Netflix shares climbed 6% after the initial rumblings surfaced Monday. The stock then went on to trade as much as 3% higher 30 minutes into Tuesday's trading day, after Bloomberg reported on Mediatech Capital's Porter Bibb telling Bloomberg TV viewers that a few sources were telling him that Verizon is serious about nabbing Netflix.
Then it was time for the naysayers to have their turn. CNBC's David Faber revealed on the air yesterday that his sources claim that a deal isn't in the works. There was also FirstAdopter.com's Twitter account shedding some light on Bibb's track record in calling buyouts.
This doesn't mean a deal isn't happening. It certainly doesn't mean a deal won't happen eventually. However, we've gone through roughly 874 rumors over the years of Netflix getting snapped up. It was Amazon.com (NAS: AMZN) for a few years. Then it was Microsoft (NAS: MSFT) tied to the video rental leader.
Unlike Bibb's comments on IMAX last year -- which never really made sense when you consider that two movie studios buying up a premium exhibitor ally would be a conflict of interest -- Verizon gobbling up Netflix as a way to live up to its streaming video plans make sense.
There are skeptics. Janney Capital Markets analyst Tony Wible was quoted in TheStreet.com yesterday pointing out how a buyer would have to pay not only roughly $200 per Netflix subscriber in equity but also take on $4.5 billion in streaming content obligations.
The argument that Verizon can simply acquire new subscribers for less than that isn't entirely fair. Verizon would still need to shell out the same billions in digital licensing deals to have a competitive vault of content. It would also take Verizon several years to top Netflix's reach of more than 20 million streaming customers worldwide. Even if it was somehow possible, Verizon would be competing with a well-entrenched Netflix that has a history of playing fierce on the pricing front when it feels threatened. It would be so much easier to just swallow Netflix whole and have more say in how it prices its service and the value it can deliver to its FiOS and wireless customers.
Then again, just because a Netflix deal makes sense doesn't mean it will happen. However, the notion that Verizon can succeed in this space when it's years behind Netflix is perhaps equally as ludicrous.
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At the time thisarticle was published The Motley Fool owns shares of Amazon.com and Microsoft. Motley Fool newsletter services have recommended buying shares of Netflix, IMAX, Microsoft, Amazon.com, and Walt Disney. Motley Fool newsletter services have recommended creating a bull call spread position in Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.Longtime Fool contributor Rick Munarriz has been a Netflix subscriber and shareholder since 2002. He does not own shares in any of the other stocks in this story, except for Disney. Rick is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.
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