Recent headlines detailing the loss of subscribers at Netflix combined with the streaming giant’s advertising deal with Microsoft to launch an ad-supported subscription tier in 2023 has led to a new wave of speculation as to whether Netflix might be willing to sell. Some analysts wonder if Microsoft could be a potential buyer.
It’s easy to see why the idea captured the imagination. Microsoft already runs Game Pass, often referred to as the “Netflix of gaming,” with a similar subscription model and pay-per-view presentation. Netflix, for its part, has recently dabbled in game publishing and has made over 20 mobile games available for free to paid subscribers.
If you combined the two, it would be effectively unbeatable at a consumer level. Even if a bundled subscription only included some Netflix content combined with some Game Pass library for one competitive price, with the ability to stream it all straight to your phone or tablet via the cloud, that would be an easy choice for anyone’s entertainment budget.
“Microsoft has long been looking for a way to get back into the mainstream space – beyond Xbox, that is. Netflix provides exactly that and perfectly complements Xbox to boot,” wrote tech analyst Ben Thompson in a Stratechery update this week.
It makes sense on paper, but anyone actively betting that it will happen seems to be overreacting, due to what else is going on with Microsoft right now.
Microsoft, based in Redmond, Washington, is in the process of finalizing its acquisition of Activision Blizzard for $68.7 billion. If this deal goes as planned and on schedule, Microsoft will become the world’s third-largest video game company (behind Sony and Tencent) and the largest video game company in North America.
“Of course, if you had asked me last year, I wouldn’t have thought that Microsoft could or would buy Activision Blizzard.”
While the Activision Blizzard deal looks set to go off without a hitch, it’s important to note that the company is what a real estate agent might call a “superior fixer.” Activision Blizzard publishes some of the most valuable franchises on the planet, including Call of Duty and Warcraft, but both halves of the company have had separate but major internal issues over the past few years.
For Activision, it was primarily its internal labor issues, which led to one of its internal quality assurance teams making video game history by successfully unionizing. Blizzard is widely considered to be in significant decline, accelerated by multiple recent revelations about its extremely toxic workplace culture.
When Microsoft takes over the reins of Activision Blizzard, its first move will have to be a significant and prolonged period of reorganization and cleanup, or the acquisition simply won’t be worth it in the long run. Unlike Microsoft’s other recent high-profile video game acquisitions, this isn’t a situation where Microsoft can just change the names on all the stationery and walk away. It’s going to take a lot of hard work to get Activision Blizzard where it needs to be.
Moreover, as Thompson points out in Stratechery, the recent deal with Netflix already makes Microsoft one of the biggest advertising companies in this space, giving Microsoft access to what is potentially a captive audience of millions. . If Netflix’s ad-supported level creates any kind of audience, Microsoft stands to benefit immensely from this partnership.
This suggests that Netflix is currently valuable to Microsoft as an independent partner, as it enables expansion into a new area for the company. It doesn’t make sense to me that Microsoft is compromising this in the near future.
We’re thrilled that Netflix has chosen Microsoft as their ad technology and business partner. We want publishers to have longer-term viable ad monetization platforms, so more people can access the content they love wherever they are. https://t.co/QmPszxJTOf
Finally, Netflix runs on Amazon Web Services. Microsoft isn’t traditionally too upset about working with companies that are seemingly competitors, like how happy it is to release Minecraft on Sony and Nintendo platforms.
It’s still hard to imagine a version of a theoretical acquisition of Netflix by Microsoft where the first task isn’t to shift the entire effort to its own Azure cloud service. It’s unclear how long that would take, but it would add a lot of expense to the acquisition beyond Netflix’s asking price – its market cap is close to $100 billion – with the non-zero possibility of it sinking. the whole deal.
Between these three factors, it seems to me logistically impossible for Microsoft to open another front in the content wars at this time. There’s still a lot going on with its latest major acquisitions, the Netflix deal has a lot of ramifications in and of itself, and buying Netflix would have a lot of attendant complications that even a Microsoft-level company doesn’t really need in this moment.
Of course, if you had asked me last year, I wouldn’t have thought that Microsoft could or would buy Activision Blizzard. A theoretical acquisition of Netflix would be significantly more expensive than this deal, but that doesn’t make it impossible, especially if Netflix’s stock price sees another sharp drop.
For now, though, I suspect that if Microsoft is in the direct market for any streaming video service, it would be taking on something smaller than Netflix, and it wouldn’t be making that move for the foreseeable future.
