What Does Microsoft Want With Dailymotion?

Microsoft won't make much off of a small stake in Dailymotion, but it could help the company enter the video-sharing space.

Feb 27, 2014 at 9:45AM

News spread quickly this week that Microsoft (NASDAQ:MSFT) may be interested in buying a small stake in Dailymotion. The Windows maker might see the French video-streaming site as a way to make new gains in the video space.

French telecom Orange (NYSE:ORAN), which owns 49% of Dailymotion, wants the service to compete in the U.S. -- and Microsoft may be the company to make it happen.

This time it's different
Last year, Yahoo! (NASDAQ:YHOO) tried to purchase a 75% stake in Dailymotion for $200 million, but dropped from the bidding in the face of resistance from the French government, which owns about 28% of Orange.

Recent reports have Microsoft as a potential bidder for a 10% stake in the video-sharing site. The small percentage Microsoft is looking for makes it much more likely for a deal to go through compared to Yahoo!'s bid, considering that the French government didn't want an American company to have so much ownership.

Not YouTube, but it'll do
While sometimes it seems that YouTube is the only streaming game in town, Dailymotion is globally the 12th largest video-sharing website, with about 112 million unique monthly viewers. Of course, that hardly compares to YouTube's 1 billion unique monthly visitors.

But investors should consider that Dailymotion could bolster Microsoft's video position without too much cost to the company.

In 2009, Microsoft shut down its MSN Soapbox video-sharing site, so there's a bit of gap in Redmond's ambitions in this space. According to a recent Wall Street Journal article, if Microsoft is allowed to purchase a portion of Dailymotion, the company may have to bundle the video sharing app with its Windows Phone mobile operating system. While that's not going to take down YouTube, it would fill both Microsoft's video pursuits and Dailymotion's U.S. growth ambitions.

What Microsoft stands to gain
It's difficult to quantify how much Microsoft stands to gain from buying a small part of the video-sharing service, but it won't be much. Around the same time that Yahoo! was bidding for Dailymotion, Orange CEO Stephane Richard said he expected revenue for the video site to grow 30% annually and hit EUR 100 million by 2016, or about $136 million. That's not a lot of money, especially if Microsoft only has a small slice of the pie.

So Microsoft's angle may simply be to dive a little deeper into a video-sharing platform without having to spend too much money developing its own. It's a safe bet, and because of that it won't have a huge payout. Investors hoping that Dailymotion will bring in significant revenue for Microsoft will likely be disappointed, but it would help the tech giant enter the video-sharing space.

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Fool contributor Chris Neiger has no position in any stocks mentioned. The Motley Fool recommends Orange (ADR) and Yahoo!. The Motley Fool owns shares of Microsoft and Orange (ADR). 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.

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