Video & Audio|January 6, 2012| Author: James Johnson|Tags: , ,

Yahoo Looks To Potential Netflix Acquisition, But Is It The Right Move

Yahoo Netflix Partnership

Rumors began circulating on Thursday that Yahoo! Inc., could make a grab for movie and TV streaming service Netflix, a buyout that would concede a good chunk of the online video and TV streaming space to the company.

The rumor started when new Yahoo CEO Scott Thompson hinted at a change to the company’s content and media structure.

In response to Thompson’s comment Piper Jaffray’s Gene Munster told CNBC:

 “I wouldn’t be surprised if there were some big moves on the content side, to make Yahoo! a more compelling destination for consumers” while he added “In the back of my mind, I wonder if they buy Netflix, that would make a lot of sense.”

And Munster is correct, the Netflix acquisition from a user engagement and original content programming standpoint would make a lot of sense. As we are already aware Netflix managed to stream over 2 billion hours worth of TV shows and movies to customers in the last quarter and that type of engagement could mean big cross-promotional opportunities for Yahoo.

Current Netflix CEO Reed Hastings has said on various occasions that Netflix must purchase original programming in order to thrive and Yahoo could be just the company to create that programming. Yahoo for example could integrate many of their upcoming online only video programs into the Netflix system, immediately targeting approximately 25 million subscribers. Yahoo recently built a new production studio which could also be used to create more programming as demanded by Netflix customers.

The Netflix acquisition could also have another positive effect for Yahoo, allowing the company to enter the living room. Both Apple and Google have attempted to penetrate the “Smart TV” market through individualized set-top boxes however the level of customer acquisition they had hoped for has been slow. By acquiring Netflix Yahoo engineers could offer system wide updates that integrates Yahoo video services, search and other features directly to paying Netflix subscribers. Why create a set-top box when your primary system already operates on hundreds of different devices?

It’s still unclear how much water the Yahoo buyout rumor holds but investors appear to like the idea, shares at Netflix shot up 11-percent on Wednesday following their 2 billion hour market and any chance to increase that number while offering more original content that can be produced on the cheap will likely bring similar investor based results.