Why should Amazon buy Netflix
marketwatch.comOoh, ooh, ooh! I love "Amazon should buy Netflix" articles. It's the HN equivalent of "first!" to say that Amazon won't buy Netflix because it would give them a business nexus in a lot of states and require them to collect sales tax there. Ergo, never gonna happen, at least not without some financial sleight of hand like the $175 million "investment" in LivingSocial.
Well...I hate to be this blunt about it...but if Amazon were to buy Netflix it would be to get their subscribers and to get their content licenses. Since any merger would take time and netflix has already said it plans to do everything in its power to move away from shipping DVDs.
So since Netflix is already running on AWS and Amazon is already maintaining their infrastructure there wouldn't be much need for Amazon to take on Netflix's employees or physical assets.
They would probably loose the content licenses. The contracts between the content holders and Netflix says probably something about a right to cancel the contract in case Netflix is bought.
A long tome ago when I was an MBA student, I asked my prof and peers why does company X buy company Y, when both X and Y are healthy companies, in the context of techology companies. The most common answer is "synergy" or cost savings . But my point was that if acquirer is a mature company and acquiree is a young startup, the young startup would have a higher growth rate than the mature company. Also the young startup would have more freedom than a mature public company, whose decisions making would be rigid as they are driven by the quarterly earnings expectation. It seems to me that the savings /synergy would be dwarfed by the dampening of the growth rate of the startup. Not to mention that the startup would bleed talent as they move on. Consider Cisco and Flip : Flip stopped innovating and taking risks after the acquisition and was eventually killed off. I understand Netflix is not a startup but they are just as scrappy and I believe their best products are yet to come. Yahoo has also acquired so many companies and I do not believe they managed to achieve their goals at all( unless it was to make Mark Cuban a billionaire). In my opinion, if the management of Amazon thinks they have excess cash, they should just pay dividends to the investors.
So do you still think Amazon buying Netflix is a good idea ?
In a very theoretical way you are probably. right. But the real world doesn't work that way.
The reason companies resist paying dividends is because investors take that as a signal of maturity and maturity is the antithesis of growth in the market.
Once you start paying dividends you become the stock that people keep in their portfolio to hedge against market instability. Like Microsoft or GE which might grow slightly over the years but remains relatively flat.
Becoming that company makes it hard to move forward. You can't use stock options as a draw so it's hard to get talent and your generally viewed as static which makes it hard to get media attention. Hence the stagnation.
If you're an executive like Jeff Bezos who is actually committed to the company becoming "mature" basically means the CEO jobs is just maintenance from that point on and I don't think he's ready to do that yet
The cultures of Amazon and Netflix are more similar than the cultures of a generic mature company and a start-up. Amazon is still taking risks and starting new businesses - AWS is one example. Most recently, they started venturing into video streaming, and MP3 streaming. And, unlike other companies like Yahoo!, Cisco, or even Google, Amazon's investments and acquisitions have been quite smart, see Zappos and LivingSocial.
All in all, I think Jeff Bezos would love to buy Netflix - strong brand, entrepreneurial culture, outstanding execution - but Amazon doesn't afford to pay the price for it. Additionally, Reed Hastings would do anything to avoid such an acquisition.