In early July, Microsoft and Netflix announced a partnership to monetize the latter’s platform through an ad-supported streaming service, which was hitherto missing from the entertainment company’s revenue. An LA-based analyst has now revealed that the deal could be a stepping stone for something more significant.
Needham & Company’s managing director and senior media and internet analyst Laura Martin has said that streaming giant Netflix isn’t opposed to being acquired to get out of the financial mess it is in at present. Martin told Yahoo! Finance, “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.â€
Microsoft announced plans to take over Activision Blizzard in January this year for upwards of $68 billionOpens a new window . The Federal Trade Commission (FTC) is expected to greenlight the deal by August.Â
At present, Microsoft may be among the few tech companies with the resources to offer the tech stack that Netflix seeks for its ad-driven subscription model and offer a way out of the turbulence the streaming service faces.
In its recent partnership with Microsoft, Netflix called the Redmond-based tech giant its “global advertising technology and sales partner.†Falling subscription rates, rising costs of producing relevant and quality content, not to mention increasing competition have forced the California-based streaming service to introduce a cheaper, ad-supported plan to buoy its position.
“Netflix is trying to get closer to Microsoft in hopes that, after Microsoft digests its Activision acquisition, it turns and buys Netflix next,†Martin speculated, adding that Netflix’s ad-supported tier will not debut until Q3 2023.
Microsoft gobbling up Netflix would undoubtedly allow the company to withstand any shocks that may come its way. According to Goldman Sachs, the current one is from a “period of post-pandemic growth normalization†and an “increased industry-wide competition.†Albeit by only 0.09%, Netflix lost subscribers for the first time in ten years in Q1 2022. The company’s Q2 2022 results are slated for release tomorrow.
For Microsoft, Netflix allows it to compete, first with Apple, which has its streaming service Apple TV+ and is already making a mark. Secondly, if Microsoft ends up acquiring Netflix, the company may end Netflix’s cloud association with AWS and shift to Azure.
The market reacted strongly to speculation that Microsoft may buy Netflix. As a result, Netflix shares closed at $189.11 per share on Friday, 8.19% higher than the previous day’s close. The company’s market cap currently sits at $84.01 billion at this price per share.
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