change Amazon’s brand. This would simply create another outlet that already has a similar business model.

Camille P. Schuster, Ph.D.
Guest
11 years 10 months ago

Given Amazon’s model of expanding its business by moving into new areas sequentially. If Amazon is planning to move in this direction, Netflix would certainly be a good fit, assuming the tax issue is resolved.

Ed Dennis
Guest
Ed Dennis
11 years 10 months ago
Amazon has become successful by innovating. Buying Netflix for their business model or their inventory is not a good move. This business is evolving quickly. The locations of RedBox at McDonald’s, Walmart and other retailers is killing store-front vidio rental. No, RedBox isn’t taking all their business but it is driving the rental rate below the “break even” point. Vending will continue to grow until such a time as cable/satellite/internet systems become extensive enough and fast enough to deliver content quickly. Funny that RedBox charges less for a new-release DVD than Apple charges for a new-release song. I look for Amazon to work on content delivery utilizing its web site. This is an area in which Amazon has capability but little experience. Look for Apple to dominate the download business and vending to dominate local sales via thumb drives. Cable and Satellite have the easiest route; they just have to beef up their inventory. If Amazon does buy, there is a compelling interest beyond the rental business.
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