Jim Cramer: Microsoft Should Buy Netflix3 Apr, 2013 By: Erik Gruenwedel
Analyst says SVOD pioneer has taken a page from the DVD box set
Software giant Microsoft should acquire Netflix, which when coupled with the Xbox 360 would “own the living room,” said “Mad Money” stock adviser Jim Cramer.
Speaking April 3 on TheStreet.com, Cramer said Microsoft has “lost its edge” as a tech company while maintaining an outsized balance sheet and free cash flow.
“Buying Netflix … they’ve got revenue, they’ve got brand recognition, they’re on the [remote control]; being on the clicker of new TVs matters tremendously,” Cramer said.
The analyst said Microsoft could easily absorb Netflix’s original programming production costs as underscored by its video game productions, in addition to refinancing existing content license agreements.
“Most importantly, 27 million people. [These subs are] different from the Xbox gamers. They could own the living room,” he said.
Cramer said Microsoft’s purchase of Netflix would make the Windows creator “relevant” again among the younger demographic, which he said are the most likely to binge-view content.
He said Netflix’s appeal is in orchestrating a secular trend within the broadcast industry by re-popularizing serialized dramas. Cramer said Fox introduced the concept of binge viewing years ago via DVD box set retail releases of shows such as “24,” starring Kiefer Sutherland.
At the same time, Cramer said networks have primarily focused on stand-alone single story programs such as “CSI” and “NCIS,” among others, as their cash cows.
Cramer said popular cable shows such as “The Walking Dead,” “Game of Thrones,” “Breaking Bad” and “Mad Men” underscore consumer demand for serialized dramas, which he said Netflix can deliver efficiently.
“People really get engaged in huge numbers with what would normally be [DVD] box sets,” he said.
The analyst said Netflix allows viewers to catch-up on serialized programs through binge-viewing — a phenomenon the broadcast industry is now trying to establish a stake in.
“Netflix should be for sale,” Cramer said. “I think the world of Reed Hastings. He’s terrific.”
The analyst said that if Microsoft did acquire Netflix, Hastings could do an excellent job running the software company. He said Netflix is social and mobile — two prerequisites in today’s media world. Hastings was a member of Microsoft's board until stepping down last year.
“Hastings is a visionary. Microsoft needs a visionary at the helm,” Cramer said, adding the same logic applies to Apple acquiring Netflix. “If Microsoft wants to get its groove back, it should buy Netflix.”
Meanwhile, any Netflix purchase is getting cheaper as its stock continues to fall, with shares down nearly $9 (5%) in midday trading. Cramer attributes the sell-off to investors wanting to make some money.