Verizon said to be eyeing up Netflix acquisition

Michelle Clancy ©RapidTVNews | 14-12-2011

Call it a case of strange bedfellows: Tier 1 U.S. telco Verizon Communications is reportedly in talks to take over the online streaming behemoth Netflix.
Porter Bibb, managing partner at Mediatech Capital Partners LLC, told Bloomberg that Verizon is “very serious” about the acquisition, which could fetch up to $4.6 billion. The company's existing market cap is around $4.15 billion.
“I am hearing rumblings from inside Verizon that they are very serious about either Netflix or something similar,” Bibb said. Verizon CEO Lowell McAdam touched off speculation on the streaming video front when he told investors that the telco considered making a run for when it was up for sale this summer and autumn, noting that online video should and will be part of the company's strategy going forward. Verizon would provide would be outside of the markets where it offers FiOS TV, at least at first.
Reuters published a report that Verizon was working on a consumer streaming service to be offered in markets outside the FiOS footprint. The speculation then gained momentum with the rumour that the telco is in talks with the Redbox DVD rental kiosk company to partner on the service.
If true, Verizon is clearly looking for the same benefit that DISH Network is tapping via its Blockbuster acquisition: by having content partnerships and relationships already in place, pay-TV operators can eliminate much of the complexity (and, presumably, the cost) involved in populating a movie-streaming service.
“We continue to look at alternatives,” McAdam said at a UBS investor conference. It's under speculation, however, whether the tie-up would be a smart move for the telco. Netflix, once an investor's dream with a 24-million-and-exponentially-growing subscriber base and status as the No. 1 VOD provider in the country, has fallen on hard times in the wake of an ill-though-out rate hike that went into effect 1 September, alienating its customers and prompting a public apology from CEO Reed Hastings. To boot, escalating content acquisition costs, squeezed margins, a widely publicised fight with the Starz premium network and its recent acknowledgment that it has put its ambitious international expansion plans on hold thanks to financial worries have all left investors wondering if the company will recover. Netflix' stock has fallen 57 percent this year, from an all-time high in the summer of $300+ per share.
Also worrying is the fact that Netflix rival put itself up for auction, and despite dangling two-year exclusivity rights for current-season programming from the most popular content companies, like FOX and Disney, had to take itself off the block after failing to secure what it felt was a fair bid. Nonetheless, the perceived need to get into the OTT game amid cord-cutting fears may outweigh all of this.
Tech Crunch cites unnamed sources in reporting that Verizon is hoping to launch a service in May outside of its FiOS IPTV footprint, with a scheme to charge a monthly fee for a bucket of credits that can then be used for game and video rentals. It will also be multiplatform, the report says, targeting the Web, smartphones, Google TV, gaming consoles like Xbox, and Roku. And besides, if DISH can find a way to revitalise a barely breathing brick-and-mortar DVD rental giant, anything may be possible.