The two companies are already closely aligned. Netflix chose Microsoft as your advertising partner for a new ad-supported subscription service. Microsoft Chairman Brad Smith is also on Netflix’s board. Part of the rationale for a deal is that Microsoft wants to offer a multi-device video game streaming service.
Netflix has its own plans when it comes to gaming. In 2022, the company co-led by Reed Hastings snapped up developer Spry Fox, its sixth in-house studio. Becoming part of the Microsoft empire would boost those ambitions. A bundle with streaming TV and gaming together is not hard to imagine.
With a market value 13 times that of Netflix, as of early December, Microsoft can pay $1.8 trillion for the streaming company. However, it would be difficult to find significant cost savings. And after taxing the $8 billion in operating profit analysts project for Netflix in 2024, the implied return on investment would be just half its 8% weighted average cost of capital, according to Morningstar analysts.
Even as the buzz grows, Microsoft has been busy fighting the FTC to finalize the Activision purchase since December 8, when the company received an argument from the regulator seeking to break up the $69 billion purchase.
