NEW YORK ( TheStreet) -The rumors of Verizon Communications (VZ) making a bid for Netflix (NFLX) continue to swirl. One analyst thinks that Verizon does have something to gain from buying Netflix, but the gains might be limited in scope.
Morningstar analyst Michael Hodel said that buying Netflix would bring in more than 23 million current customers, a "decent brand name," and a number of content deals, albeit expensive ones.
Where Verizon could see value in the deal is the customer base, and packaging that with its FiOS television and other services, he added. Hodel also speculated that "Verizon may see some value in adding Netflix to Verizon Wireless as well."
On the other hand, Netflix has overpaid for content, and the content deals might not be worth much, Hodel said.Hulu, Redbox and Netflix have already been mentioned as potential partners for Verizon. Holden would expect Verizon to make a decision on online video distribution based upon the financial impact of each option. Hodel has a $38 fair target price on Verizon. Netflix has come under a great deal of pressure in 2011, as the company announced a price hike to its subscription service without announcing any increase in services. It also proposed to separate its DVD-by-mail business from the online streaming business, which caused a slew of negative comments, and forced the company to rethink the controversial strategy. CEO Lowell McAdam spoke at a conference last week and said the company is interested in the video streaming subscription business, moving beyond its FiOS TV service. He said Verizon looked at Hulu, when it was up for sale over the summer, according to Businessweek. Porter Bibb, managing partner at Mediatech Capital, went on Bloomberg television yesterday and added fuel to the story. He said he heard "rumblings from inside Verizon that they are very serious about Netflix or something similar." Verizon declined to comment for the story. Verizon shares were falling Tuesday, down 2 cents to $38.33. -- Written by Chris Ciaccia in New York >To follow the writer on Twitter, go to http://twitter.com/commodity_bull. >To submit a news tip, send an email to: email@example.com
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