$NFLX has been one of the hottest tickers this year, with enormous, compounding growth, and seemingly limitless potential. Its business represents the shift from traditional movie rentals (a la Blockbuster) to on-demand distribution through the cloud - naturally many investors are intrigued by the growth and see the business model as the dominant strategy going forward.
That being said, there has been a lot of discussion these last few weeks around the viability of Netflix, particularly due to both bandwidth requirements and potential caps coming from the cable providers, as well as concerns over pricing for content distribution, which Netflix has traditionally gotten on the cheap. A great post by Whitney Tilson outlines these concerns in great detail. The buzz in the market was the direct response taken by Reed Hastings, CEO of Netflix, which can be found here.
Today, the buzz on the street is Netflix as an acquisition target, specifically for $AAPL, another high-flyer who has been fueling innovation in the consumer electronic/PC market for the better part of the last decade. The iPhone, iPad, iPhone, and iTunes phenomenon has really been a modern marvel, and a brilliantly played chess game by Steve Jobs and Co. to own the ecosystem.
As Gleacher & Company’s Brian Marshall figures, $NFLX solves a problem for $AAPL, particularly library coverage and large distribution. The iTunes model was originally based on ownership of MP3 and proprietary video content, as a replacement for CD and DVD sales - but more recently, the company has taken on the rental approach with TV and Movies. Netflix on the other hand, has always been about rentals and has built a large streaming video business that is supposedly 5x larger than the iTunes business. Additionally, $AAPL has already proven an appetite to acquire businesses with the all-you-can-eat model, with the acquisition of Lala last year.
Of course, assuming $AAPL even wants to go the acquisition root to enhance the iTunes TV and Movie business (which may be a stretch on its own), $AAPL has multiple options available including a wholesale purchase of $BLOAQ.PK (BlockBuster Video) which is shuttering stores left and right while building an online business to compete with $NFLX and $AMZN VOD.
Despite bankruptcy, Blockbuster could be a cheap and useful buy for $AAPL as it still has excellent relationships with the major TV and Movie content partners (they still get video faster than anyone else in the industry), has a brand that could be leveraged potentially, and has built a reasonable streaming business based on the iTunes a la carte model, as apposed to 'all-you-can-eat'. Blockbuster CEO Jim Keyes also has targets set on $NFLX. Additionally, looking at acquisition costs - $AAPL would probably need to spend less than $1Bn to acquire Blockbuster (bankruptcy was over $980M in debt that was restructured to $100m with the help of Carl Icahn), whereas for $NFLX, they'd need to go to $10Bn+.
Given the risks associated with Netflix over the next few years, particularly due to saturation of the market by #AMZN, $HULU, and others, I'd be considering the Blockbuster assets pretty seriously.