Get a Room, Netflix and Apple

The unlikeliest of couples continues to hang out together.

Shares of Netflix (Nasdaq: NFLX  ) climbed 7% yesterday, after it was revealed that Apple's (Nasdaq: AAPL  ) new and improved Apple TV will support streaming for Netflix subscribers.

These two companies have come a long way. Just a year ago, it seemed as if Netflix had firm allegiance to Apple nemesis Microsoft (Nasdaq: MSFT  ) . After all, Netflix CEO Reed Hastings sits on Microsoft's board of directors. Netflix also treated Mac owners like second-class citizens when it launched its streaming service exclusively for Windows-powered PCs. Mac support came a year later.

However, Netflix has been playing nicely with Apple this year. It was there during the iPad's April launch, offering a streaming application that became the most popular third-party App Store download at the time. Support for iPhone and iPod touch streaming went live during last week's update.

How big is this for Netflix? With 15 million subscribers, it may not move the needle as much as yesterday's stock surge suggests. Apple TV has been a rare dud in the company's portfolio, though the newer, smaller, cheaper version seems to get a lot more things right.

I would actually argue that Apple needs Netflix more than the other way around. Apple didn't get all of the major television networks to play into its vision for HD show rentals. Only Disney's (NYSE: DIS  ) ABC and News Corp.'s (NYSE: NWS  ) Fox are initially on board, and Disney was a given, since Steve Jobs is Disney's largest individual shareholder.

Without universal media support, Apple's set-top gizmo would be rudderless without Netflix streaming.

Sure, we may one day get to the point where Apple actually launches its own video subscription service, but wouldn't it be easier to just buy Netflix at this point?

Apple has more than enough money to cover a decent buyout premium for Netflix. It would represent a steep earnings multiple, but the same can be said for the lousy interest that Apple is generating on its idle cash. The end result would be that Apple would own the digital video market, the same way that it dominates the digital music space.

Yes, Netflix used to be Microsoft's girl, but it's clearly an open relationship at this point.

Go for it, Apple. What are you waiting for?

Are Apple and Netflix a good match? Share your thoughts in the comment box below.

Walt Disney and Microsoft are Motley Fool Inside Value selections. Apple, Walt Disney, and Netflix are Motley Fool Stock Advisor picks. Motley Fool Options has recommended a diagonal call position on Microsoft. Try any of our Foolish newsletter services free for 30 days. True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community.

Longtime Fool contributor Rick Munarriz has been a Netflix shareholder -- and subscriber -- since 2002. He's been an even longer investor in Disney. Rick 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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  • Report this Comment On September 02, 2010, at 12:33 PM, alexkhan2000 wrote:

    Agreed. I think it's time for Apple to make a big move and of all the companies out there that fits in with Apple's long-term strategy, Netflix fits best. It'd save Apple a lot of time and effort in establishing a beachhead in this new emerging market. Content is king.

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