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Microsoft isn't afraid to throw big bucks around to get what it wants. And since the company wants in on the digital media market, at some point it may make sense for Microsoft to splurge and buy Netflix, say analysts — especially if the company hopes to effectively compete against Apple and Adobe.
"Microsoft is always interested in acquiring eyeballs for its own online initiatives," says Christopher Hickey, an analyst with Atlantic Equities. "Although I don't think anything would happen until Netflix has an online-only business model."
In the meantime, Microsoft and Netflix are already pretty tight. Netflix CEO Reed Hastings sits on Microsoft's board. Earlier this year, the companies partnered up to make Netflix streaming available through the Xbox 360. The latest development in their alliance: Netflix announced Monday it will make content available to stream on Microsoft's Silverlight video player, both on PCs and on Macs. (The company has long been promised to make streaming services available to Mac users by the end of 2008.)
And as further evidence of their increasingly friendly relationship: Netflix was probably not paid off by Microsoft to go with the Silverlight video player, according to analysts. By contrast, when Microsoft reached a similar arrangement with NBC to stream the Olympics on Silverlight, Microsoft reportedly paid NBC up the tooth for it.
"I would say that Netflix's relationship with Microsoft extends beyond Silverlight — I don't think Microsoft would make a cash payment to Netflix," says Mark Harding, an analyst at Maxim Group.
Netflix spokesman Steve Swasey says the company reviewed Silverlight since May
2007, and ultimately went with it because it's a "faster, better way to stream movies on your PC."
The partnership also helps Microsoft effectively compete against
Adobe and Apple, both of which are vying for respective pieces of the digital media market. Microsoft's release of Silverlight looked like a full-on assault on
Adobe's Flash media player when the company launched it last year.
Still, Adobe has much of the market and
Microsoft is playing catchup. For Microsoft, the Netflix deal could help get Silverlight downloaded onto the PCs of Netflix's 8.7 million subscribers.
"It's a bit of a land grab [for Adobe and Microsoft] right now, and because it's so competitive, it limits the profitability of the market"
says Christopher Hickey, an analyst at Atlantic Equities. "Microsoft will do whatever it takes to gain market share, even if that means destroying the economics of the opportunity."
But if Microsoft wanted to, it could gobble up Netflix pretty easily. The company is sitting on a mountain of money — $25 billion in cash and investments as of the end of September — and at last check,
Netflix's market capitalization was a little over $1.1 billion.
For Netflix, a Microsoft marriage might also help cut marketing expenses. As it stands now, one of Netflix's biggest expenses is advertising or "subscriber acquisition costs." Presumably if Netflix was folded into the Microsoft family, those costs would be dramatically reduced,
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