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Why Apple Should Buy Netflix

Netflix has begun to model itself after HBO by offering original programming, an added benefit and an extra stickiness factor to the service. But Netflix has had issues with rising content costs. With the success of iTunes, Apple has already shown how well it can monetize content. No one does it better. And Netflix's content is its strength.

If Apple is in position to receive exclusive line access from Comcast, Apple -- if it so choose -- can squeeze out Netflix by reducing its costs. Netflix is already paying a significant amount of money to upgrade the quality of its public line from Comcast after Netflix customers complained of poor reception.

Tim Cook is paying attention. To ensure that he hits a homerun within the living room, he has to make an offer for Netflix. Acquiring Netflix will also usher the "new Apple" that Tim Cook desperately wants to evolve. Whenever acquisition rumors surface, we've become familiar with the standard line of how Apple "only buys small companies."

Tim Cook can announce his presence with authority by landing Netflix. But it's not just about vanity. Apple needs Netflix and its 44 million subscribers. With Netflix projecting to growth subscribers by another 3.85 million in 2014, Apple would acquired close to 48 million viewers worldwide.

With Netflix's market cap right around $22 billion, an offer for $28 billion, or 30% premium to Netflix's Tuesday closing price would get this deal done. And to think, it would take just 17% of Apple's cash to pick off Netflix, the most dominant name in the streaming business that still has years of member growth ahead.

At the same time, Apple would keep Netflix away from Google (GOOG), Microsoft (MSFT) and Facebook (FB). Last but not least, Tim Cook would have (once and for all) shut a lot of people up. If that's not a homerun deal I don't know what is.

At the time of publication, the author was long AAPL and held no position in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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