NEW YORK (Real Money) -- Why shouldn't Microsoft (MSFT) buy Netflix (NFLX)? That's what I keep coming back to, even after reading Rocco Pendola's excellent riposte against my suggestion the other day about a potential merger that would make fortunes for Netflix owners (as if the plus-100% first quarter wasn't enough) and let Microsoft CEO Steve Ballmer get his groove back -- that is, if he ever had one. (He did, I was in college with him!)
Sure, Rocco's right that the Netflix balance sheet is stretched. He's correct that the company is paying up for a lot of content -- through the nose, even. Yes, indeed, it has to go international and that's expensive, time-consuming and difficult.
But that's about all I see in his entry that can be buttressed by logic because, frankly, Microsoft can fix every single one of those issues simply by using the strength of its own balance sheet. It can refinance debt at a couple of percent without a problem, bringing earnings right down to the bottom line. It can develop programming and not even see the cost of it on its expense line. It can promote the product in its own software and can load it into its desktop and cellphone suite. It can have you Skype to friends while you are watching Netflix programming. It can integrate games into the action.
Most of all, Netflix would put Microsoft back into the living room where it needs to be, and not just on the desktop where it is. It would make Microsoft relevant again and, believe me, part of the reason why this stock is such a dog is that the company isn't regarded as being cool or bold. Nothing could be bolder than getting into the homes of 27 million Americans -- and growing -- and then financing the international expansion with spare change.There are so many other advantages here, all for about $13 billion, again, almost a rounding error given Microsoft's cash hoard, which is earning next to nothing by the way. All new TV clickers come equipped with a Netflix button. That would, going forward, be a Netflix-Microsoft button. You would be hitting up Microsoft for the movies and TV shows you want, and the cross-promote on what comes up when you hit that button could be fabulous for Microsoft.
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