Could Microsoft buy Netflix? At least one analyst seems to think so.
Netflix + Microsoft?
Microsoft is in the process of acquiring Activision-Blizzard-King for a truly eye-watering $72 billion dollars USD, giving Microsoft and its Xbox gaming division control over some of the world's most popular video game franchises, including Call of Duty, Warcraft, Candy Crush, and many, many more.
The whole logic around this acquisition ultimately comes back to Xbox Game Pass, Microsoft's nascent gaming subscription service, which the company expects will become the driving force behind its expansion beyond its Xbox consoles. Microsoft has been aggressively expanding its cloud-streaming capabilities for gaming, putting its Xbox Cloud Gaming service on smartphones and Samsung TVs, allowing you to play titles like Halo and Flight Simulator without buying a console.
It's a shift Microsoft predicts will follow how our habits around music and media consumption moved away from retail copies of CDs and DVDs to streaming services, like Spotify and Netflix. Microsoft's Xbox Game Pass service its a far tighter, more curated platform that features a revolving library of 300-400 or so titles, preventing the cannibalization of the regular boxed copy retail games market. Yet still, the comparisons to the likes of Netflix abound, and they're likely to intensify in the coming weeks and months ahead.
Indeed, Microsoft is actually teaming up with Netflix per an announcement a couple of days ago. For Netflix's new "more affordable" ad-supported streaming tier, Microsoft was picked as the exclusive ads marketplace and technology partner for the new service. It'll be another feather in the cap of Microsoft's growing ads business, which is no slouch at $10 billion dollars in revenue last year, although it pales in comparison to the likes of Google, up over $160 billion for the same period.
In any case, one analyst speaking to Yahoo! Finance claimed that the partnership betrayed a possible longer-term goal — namely an exit for Netflix, which has been struggling to diversify its revenue streams and find new growth as of late. A decline in subscribers saw a mass investor exodus over the past year, with Netflix's share price taking an absolute battering from its peak of 690 points, all the way down to 177 points today.
Laura Martin, Needham senior analyst had this to say about the partnership.
"It could be that Netflix is looking for an exit. (...) Netflix is trying to get closer to Microsoft in hopes that, after Microsoft digests its Activision acquisition, it turns and buys Netflix next."
Martin reportedly suggested that it's only Microsoft who could foot the potential $100 billion dollar valuation for Netflix once the Activision-Blizzard deal closes, while also navigating regulatory approval. For sure, many other companies who would be able to grab Netflix, such as Amazon or Google, already have large video streaming services of their own.
It's certainly an interesting proposition. Obviously, combining the offering of Xbox Game Pass and Netflix into a single service would give Xbox game developers access to tens of millions of potential new users, providing exposure on a level that is simply unheard of with today's Xbox install base. Netflix already offers a few Android games through its service, but getting Xbox games in there as well would certainly go an extra mile towards popularizing the concept. It would also be a huge platform for Microsoft's ads business, giving it access to many millions more eyeballs than it has available with its current platforms today.
Netflix also comes with some high-caliber studios of its own, which could lend their creativity to building shows and movies around Microsoft's IP such as the Halo Paramount+ show (and while it has seen some mixed reactions, seems to be doing well for the service). The interaction between traditional media and video games provides a marketing feedback loop that we're seeing more and more companies show interest in, with many big-name TV shows in the works for franchises like Fallout and The Last Of Us. We could see Xbox studios tackle franchises like Stranger Things or Squid Game, too. I'm sure we'd also see a lot more Surface devices appearing in Netflix shows as well as a result.
Even a very basic and superficial surface-level analysis presents some intriguing possibilities, but as Yahoo! noted an acquisition on this scale may even exceed Activision-Blizzard itself. Netflix has a market cap of almost $80 billion right now, and Microsoft would undoubtedly have to pay a premium on top of that as well.
Could it really happen? I think in the right circumstances, it potentially could happen. At least on the surface, there seems to be a lot of alignment when it comes to Microsoft's streaming and entertainment aspirations. Microsoft had some interest in making entertainment during the launch of the Xbox One with its defunct Xbox Entertainment Studios, but that was almost ten years ago at this point. But who knows? I never would have expected Microsoft to acquire Activision either, but here we are.
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Jez Corden a Managing Editor at Windows Central, focusing primarily on all things Xbox and gaming. Jez is known for breaking exclusive news and analysis as relates to the Microsoft ecosystem while being powered by caffeine. Follow on Twitter @JezCorden and listen to his Xbox Two podcast, all about, you guessed it, Xbox!