NFLX + TIVO

You heard it here first... I'm calling it: Tivo and Netflix are going to merge. No, they have not announced anything, I'm just making a projection.

Here's why I'd be looking at this if I was on either of their boards:
- Tivo needs content for their subscription service, otherwise they get commoditized by device manufacturers. The online guide stuff just is not that strategically valuable for them. Sure, they could get content through any number of partnerships, but they would be able to offer a really tight subscription package if they had Netflix's subscribers
- getting Netflix's distribution capability would diversify Tivo away from hardware, and it would be a great upsell vehicle for selling devices
- Netflix could really take advantage of Tivo's platform and distribution capability for movies. Netflix has content (kind of) but doesn't have online downloads (yet, but it is inevitable). Even if they do have downloads they are slugging it out with Blockbuster and Wal-Mart. Blockbuster can tie in their retail presence, and Wal-Mart... well, they are Wal-Mart.
- Tivo's current valuation is around $350m, Netflix is $830m, but I expect Netflix to see about 1/3 of their cap lopped off as they react to the market. Matching Blockbuster's pricing alone will take about $4m of revenue annually, plus added marketing costs, and increased spending to get movie downloads online faster.
- Tivo also has some interesting intellectual property for PVRs
- culturally, it would appear that there is a good fit between the 2 companies

Together, these two companies would be a lot more valuable than just the parts put together.

Disclaimer: we're not an investor in either company, never considered it, and I don't own stock in either company personally. I have a Netflix subscription but I just signed up for Blockbuster's 2 week free trial, and I cancelled my Tivo subscription last year (although I did think about buying a new Tivo now that the dropped the price to $100). I did know a guy that worked at Tivo a long time ago.

Comments

[matt]

One other point you missed - Michael Ramsey sits on the board of Netflix I believe.

[jeff]

there you go, it's all coming together... when can I get my 6% transaction fee?