They Would Love a Piece of Netflix

I can be a masochistic matchmaker sometimes. Last week, I argued that Netflix (Nasdaq: NFLX  ) should hook up with (Nasdaq: AMZN  ) -- despite the state sales-tax implications -- or maybe even Microsoft (Nasdaq: MSFT  ) .

Tim Beyers thought I was nuts, but I pleaded my case yesterday. Wrapping up what I had originally envisioned to be a trilogy before it got sidetracked into a five-act play, I want to close with some thoughts on other companies that could cash in by buying Netflix.

Now, one can argue that any acquirer can make the most of scooping up a profitable free cash flow machine like Netflix. So I've limited myself to the public companies that stand the most to benefit from purchasing the disc-in-the-mail specialist.

Google (Nasdaq: GOOG  )
I'm starting with an obvious choice, but it's not just because Google is flush with cash and a dot-com rock star. Google has a fatal flaw that few people talk about: It can't get folks to open up their pocketbooks unless they're AdWords advertisers.

Sure, Google is the undisputed paid-search champ, but the champ has been a bit of chump in its other business endeavors.

  • It can't get folks to pay to have questions answered, so it shutters Google Answers.
  • It can't get folks to pay for digital videos, so it closes its Google Video storefront.
  • Google Checkout is still around, but it's no PayPal killer, because it can't get enough people to pay.

Isn't it about time Google compensates for its organic Achilles' heel by trying on the Netflix boot for size? Acquiring Netflix would give Google a quick way to slim down that 99% slice of revenue that comes from online advertising. Google's recent forays into print advertising could be put to great use on the underutilized Netflix mailers, though naturally, the biggest attraction would be the online ads that could be tastefully placed throughout the active Netflix site.

Netflix's Watch Now platform would give Google a high-end platform for video delivery, and even though Netflix subscribers would hate it, the costly bandwidth involved in delivering the chunky Watch Now files could be subsidized with video ads. In short, no one can monetize Netflix's wide open spaces as much as Google can. Commercialization is probably the last thing Netflix subscribers want to see, but it would be a fair trade if it's offset by subsidized subscriptions.

Wal-Mart (Nasdaq: WMT  )
We know where Sam Walton's chain stood on mail-delivered DVD rentals when it bowed out two years ago. The service never caught on, and the company had little choice but to hand over its 100,000 subscribers.

There was no point in investing in the distribution centers to serve a market where it would be the bronze medalist, at best. Acquiring Netflix would solve that problem. As a bonus, Netflix shares opened at $18.93 the day Wal-Mart sent its disc renters to Netflix 27 months ago. Netflix is cheaper today, with twice as many subscribers.

The beauty of having a real-world retailer like Wal-Mart jump on Netflix is that it would help Netflix tackle the Blockbuster Total Access migration. Wal-Mart could offer in-store exchanges the way Total Access does. Yes, that would involve an investment in devoting shelf space to a few hot rentals, but it may be worth it. Unlike the inability of Blockbuster Video to get in-store exchange patrons to buy stuff, Wal-Mart customers could easily turn a trip to swap a rental into an excuse to load up on groceries, clothes, or lawn furniture.

An argument for having rival Target step up would be similar to Wal-Mart's case. The incentive for Target would be to matter more in consumer electronics. It has Wal-Mart beat in apparel and housewares with its cheap-chic appeal, but Target's not much of a force in moving TVs, DVDs, and CDs. Netflix would help. Besides, the Netflix red mailer is just begging for the Target logo.

Apple (Nasdaq: AAPL  )
With Netflix CEO Reed Hastings sitting on the Microsoft board, Apple would seem to be sleeping with the enemy in approaching Netflix. However, video content delivery is an important weapon in this war. Rival Microsoft is pumping video directly into Xbox Live accounts. Amazon's Unbox was announced just around the time Apple got serious about the celluloid.

The irony that Netflix's Watch Now streaming service does not currently work on Mac computers is not lost on me. Apple would relish the opportunity to remedy that problem, especially if it also gets regular contact with 6.7 million families who have the disposable income to pick up a few iProducts. Besides, when you get down to it, Hastings is more in the mold of Steve Jobs than Steve Ballmer. 

Yahoo! (Nasdaq: YHOO  )
I saved Yahoo! for last because it's probably the obvious choice after Amazon and Microsoft. The company is under fire to do something spectacular after years of fiscal stagnancy. Failing to hire a notable CEO by going with an internal promotion only turns up the urgency.

Yahoo! already knows the benefits of premium subscriber services. Whether it's HotJobs, premium email, domain hosting, or online dating, Yahoo! is no stranger to subscription models. Netflix would fit like a glove. It would make Yahoo! an even stickier portal and give it a strong multimedia core.

Lining up the suitors
Ultimately, Netflix doesn't have to give itself away. Even though I think the near-term news is going to get rocky, the company has the luxury of a cash-rich mattress to rest on until it gets an offer at a respectable premium. (Check out my latest earnings Take.)

Let's just hope that CEO Reed Hastings doesn't get too greedy. Now that the trend has been to revise subscriber targets and profitability lower, it's time to consider companies that could stand to gain in owning Netflix.

Netflix, Yahoo!, and are recommendations for Motley Fool Stock Advisor newsletter subscribers. Microsoft and Wal-Mart are Inside Value recommendation. Want to sort through the suitors? Now is a great time, with a 30-day free trial subscription to the newsletter of your choice.

Longtime Fool contributor Rick Munarriz has been a Netflix subscriber -- and shareholder -- since 2002. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.

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