Netflix split to set up Amazon streaming merger?

Netflix split to set up Amazon streaming merger?

Summary: Netflix's move to separate its DVD-by-mail service may pave the way for Amazon to buy the company, argues an analyst.

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Netflix CEO Reed Hastings may have a trick up his sleeve as he separates the streaming and DVD-by-mail businesses: A sale to Amazon.

That's the theory floated by Wedbush Securities Michael Pachter on Thursday and the idea makes sense.

Pachter upgraded Netflix shares to an outperform from underperform. The analyst argued that Netflix formed Qwikster so it can be spun off eventually. From there, Amazon can easily buy Netflix, which would be a streaming business.

In a research note, Pachter said:

In our view, Amazon has always wanted to be in the streaming business, and has been constrained from buying Netflix due to tax considerations. The split up of Netflix’s business addresses the state sales tax issues raised for Amazon in having a “nexus”. If Amazon were to acquire only Netflix’s streaming business, it could triple the size of its content library, and gain traction as an industry leader. Netflix streaming has current content deals that provide it with access to movie content during the premium cable TV window, and Amazon has the financial resources to secure additional streaming rights, including Starz content. Netflix’s financial flexibility is quite limited, while Amazon’s is virtually unlimited.

The tax issue is that an acquisition of Netflix's DVD business would give Amazon more sales taxes to collect.

Pachter explained:

One of the impediments to Amazon’s purchase of Netflix outright is the state sales tax rules. Under the rules in most states, any company with a physical presence in that particular state (a “nexus”) is required to collect sales taxes for all retail transactions in that state. Amazon has carefully avoided nexus with virtually every state that collects sales tax, providing it with a significant pricing advantage over its brick-and-mortar competitors. Should Amazon have purchased Netflix’s business outright (including the DVD-by-mail business), the company would have found itself subject to sales taxes in virtually every state that imposes sales tax, due to Netflix’s extensive network of distribution centers. Accordingly, we never thought that Amazon would seriously consider purchasing Netflix, as such a purchase would severely (and negatively) impact Amazon’s core retail Internet sales.

If Pachter's theory pans out, Netflix's separation of its DVD business makes more sense. Initially, Netflix looked like it was botching the customer user experience and annoying users. All true to date. But if Netflix, which will be the streaming business, becomes a takeout for Amazon, the separation and angst would be worth the trouble.

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Topics: Amazon, Enterprise Software

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33 comments
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  • RE: Netflix split to set up Amazon streaming merger?

    I dunno, I think Netflix is just ditching the physical media and looking to add Hulu to its stable which will setup a very strong streaming Media Company.
    slickjim
    • RE: Netflix split to set up Amazon streaming merger?

      @Peter Perry
      That would be dumb to put 2 dying companys together to make one big crap company. Hulus pay side plus has made it slowly start to die with networks now pulling content from hulu then the netflix hate and mass exodus for how they handle their money grab will make it hard for either to survive alone or together. If Amazon buys netflix I definately would want no part of it as Amazon already has some of the highest prices on merchandise out there and abandoned its Illinois and California long time sellers already by closing all accounts.
      Fletchguy
      • RE: Netflix split to set up Amazon streaming merger?

        @Fletchguy Nah, it strengthens them... Imagine both platforms for $9.99 a month total.

        Look, people like both Hulu and Netflix! What they don't like is paying ten bucks a month for free TV! They also don't like paying to stream older movies.

        Now combine both streams for $9.99 a month and ditch the physical media. Next thing you now, you have a successful company on their hands with no physical media warehouses dragging it down.
        slickjim
      • RE: Netflix split to set up Amazon streaming merger?

        @Fletchguy - what a bunch of tripe you're spewing here! Got an axe to grind with Amazon? Maybe you just represent one of the shady sellers that Amazon has bagged in the past.

        Get a life dude.
        lampson1
      • How do you figure?

        @Fletchguy Amazon Prime is $79 a year. That's cheaper than Netflix over a year period. Their library isn't as big, but it's growing. I don't see how Amazon is more expensive anyway. Most of the time I order something from them strictly because it was the cheapest price. <br><br>If they were able to combine their current library plus add Netflix to it, I'd jump on it in a heartbeat.
        waterhzrd
  • RE: Netflix split to set up Amazon streaming merger?

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    alexdan2
    • RE: Netflix split to set up Amazon streaming merger?

      @alexdan2

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      SpankyFrost
      • RE: Netflix split to set up Amazon streaming merger?

        @SpankyFrost

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        Hallowed are the Ori
      • RE: Netflix split to set up Amazon streaming merger?

        @SpankyFrost I'm happy with my keg ;-)
        non-biased
  • RE: Netflix split to set up Amazon streaming merger?

    But what exactly is Amazon buying from Netflix? I would think Amazon could get better license deals from the studios from Netflix. If memory serves correctly, Amazon has a huge network to support the streaming infrastructure (or at least it would be cheaper to build their own). And right now the name "NETFLIX" would result in negative goodwill.
    lambtron__40
    • There is one thing Netflix has that Amazon doesn't currently...

      Netflix is built into virtually every set-top box made over the past two years, integrated into Windows Media Center, and is on every game console. Amazon's video service isn't as universal. That alone has some present value.
      jrf2027
      • RE: Netflix split to set up Amazon streaming merger?

        @jrf2027@... That alone presents MASSIVE value. Being in everyone's home already is a huge boosting point for the sale.
        thoiness
      • Correct sir.

        @jrf2027@... Exactly spot on. Amazon would love that "plug and play" functionality that Netflix would give them. Instant access to everyone's Xbox, Wii, Bluray player, smart TV = perfect for Amazon. They would then probably release some sort of store that is accessible from those devices as well...
        j28n
  • RE: Netflix split to set up Amazon streaming merger?

    Sigh... I'm in WA state so I still have to pay sales tax on most of my Amazon purchases. Still usually a better deal, and I love shopping from my phone & my $40 a yr Amazon prime student rate!

    I actually cancelled my netflix to get amazon prime, would be interesting to see how netflix / prime would merge if this did eventually happen.
    Bruce Banter
    • RE: Netflix split to set up Amazon streaming merger?

      @Bruce Banter
      Amazons price I have found are just way to high. Especially on electronics or on items that have local brick and morter stores that sell items they carry usually amazon is 10-20% higher then everywhere else and the prime doesn't make much sense to pay for if you don't buy much from them due to high costs. toss in they cancelled all of our Illinois seller accounts and calis amazon is just a waste of a site. Even with ebays increased fees and charges the costs of similar items is about 35-45% less there or on craigslist.
      Fletchguy
      • It sounds like you have an agenda

        @Fletchguy, Amazon was forced to pull out of California and Illinoise due to those states attempts to force local taxes on Amazon. Put the blame where it belongs, on your greedy liberal state legislatures. Are not states prohibited from taxing interstate commerce?

        Also, I shop quite a bit on Amazon, and generally find their prices to be very competitive, including electronics. Of course, if you want to compare to the scams on Craigslist and Ebay you will find a better price, but buyer beware. One of my sons bought a "new" laptop on Ebay, only to find when he tried to get warranty service that the machine was reported as stolen. I gladly pay a bit more to buy from legitimate sellers.
        itpro_z
  • RE: Netflix split to set up Amazon streaming merger?

    I don't think Reed Hastings would do anything to put himeself out of a job. Remember, he's staying at the helm of Netflix, and handing over Qwikster to Andy Redich. We can only hope that Netflix sells off Qwikster quickly, so that Qwikster can then offer the joint plastic and streaming plan that we all want, and which was a competitive advantage over all the existing plastic-only or streaming-only plans.
    cwestin
    • Well...

      @cwestin : While I agree that would be awesome, do you honestly think that Netflix wouldn't include a provision in the sale contract that prohibits the Qwikster buyer from starting a streaming service? I know I would if I was in the CEO's position.
      Zorched
  • RE: Netflix split to set up Amazon streaming merger?

    It is a little far-fetched grasping at the straws theory. If Amazon wanted to do that, they could have made an offer conditioned on spinning that off long time ago.

    Now Amazon would have no interest in buying Netfilx now as their business is withering. Netflix would be a lot cheaper a year from now, and even cheaper two years from now!
    Constant Gadener
  • RE: Netflix split to set up Amazon streaming merger?

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